December 24, 2025 : The Delhi State Consumer Disputes Redressal Commission has dismissed an appeal filed by Kotak Mahindra Bank Ltd., affirming that the Bank acted in deficiency of service by auctioning a borrower’s pledged gold jewellery without contractual authority. The State Commission upheld the order of the District Consumer Disputes Redressal Commission, holding that the auction was legally unsustainable as the governing loan document did not permit such action.
The Bench, comprising Justice Sangita Dhingra Sehgal (President) and Ms. Bimla Kumari (Member), found no infirmity in the impugned order dated November 6, 2023, and declined to interfere with it.
The complaint was filed by Mrs. Sarmila Sharma, who had availed a gold loan of ₹77,000 from Kotak Mahindra Bank on February 29, 2020, for construction of her house. The loan was secured by pledging 35.90 grams of gold jewellery, valued at ₹1,04,103.41 at the time of mortgage. Between March 15, 2020, and January 15, 2022, the complainant repaid a total of ₹29,097.59 towards the loan.
According to Mrs. Sharma, she received a letter dated October 27, 2021, stating that failure to pay interest of ₹3,260 would result in the sale or auction of her pledged jewellery. She paid the interest amount on the same day. Despite this, the Bank allegedly auctioned the gold ornaments on March 30, 2022, without her knowledge. The complainant stated that she became aware of the auction only on July 26, 2022.
Aggrieved, she approached the District Consumer Commission alleging deficiency in service and unfair trade practice. She contended that no prior notice of auction was issued and that no information regarding the date, rate, or manner of sale was disclosed. She sought compensation for the loss suffered, mental harassment, interest, and litigation costs.
The District Commission noted that although the Bank had collected a copy of the complaint, it failed to file any written statement or contest the proceedings. As a result, the complainant’s version remained uncontroverted. Relying on settled consumer law principles that mandate transparency and prior notice in auction of pledged assets, the District Commission held the Bank guilty of deficiency in service. It directed the Bank to pay the value of 35.90 grams of gold at the prevailing market rate, after adjusting outstanding dues.
Kotak Mahindra Bank challenged this order before the State Commission, arguing that the complainant had accepted the terms of the sanction letter dated February 29, 2020, and that a loan recall notice dated February 17, 2022, had been issued due to non-payment. The Bank further claimed that the auction was conducted in accordance with law and that an excess amount of ₹9,357.17 remained after adjustment of dues, which the complainant was asked to collect.
After examining the record, the State Commission referred to Section 2(11) of the Consumer Protection Act, 2019, which defines “deficiency” to include any fault, omission, negligence, or deliberate withholding of relevant information by a service provider. The Commission observed that while a loan recall notice had been issued, the sanction letter governing the loan did not contain any clause authorising auction of the pledged jewellery in the event of default.
In the absence of any contractual provision permitting auction, the Commission held that the Bank failed to establish any legal basis for selling the pledged ornaments. It further noted that the borrower was not informed of essential auction details, including the date and rate of sale, which amounted to withholding of relevant information.
Agreeing with the findings of the District Commission, the State Commission held that the Bank’s conduct clearly amounted to deficiency in service. Finding no illegality or procedural irregularity in the impugned order, it dismissed the appeal filed by Kotak Mahindra Bank Ltd. and upheld the directions issued by the District Commission.
The ruling reiterates that banks must act strictly within the terms of the loan agreement while enforcing security interests and that auction of pledged assets without contractual authority or due notice violates consumer protection law.
Cause Title: Kotak Mahindra Bank Ltd. vs. Mrs. Sarmila Sharma
Case No.: FA/191/2024
Coram: Justice Sangita Dhingra Sehgal (President) and Ms. Bimla Kumari (Member)
