Finance companies cannot hide behind loans to keep stolen gold when police knock on their door: Karnataka High Court

Furthermore, the court noted in the order that production of property pursuant to statutory notice issued by the police to the finance company, does not infringe the right to trade, nor violates the right to life or personal liberty under Article 19 (1) (g) and Article 21. Justice Govindaraj said, “On the contrary, refusal to comply would amount to obstruction of justice, which enjoys no constitutional protection.”

The court held thus while dismissing a petition filed by IIFL Finance Ltd, seeking to quash the notice issued by the Kengeri police, under Section 94 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), calling upon the company to produce various records and the gold articles pledged by a couple, Ashwini and Ravi Naik, which are alleged to have been stolen from Karur Vysya Bank.

Background of the case

A complaint was lodged by Karur Vysya Bank, Kengeri branch, against its employee Ashwini, who had been working there since 2022, for offences punishable under Sections 316(2) (Criminal Breach of Trust), 316(5) and 318(4) (Cheating) of the Bharatiya Nyaya Sanhita (BNS).

The bank’s complaint stated that during surprise reappraisals conducted on October 6 and October 7, 2025, serious irregularities were detected in gold loan accounts managed by Ashwini.

It was allegedly found that she had indulged in acts amounting to theft and criminal breach of trust, by clandestinely removing genuine gold ornaments pledged by customers with the bank and had replaced them with spurious articles. It was also alleged that the said gold was then pledged with IIFL Finance Ltd to secure gold loans.

Petitioner’s arguments

Petitioner IIFL Finance Ltd, on receiving the notice by the bank, approached the court. It was argued that it is a secured creditor and has advanced loans aggregating to Rs 73,01,222 to the accused, against which gold ornaments were pledged as security.

It was said that if the pledged gold articles are seized by the police, the company would be divested of its security and rendered remedy less, thereby frustrating its right to recover the loan amount from Ashwini and her husband.

The company also pointed out that it had accepted the pledged gold in good faith and disbursed the loan amounts only after conducting due scrutiny and verification. Thus the continuance of the notice issued by the police under Section 94 of the BNSS would amount to a gross abuse of the process of law.

Finally, the company said if the seizure of gold pledged with it was permitted it would violate its fundamental right to carry on trade and business under Article 19(1)(g), the right to life and livelihood under Article 21, and the constitutional protection of property under Article 300A of the Constitution of India.

Bank’s arguments

The counsel for the bank, which lodged the complaint, contended that the gold articles pledged constitute stolen property, belonging to its customers, and the bank is under a legal obligation to restore the gold to its customers.

Further, the finance company, having received stolen goods and advanced loans based on such stolen property, is not entitled to any protection.

The police also supported the complainant bank by submitting that the petitioner cannot claim any exemption from the investigative process. If, upon investigation, the gold articles are found to be stolen property, they are liable to be restored to the rightful owner. Since Ashwini and her husband did not have a lawful title over the gold, they could not have pledged it with the petitioner company.

The police will not be able to establish the factum of theft without the petitioner producing the gold articles before it, and thus, the investigation would be rendered incomplete.

Loss of gold causes continuous suffering

Justice Govindaraj emphasised that in the Indian social context, gold ornaments are not mere commercial commodities but they represent matrimonial security, family heirlooms, emergency savings, and assets pledged in times of acute financial distress.

The court in the order said, “The continued deprivation of such gold causes real and continuing suffering to the true owners, both economic and emotional. The criminal justice system, while safeguarding procedural fairness, cannot lose sight of the fact that investigations into such offences are ultimately directed towards the restoration of property to its rightful owners and the vindication of their rights. If the gold articles alleged to be stolen are not produced before the investigating officer, the investigation would be rendered sterile.”

Following which, the court opined, “The identity of the gold, its correspondence with the stolen articles, and the chain of custody cannot be established through documents alone. Without such verification, the suffering of the true owners would be prolonged, and the possibility of restitution effectively foreclosed.”

Pledge created by accused cannot defeat original owner’s rights

The court in its order underscored that a pledge created by an accused person who had no lawful title to the gold cannot defeat the rights of the original owner, nor can it impede a lawful criminal investigation.

Justice Govindaraj said, “The investigative necessity to verify the identity, origin, and ownership of alleged stolen property, and to enable eventual restitution to the true owners, prevails over contractual or financial interests of the person in possession.”

The court noted in the order, “Criminal law does not recognise contractual status as a shield against investigation. The moment property in possession is alleged to be stolen, the nature of the possession ceases to be purely civil or commercial and becomes subject to criminal scrutiny.”

Security for recovery of loan granted

The court refused to accept the petitioner company’s contention that the pledged gold constituted security for the recovery of its loan dues. The bench said, “A pledge created by a person who had no lawful title to the property is void against the true owner. A pledgee cannot acquire a better right than that possessed by the pledger.”

Further, the court recorded “The petitioner’s apprehension that production of the gold would result in loss of security or commercial prejudice is legally irrelevant at the stage of investigation. Criminal procedure is not subordinated to commercial convenience.”

The bench in its order pointed out that if the company was allowed not produce the gold articles pledged with it, then it would ‘set a dangerous precedent’.

Justice Govindaraj said, “If stolen property could be immunised from investigation merely by being routed through financial institutions, such an outcome would strike the very root of criminal justice administration and cannot be countenanced by this court.”

Accordingly, the court directed the petitioner to produce the gold articles before the investigating officer and for the investigating officer to examine whether the gold articles produced are said to have been stolen, in compliance with the requirements of Section 106 of the BNSS for attachment.