Gold Loan Company Can't Keep Stolen Gold Pledged To It, Security Interest No Defence: Karnataka High Court

The Karnataka High Court has observed that a financial company offering loan based on pledged stolen gold cannot defeat the lawful title of the owner whose gold is stolen or impede investigation into FIR pertaining to such alleged acts.

The court was hearing a plea by IIFL Finance Limited seeking to quash a notice issued under Section 94 (Summons to produce document or other thing) BNSS by the police in relation to theft of gold which had been pledged by the accused to the petitioner for securing a loan.

Justice Suraj Govindraj in his order observed Section 94(1) states that whenever a Court, Police officer forms an opinion that the production of any document, electronic communication, or other thing is necessary for any investigation, inquiry, trial or other proceeding under BNSS, it can issue a written order requiring the person in whose possession or control such material is believed to be, to produce the same.

The court said that the provision is deliberately worded in broad terms to ensure that investigation into cognisable offences is not thwarted by technical objections or premature assertions of civil or contractual rights. The court thus said that notice issued under Section 94 is directly traceable to the need to investigate whether the gold pledged with the Petitioner is the same gold allegedly stolen from the customers of Respondent No.2. (bank).

The court observed that the Section 94 notice sough details of the pledge transactions, loan account particulars, CCTV footage capturing the act of pledge, and production of the gold articles themselves. The court said these details are very much required for investigation and cannot be "characterised as excessive or extraneous".

"At this stage, it bears emphasis that the true victims of the alleged offence are the customers of Respondent No.2, whose gold ornaments, often accumulated through years of savings, inheritance, or familial hardship, are alleged to have been surreptitiously replaced or misappropriated. Gold ornaments, particularly in the Indian social context, are not mere commercial commodities; they frequently represent: matrimonial security, family heirlooms, emergency savings, and assets pledged in times of acute financial distress. The continued deprivation of such gold causes real and continuing suffering to the true owners, both economic and emotional," the court said.

The court also observed that if the alleged stolen gold articles are not produced before the investigating officer, the investigation would be rendered sterile as the identity of the gold, its correspondence with the stolen articles, and the chain of custody cannot be established through documents alone.

It said that the petitioner's apprehension that production of the gold would result in loss of its security interest is, at this juncture, "misplaced". It observed that the Section 94 notice does not order seizure, attachment, or disposal but merely seeks production for the purpose of investigation.

"More importantly, the Petitioner's asserted security interest, even if assumed to exist contractually, cannot override the superior claim of the true owner of stolen property. 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," the court said.

A complaint was lodged against an employee of Karur Vysya Bank who was working as Customer Service Officer/Jewellery Loan Officer. During a surprise reappraisal a serious irregularities were detected in relation to gold loan accounts handled by the employee. It was alleged that she had indulged in acts amounting to theft and criminal breach of trust, by clandestinely removing genuine gold ornaments pledged by customers and replacing them with spurious articles.

An FIR was registered under Sections 316(2)(criminal breach of trust), 316(5) and 318(4) (cheating) BNS against the accused. The accused and her husband had approached Petitioner company multiple times and availed gold loans. Subsequently the police on 08.10.2025 issued a notice under Section 94 BNSS calling upon the Manager of the Petitioner-institution to furnish bank account statements and KYC documents pertaining to accused in connection with the FIR.

It was asserted that only upon receipt of the said notices did the Petitioner become aware of the alleged fraudulent activities of the accused. The petitioner contended that if the pledged gold articles are seized by the police, the Petitioner would be divested of its security and rendered remediless, thereby frustrating its right to recover the loan amount. Against this the petitioner approached the high court.

The court said that where in the course of investigation into cognisable offences involving theft and criminal breach of trust, gold articles alleged to be stolen are found to have been pledged with a third party, such gold constitutes the subject matter of investigation and falls within the expression “other thing” under Section 94(1) BNSS.

Thus an IO is statutorily empowered to issue a notice requiring production of such gold and connected records from the person in whose possession the same is believed to be. Further, a section 94 notice merely facilitates investigation by requiring production and it does not, by itself, amount to seizure, attachment, or adjudication of proprietary rights.

"Consequently, the recipient of such notice cannot claim any legally sustainable grievance on the basis of apprehended loss of security interest, commercial prejudice, or competing civil claims," the court said.

The plea was dismissed.

Case title: IIFL FINANCE LTD. v/s STATE OF KARNATAKA & OTHERS

WRIT PETITION NO. 31057 OF 2025

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