Gold pledged for loan stolen in bank robbery: Borrower receives value of gold plus Rs 88,362 for making charges and stones, compensation of Rs 40,000: How he won the case

Imagine this case: you have taken out a loan against your gold. That gold is in the bank. Then, in a bank robbery, his gold is stolen. Who is responsible for the loss? Who pays? In one such case, a man challenged the bank and won the case.The issue was finally considered by a consumer commission, which issued a ruling on how the value of jewelry lost while in the custody of a bank should be settled.So what happens if gold jewelry pledged against a gold loan is stolen from the bank? For a borrower, the loss may raise a more important issue than simply recovering the value of the gold. Should the bank pay only for the metal or should the compensation also cover the manufacturing costs and the value of the stones?A resident of Tumkur in Karnataka faced this very situation and decided to challenge the bank’s agreement.

What exactly happened?

The Tumkur resident had opened two gold loan accounts at a Canara Bank branch in August 2017. He pledged two gold items against each loan account, according to an ET report. The jewelry promised in the first account weighed 120.80 grams, while those in the second account weighed 133 grams. He borrowed Rs 1,50,000 for each account.The jewelery remained in the custody of the Canara Bank branch but was later stolen, according to the bank’s information, the report said. After discovering that the gold items had been stolen, the bank wrote to the borrower on July 26, 2018, offering to pay him the value of the gold.

The borrower, however, requested an additional amount to cover the costs of manufacturing the jewelry and the value of the stone. He claimed 20% for making charges and 3% for the value of the stone, requesting an additional payment of Rs 88,362.He then approached the District Commission, alleging deficiencies in service and unfair business practices.Jayesh H, co-founder of Juris Corp, told ET that determining appropriate compensation in such cases can be a matter of debate, particularly on whether the borrower should receive market value, replacement value or the actual cost incurred by the pledgor.“The bank’s responsibility in these cases is almost absolute. With regard to adjudication, collection of charges, etc., although not from the perspective of replacement value, it is equally applicable to the costs incurred by the debtor.”He said the plaintiff should be in a position to establish the total costs incurred in relation to the jewellery.

What did the District Commission rule?

After hearing the case, the District Commission admitted the complaint in July 2020.It directed the bank to pay the additional amount claimed by the borrower, along with Rs 30,000 as compensation and Rs 10,000 towards litigation expenses, within 45 days.The commission noted that the borrower had alleged that the bank had not paid 20% of the manufacturing charges and 3% of the value of the stone and had refused to settle the remaining amount.

After considering the facts and circumstances, it ordered the lender to pay additional Rs 88,362, along with 9% interest from August 29, 2018.

The bank challenges the ruling

The bank then challenged the District Commission’s decision before the Karnataka State Disputes Redressal Commission.Canara Bank argued that it was not responsible for paying the additional amount, claiming that there was no deficiency in the service as it had already paid the value of the 85 grams of gold.“The plaintiff, without any document, demands payment of 20% of the manufacturing costs and 3% of the value of the stone, the same cannot be paid. The net value of the gold has already been paid, but the District Commission did not appreciate such facts and accepted this appeal,” he said.The bench further argued that the District Commission’s order was not legally maintainable and that there had been no deficiency in service. Therefore, he asked the State Commission to set aside the order of the District Commission.

Why the State Commission ruled in favor of the borrower

The Karnataka State Disputes Redressal Commission rejected Canara Bank’s appeal and upheld the District Commission’s order. “We are of the opinion that the order passed by the District Commission is in accordance with the law,” the State Commission said.The commission stressed that when jewelry held by a bank is lost due to robbery or robbery, the bank has the duty to settle its value at the current exchange rate.

This value, he said, should include both manufacturing costs and the value of the stones.The State Commission also held that the bank cannot demand an invoice as proof that manufacturing charges had been imposed on the jewellery. He noted that the manufacturing charges apply to gold ornaments naturally and are therefore payable.“If the ornaments in the custody of the Appellant Bank were lost due to theft or robbery, the Bank is required to settle the value of the Gold Ornaments at the prevailing rates, which includes the manufacturing charges and also the value of the stone,” the Karnataka State Disputes Redressal Commission said.Consequently, the Canara Bank branch was ordered to pay the borrower: