Orissa high court quashes gold auction by bank for violating loan terms

Cuttack: The Orissa high court has quashed a gold auction conducted by a bank, observing that it violated both the contractual redemption period and statutory safeguards under Section 176 of the Indian Contract Act, 1872.Justice S K Panigrahi, who was hearing a petition filed by Mamina Mallick, held that the bank acted hastily and in breach of its own loan terms when it auctioned off her pledged gold jewellery just five days after the loan maturity date, and two days after she sought time to repay.“The bank’s own terms recognize that sale is not the immediate next step on the date of maturity; rather, redemption is expected for 30 days post-maturity, after which consequences ensue,” Justice Panigrahi noted in the Oct 17 ruling.Mallick had pledged 16.39gm of net gold at a govt bank’s Choudwar branch to secure a Rs 74,000 agricultural loan on Jan 12, 2024, with maturity a year later. However, despite her representation, dated Jan 15, seeking four more weeks to repay and offering to pay interest, the bank went ahead with the auction on Jan 17.“Proceeding to sale two days later was precipitous,” the court observed, adding that the bank could not, ‘consistent with its own terms and Section 176, extinguish the petitioner’s right of redemption within the 30-day window.”

Rejecting the bank’s defence that the account was classified as NPA under RBI norms, Justice Panigrahi said, “That norm governs asset classification and provisioning; it does not by itself authorise accelerated realisation... contrary to a contractually assured redemption period.”The judge also pointed to several flaws in the auction process itself. He noted that the bank failed to disclose reserve prices, did not permit the petitioner’s presence and conducted the auction ‘packet-wise’ in the branch manager’s room with limited participation.

“The sale process suffered from opacity and exclusion, falling short of fairness and transparency,” Justice Panigrahi said.Allowing the petition in part, the court ordered the auction to be set aside. It directed the bank to return the jewellery if it is still available. If not, the bank must pay Mallick the higher of either Rs 1,45,000 (alleged auction value) or the market value as of Jan 17, 2025, as determined by a govt-approved valuation expert, along with 6% interest.