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Banks Can Retain Pledged Gold Till All Dues are Cleared: HC

The Kerala High Court on Wednesday held that gold pledged for loan could be retained  by a bank even if the loan is repaid, when the customer has another loan is pending with the same bank. However, the court made it clear that banker’s lien will not apply to gold entrusted to the bank for safe custody in a locker.

Justice V Chithambaresh passed the order while disposing of a petition filed by Nakulan, of Kollam, seeking a directive to Canara Bank to release the gold ornaments pledged on the petitioner clearing only the gold loan. He said that he had taken a personal loan of `25,000 in January 2012. No security of any sort was obtained at the time of transaction.

He also availed a gold loan of Rs. 85,000 in May 2012 by pledging 46.7 grams of gold. The petitioner said that he was willing to clear the gold loan in its entirety and so, the bank is bound to release the gold ornaments without retaining them as security for the personal loan. However, the bank submitted that the gold ornaments cannot be released without the petitioner discharging the entire liability. The bank relied on section 171 of the Indian Contract Act to exercise its right of lien and retain as security the gold ornaments pledged for the amount due from the petitioner.

The court held that a bank has a general lien over all forms of security, including gold ornaments, deposited by or on behalf of the borrower in the ordinary course of banking business for the balance due from him. The bank has a further right to sell the securities, like the gold ornaments, and utilise the proceeds in discharge of the liability due from the borrower in respect of other loans.

The court further permitted the petitioner to repay the amount due towards the personal loan in six equal monthly instalments, in which event the sale of the gold shall be deferred.

Article referred: http://www.newindianexpress.com/cities/kochi/Banks-Can-Retain-Pledged-Gold-Till-All-Dues-are-Cleared-HC/2014/01/09/article1990749.ece

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