Karnataka High Court: Finance Firms Cannot Hide Stolen Gold Behind Loan Agreements
The Karnataka High Court has delivered a landmark judgment, asserting that finance companies have no legal right to obstruct police seizure of gold pledged with them if the gold is alleged to be stolen property. This ruling underscores the court's commitment to prioritizing the rights of original owners over commercial interests in cases involving criminal activity.
Court Rejects Contractual Defenses for Stolen Property
In a decisive order dated February 4, Justice Suraj Govindaraj firmly stated that a pledgee or financier holding alleged stolen property cannot object to seizure based on contractual security interest, commercial hardship, or anticipated financial loss. The court emphasized that stolen property does not gain immunity from seizure simply because it has been involved in commercial transactions.
Justice Govindaraj declared, "A pledgee or financier holding alleged stolen property cannot object to seizure on the basis of contractual security interest, commercial hardship, or apprehended financial loss. Stolen property does not acquire immunity from seizure by being routed through commercial transactions."
Police Empowered and Duty-Bound to Seize Stolen Gold
Further clarifying the legal framework, the court highlighted that investigating officers are not only empowered but, in appropriate circumstances, duty-bound under Section 106 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023, to seize gold articles suspected or alleged to be stolen. The court affirmed that such seizures are proportionate, necessary, and protected by adequate statutory and judicial safeguards.
The court also noted that producing property in response to a statutory notice from the police does not infringe on the right to trade or violate the right to life or personal liberty under Articles 19(1)(g) and 21 of the Constitution. On the contrary, refusal to comply would amount to obstruction of justice, which enjoys no constitutional protection, Justice Govindaraj added.
Case Background: Theft and Pledging of Gold
The court issued this ruling while dismissing a petition filed by IIFL Finance Ltd, which sought to quash a notice from the Kengeri police under Section 94 of the BNSS. The notice demanded the production of various records and gold articles pledged by a couple, Ashwini and Ravi Naik, allegedly stolen from Karur Vysya Bank.
The case originated from a complaint lodged by Karur Vysya Bank, Kengeri branch, against its employee Ashwini. She was accused of offences under Sections 316(2) (Criminal Breach of Trust), 316(5), and 318(4) (Cheating) of the Bharatiya Nyaya Sanhita (BNS). The bank alleged that during surprise reappraisals in October 2025, Ashwini had removed genuine gold ornaments pledged by customers and replaced them with spurious articles, subsequently pledging the stolen gold with IIFL Finance Ltd to secure loans.
Arguments from Both Sides
IIFL Finance Ltd argued that as a secured creditor, it had advanced loans totaling Rs 73,01,222 to the accused, with gold ornaments pledged as security. The company contended that seizing the pledged gold would deprive it of security, hinder loan recovery, and violate its fundamental rights under Articles 19(1)(g), 21, and 300A of the Constitution. It emphasized that it had accepted the gold in good faith after due diligence.
In response, the bank's counsel maintained that the gold articles were stolen property belonging to its customers, and the bank had a legal duty to restore them. The police supported this view, stating that the finance company could not claim exemption from investigation, and without producing the gold, the investigation would be incomplete, preventing restitution to rightful owners.
Emotional and Economic Suffering of Original Owners
Justice Govindaraj highlighted the profound significance of gold in Indian society, noting that gold ornaments are not mere commercial items but represent matrimonial security, family heirlooms, emergency savings, and assets pledged during financial crises. The court observed, "The continued deprivation of such gold causes real and continuing suffering to the true owners, both economic and emotional."
The court stressed that the criminal justice system must focus on restoring property to rightful owners and vindicating their rights. Without producing the alleged stolen gold, investigations would be rendered sterile, prolonging the suffering of owners and hindering restitution.
Pledge Created Without Lawful Title is Void
The court firmly rejected the petitioner's argument that the pledged gold served as security for loan recovery. It ruled that a pledge created by a person without lawful title to the property is void against the true owner, and a pledgee cannot acquire better rights than the pledger. The petitioner's concerns about commercial prejudice are legally irrelevant at the investigation stage, the bench noted, adding that criminal procedure should not be subordinated to commercial convenience.
Justice Govindaraj warned that allowing finance companies to shield stolen gold from investigation would set a dangerous precedent, undermining criminal justice administration. The court directed IIFL Finance Ltd to produce the gold articles before the investigating officer for examination under Section 106 of the BNSS, ensuring compliance with legal requirements for attachment and verification.
