Manappuram Finance auctioned man’s gold during pandemic; ordered to refund market value, pay Rs 25,000

“It is right to direct the appellant (Mannapuram Finance Limited) to pay the amount equivalent to the prevailing market value of the gold as on the relevant date to the respondent (Nagesh B R) after obtaining the arrears payable by the respondent towards the interest of the gold loan at the time of respective auctions, along with compensation of Rs 20,000 and litigation cost of Rs 5,000,” the commission said on June 10.

Auctioned gold during pandemic

• Mannapuram Finance had auctioned the gold within a short period when the entire world was affected by the Covid-19 pandemic, the commission noted.
• During this period, economic activities came to a standstill, and people across the world were facing financial distress and hardship.
• Hence, the Reserve Bank of India (RBI) issued certain guidelines to mitigate the financial stress faced by the borrowers, provided relief measures regarding loan repayment and directed financial institutions not to force people for loan repayment.
• As such, the appellant ought to have been granted reasonable additional time to regularise the loan instead of auctioning the gold.
• Anyhow, the gold was auctioned by the appellant, and the amount was adjusted against the loan amount of the respondent (Nagesh B R).
• The appellant issued a demand notice during the pandemic and auctioned the gold during that period, but they had not published an auction notice in any newspaper, which is the due procedure for the auction of gold.
• No documents were produced to show the outstanding loan amount of the respondent at the time of the auction, and for what amount the gold was auctioned.
• Since the gold has already been auctioned, the direction issued by the district commission for the return of pledged gold cannot be effectively implemented.

Borrower challenged gold auction

The case arose from a complaint filed by Hassan resident Nagesh B R, who had pledged gold ornaments weighing 31.3 grams on three different occasions in 2020 and availed loans totalling Rs 89,028 from Manappuram Finance.

According to the complaint, Nagesh had pledged 16.9 grams of gold for Rs 44,000 on December 16, 2020, a 9.8-gram chain for Rs 30,000 on July 13, 2020, and a 4.6-gram chain for Rs 15,028 on December 5, 2020.

He contended that although he received notices seeking payment of interest during the Covid-19 lockdown, he was Covid-positive at the time and was unable to make the payments.

When he visited the finance company’s branch on October 10, 2021, to clear the dues, he was informed that the pledged gold had already been auctioned on July 27, 2021.

After receiving no response to a legal notice issued in April 2022, he approached the consumer commission alleging a deficiency in service.

On June 12, 2023, the consumer commission in Hassan issued an order directing the return of the pledged gold.

Finance company defends action

Manappuram Finance admitted that the borrower had availed the loans and pledged the ornaments, but maintained that the auction was conducted only after repeated defaults in interest payments.

The company argued that notices were issued to the borrower before the auction and that he had also been informed by telephone.

It claimed the auction was carried out in accordance with the terms and conditions governing gold loan accounts.

Commission finds deficiency in service

• While examining the appeal, the state commission noted that the borrower had acknowledged receiving demand notices.
• However, it stressed that the lender could not ignore the extraordinary circumstances prevailing during the pandemic.
• The bench observed that economic activity had come to a standstill and borrowers across the country were facing severe financial distress.
• It also referred to relief measures introduced by the RBI to ease repayment burdens during the pandemic.
• Significantly, the commission found that the finance company had failed to produce evidence showing publication of auction notices in newspapers.
• It also noted that the lender had not furnished documents detailing the outstanding loan amount at the time of auction or the amount realised through the sale of the gold.
• The commission held that these shortcomings amounted to a deficiency in service.

Relief modified

The state commission, however, noted that since the gold had already been auctioned, a direction to return the ornaments would serve no practical purpose.

Modifying the Hassan district commission’s order, it directed Manappuram Finance to pay an amount equivalent to the prevailing market value of 31.3 grams of gold as on the relevant auction dates, after deducting the borrower’s outstanding dues.

The company was also directed to pay Rs 20,000 as compensation and Rs 5,000 towards litigation expenses. In the event of non-compliance, the amount payable towards the gold value will carry interest at 6 per cent per annum from the date of default until realisation.

The appeal was accordingly disposed of with modifications, reaffirming that lenders must strictly adhere to due process while enforcing recovery measures, particularly during exceptional situations such as the Covid-19 pandemic.