CUTTACK: In a significant ruling reinforcing borrower rights under pledge law, the Orissa High Court has set aside a bank conducted auction of pledged gold jewellery, finding the process to be in violation of both contractual obligations and statutory protections under section 176 of the Indian Contract Act, 1872.
Justice SK Panigrahi, delivering judgment on a writ petition filed by Mamina Mallick, held that the auction of her gold ornaments pledged under a sanctioned agricultural loan was conducted prematurely, ignoring the contractually assured 30-day post-maturity redemption window and lacking procedural transparency.
The bank’s own terms recognise that sale is not the immediate next step on the date of maturity; rather, redemption is expected for 30 days post-maturity, after which consequences ensue, Justice Panigrahi noted.
Mallick had pledged 16.39 grams of net gold for a Rs 74,000 loan sanctioned on January 12, 2024, with a maturity date of January 12, 2025.
Despite her written request on January 15, 2025, seeking a four-week extension and expressing willingness to pay interest, the nationalised Bank’s branch in Choudwar proceeded with the auction merely two days later, on January 17.
The court found this “precipitous” and contrary to law. “Irrespective of earlier reminders, the bank could not, consistent with its own terms and Section 176, extinguish the petitioner’s right of redemption within the 30-day window,” Justice Panigrahi ruled.
The bank’s reliance on RBI’s NPA classification norms was also rejected. “That norm governs asset classification and provisioning; it does not by itself authorise accelerated realisation... contrary to a contractually assured redemption period,” the court clarified.
Accordingly, the court quashed the January 17 auction and directed that if the jewellery remains “in specie”, it must be returned to Mallick upon payment of dues.
If already sold, the bank must refund either Rs 1,45,000 (as claimed sale value) or market value as on auction date, whichever is higher, with 6 per cent annual interest. All deductions from the sale towards other liabilities, such as housing loans, are to be reversed.
