Interest of institutional lenders can’t outweigh right of owner over stolen gold ornaments: Karnataka High Court

The interests of an institutional lender, however legitimate in the civil sphere, cannot outweigh the rights of the victims of crime who have lost their pledged gold ornaments, the High Court of Karnataka has said.

The court made the observations while dismissing a petition filed by IIFL Finance Ltd., which had questioned a notice issued by the Bengaluru city police asking the petitioner-company to produce the gold ornaments pledged by a woman, who was working with a private bank.

Stolen and pledged

The police had registered a case on a complaint lodged by Karur Vysya Bank, Kengeri branch, alleging that Ashwini, who was working as an assistant manager in the branch, had stolen some of the gold ornaments, pledged by the bank’s customers, by replacing them with duplicate ornaments. The bank had complained that over 3 kg of pledged gold ornaments were allegedly stolen by her.

During the probe, the police came to know that she and her husband had taken a gold loan from IIFL by pledging these allegedly stolen gold ornaments. The IIFL had given around ₹85 lakh to the couple based on the pledged gold ornaments.

Finding no merit in IIFL’s attempt to characterise itself solely as a “secured creditor” and thereby claim immunity from criminal investigation, the court said the 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,” the court observed.

Even assuming that the petitioner-company granted gold loan without knowledge of theft, such absence of knowledge does not elevate its contractual interest above the statutory power of investigation, or the proprietary right of the true owner of the gold ornaments, the court said.

“Stolen property does not acquire immunity by passing through a commercial transaction,” the court said, while pointing out that “criminal procedure is not subordinated to commercial convenience.”

Comply with notice

The IIFL is under a clear statutory obligation to comply with the notice issued under Section 94 of the Bharatiya Nagarik Suraksha Sanhita (BNSS) by the police and to produce the gold articles forthwith for the purposes of investigation and eventual restitution to the rightful owners, in accordance with law, the court made it clear.

If the investigating officer is satisfied that the gold pledged with IIFL are the ones stolen from the bank, seizure of those ornaments under Section 106 of BNSS would be not only lawful but proportionate and necessary, the court said while clarifying that the IIFL’s interest, if any, remains subordinate to criminal law imperatives and cannot be used to obstruct seizure of stolen property.