Bank Liable for Ensuring Security of Pledged Customer Assets: Ernakulam District Commission Holds Union Bank Liable For Deficiency In Service

Brief Facts of the Case

The complainants filed a case against Union Bank of India, alleging deficiency in service and unfair trade practices after failing to return their pledged gold ornaments despite their readiness to repay the gold loans. The bank initially informed the complainants that a staff member had stolen the gold and was now in police custody. The bank assured them that the gold or its market value would be returned upon repayment of the principal amount and interest up to a specified date. However, when the complainants attempted to close their loan accounts, the bank changed its stance, demanding additional interest beyond the agreed period and offering a lower compensation of Rs. 2,900 per gram of gold instead of returning the original ornaments. The complainants requested the bank to accept their loan repayments along with the agreed interest and return the gold ornaments they had pledged. The complainants, who had fully paid for the bank's services, sought the return of their gold ornaments or their equivalent value, along with Rs. 25,000 each, as compensation for the mental agony caused by the bank's actions.

Contentions of the Bank

The bank argued that the complainants were attempting to close their loan accounts unilaterally by only paying interest up to a self-determined cutoff date. Each complainant had taken out gold loans under separate agreements that required them to repay the principal amount with interest until full repayment. The bank offered two options: either repay the entire loan and retrieve the gold ornaments from the court or repay the loan and accept the market value of the gold. The complainants did not choose either option and did not settle their loan accounts, resulting in increased arrears. The bank denied agreeing to limit the interest calculation to the complainants' proposed date.

Observations by the District Commission

The District Commission observed that the bank failed in its duty to protect the gold ornaments pledged by the complainants, which resulted in the theft of the valuables. It was established that the complainants had approached the bank several times, expressing their willingness to repay the loan amounts with interest, which they believed would be calculated only up to November 2018 based on the bank manager's assurances. However, the bank later refused to honour this agreement and demanded interest beyond the agreed period. The Commission further noted that the complainants had acted in good faith, relying on the bank's promise to safeguard their pledged gold. The bank's inability to protect the ornaments constituted a clear deficiency in service. The Commission, therefore, held the bank responsible for the loss and ordered it to either return gold ornaments of equal weight to those pledged or pay the complainants the current market value of the gold.

The District Commission allowed the complaint and directed the bank to calculate the interest on the loan amounts only up to the first of November 2019, provided the complainants settled the principal and interest within 45 days from receiving the order.

Case Title: Muhammed Rafeeque N.K Vs. Union Bank Of India

Case Number: C.C. No. 20/281

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