A Shimla customer has been awarded around Rs 14.5 lakh after a consumer court ruled that a private bank acted unfairly when it declared his pledged gold “100 per cent spurious” following an unnotified internal audit.
According to The Indian Express news report, the Shimla District Consumer Disputes Redressal Commission ordered the bank to pay the market value of 103 grams of 22-carat gold (around Rs 14 lakh at current rates), plus Rs 30,000 as compensation and Rs 20,000 towards litigation costs, holding the lender guilty of deficiency in service and unfair trade practice.
What happened: Loans against gold, then a sudden ‘spurious’ tag
The case involves a borrower who pledged gold jewellery with the bank to secure three separate loans:
- Rs 3.98 lakh in 2022
- Another Rs 3.98 lakh in March 2023
- Rs 6.42 lakh in April 2023
Each time, the borrower said the jewellery was weighed and its purity checked by the bank’s own expert before the loans were sanctioned. The total outstanding loan amount stood at Rs 10.95 lakh, along with applicable interest, charges and taxes.
In July 2023, the bank suddenly informed the customer that a “subsequent verification” had found the pledged jewellery to be completely fake. It asked him to repay the entire outstanding immediately. The customer disputed this, saying any re-verification was done “behind his back” and without notice, and raised the possibility of tampering or replacement of the ornaments while they were in the bank’s custody.
He told the commission he was willing to repay the loan, but only if the bank returned the jewellery in its original condition after an independent verification.
Bank’s defence: Blames valuer, calls it fraud
The bank argued that its periodic internal verification, carried out by an empanelled assayer, had found the jewellery to be “100 per cent spurious”. It claimed the problem lay with the original valuer who had certified the gold at the time of loan sanction, and said it had even lodged a police complaint against that valuer.
The lender denied any deficiency in service and contended that the dispute involved serious allegations of fraud and complicated questions of fact that should be decided by a civil or criminal court, not in summary proceedings before a consumer commission.
The bank also rejected the borrower’s allegation that he had signed blank papers without being told the loan terms. It maintained that all terms and conditions were properly explained before he signed the documents.
What the consumer court found: No consent, no notice, RBI norms ignored
The consumer bench, comprising president Baldev Singh and member Nidha Sharma, closely examined the Reserve Bank of India’s (RBI) guidelines on gold loans. It noted that while RBI’s September 29, 2025 directions allow lenders to conduct periodic “surprise verification” of gold and silver collateral as part of internal audit, there are clear safeguards:
- The loan agreement must contain the borrower’s consent for such verification, including in their absence.
- This consent must be communicated to the borrower at the time of loan sanction.
- The commission found that the bank failed to prove that the loan agreement had such a clause or that the complainant had given consent for surprise verification of the pledged jewellery in his absence.
The order stated, “The subsequent impurity of gold jewellery items has been found behind the back of the complainant, for which the complainant cannot be held liable; otherwise also the opposite party was also under a legal obligation to follow the guidelines of RBI in this regard… which they clearly have failed to follow.”
The bench also pointed out that the same jewellery had been accepted as security on multiple occasions—in 2022, March 2023 and again in April 2023 when additional ornaments were pledged. Therefore, it could not be said that the bank had sanctioned the loans without checking the purity of the gold in the first place.
Why the customer cannot be held liable for ‘later’ findings
A key part of the ruling is that the alleged impurity was detected during a unilateral verification conducted without the borrower’s knowledge or presence. The commission held that the customer could not be made responsible for discrepancies found in such a process.
It emphasised that banks must follow RBI safeguards when verifying pledged gold, including obtaining and clearly communicating the borrower’s consent for surprise checks. Borrowers cannot automatically be held liable for findings from audits done “behind their back”, especially when the same ornaments were accepted repeatedly after purity checks by the bank’s own experts.
The September 23 order concluded, “The complainant has been able to prove his case against the opposite party so far, as to deficiency in service and unfair trade practice are concerned.”
The judgment makes it clear that banks need the borrower’s consent before verifying pledged gold and must take this consent when the loan is sanctioned. If an unnotified audit finds purity issues, banks cannot automatically hold the borrower responsible without following due process and RBI rules. Customers facing similar disputes can seek help through the National Consumer Helpline at 1915.