Security Interest No Defence To Withhold Allegedly Stolen Gold Pledged For Loan, True Owner’s Title Prevails: Karnataka High Court
Safiya Malik
The High Court of Karnataka Single Bench of Justice Suraj Govindaraj has dismissed a writ petition by a non-banking finance company challenging a police summons under Section 94 of the Bharatiya Nagarik Suraksha Sanhita that sought loan records and production of gold pledged with it, in an FIR into alleged theft of ornaments that were later pledged for a gold loan. The court held that lending against gold alleged to be stolen cannot, through a pledge, defeat the lawful title of the true owner or impede investigation, and directed the lender to produce the pledged gold before the investigating officer and respond to investigative queries. The matter has been ordered to be re-listed on 17 February 2026 to report compliance.
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IIFL Finance Ltd filed the petition challenging police notices issued in connection with an FIR arising from a complaint by Karur Vysya Bank, Kengeri Branch relating to alleged irregularities in jewel loan accounts. According to the complaint, during a surprise re-appraisal conducted on 6 and 7 October 2025, it was alleged that genuine gold ornaments pledged by customers were removed and replaced with spurious articles in 34 gold-loan packets, and that 17 jewel-loan packets were missing, with quantities, values, and loan amounts set out in the complaint. An FIR was registered for offences under Sections 316(2), 316(5) and 318(4) of the Bharatiya Nagarik Nyaya Sanhita, 2023.
The petitioner stated that the accused borrowers had earlier availed and repaid a gold loan in 2022, and that from 4 October 2024 onwards they obtained further gold loans by pledging gold ornaments; a tabular statement was produced reflecting aggregate disbursals.
On 8 and 9 October 2025, notices under Section 94 of the Bharatiya Nagarik Suraksha Sanhita, 2023 sought KYC and account records, pledge and loan particulars, and production of the pledged gold. The petitioner contended it was a secured creditor, objected to seizure without following Section 107 BNSS, invoked Articles 19(1)(g), 21 and 300A, and offered cooperation subject to the gold not being seized. Respondent No.2 contended the pledged articles constituted stolen property belonging to its customers and disputed the petitioner’s claim to protection over such gold.
The court recorded that the police notice sought specific materials connected to the alleged offence: “A perusal of the notice demonstrates that Respondent No.1 has sought: 17.8.1. details of the pledge transactions, 17.8.2. loan account particulars, 17.8.3. CCTV footage capturing the act of pledge, and 17.8.4. production of the gold articles themselves.” It then stated: “These requisitions are very much required for investigation and cannot be characterised as excessive or extraneous.”
On the persons affected by the alleged acts and the nature of the property, the court observed: “At this stage, it bears emphasis that the true victims of the alleged offence are the customers of Respondent No.2, whose gold ornaments, often accumulated through years of savings, inheritance, or familial hardship, are alleged to have been surreptitiously replaced or misappropriated.”
It recorded: “Gold ornaments, particularly in the Indian social context, are not mere commercial commodities; they frequently represent: 17.10.1. matrimonial security, 17.10.2. family heirlooms, 17.10.3. emergency savings, and 17.10.4. assets pledged in times of acute financial distress.” It further stated: “The continued deprivation of such gold causes real and continuing suffering to the true owners, both economic and emotional.”
On why production of the pledged gold was considered necessary for investigation, the court recorded: “If the gold articles alleged to be stolen are not produced before the investigating officer, the investigation would be rendered sterile.” It added: “The identity of the gold, its correspondence with the stolen articles, and the chain of custody cannot be established through documents alone.”
Addressing the financier’s objection that production would affect its interest, the court stated: “The apprehension expressed by the Petitioner that production of the gold would result in loss of its security interest is, at this juncture, misplaced.” It noted: “The notice issued under Section 94 does not order seizure, attachment, or disposal. It merely seeks production for the purpose of investigation.”
On competing claims over the property, the court recorded: “More importantly, the Petitioner’s asserted security interest, even if assumed to exist contractually, cannot override the superior claim of the true owner of stolen property.” It also stated: “A pledge created by an accused person who had no lawful title to the gold cannot defeat the rights of the original owner, nor can it impede a lawful criminal investigation.”
On the statutory basis for requiring production of pledged gold, the court stated: “Where, in the course of investigation into cognisable offences involving theft and criminal breach of trust, gold articles alleged to be stolen are found to have been pledged with a third party, such gold constitutes the subject-matter of investigation and falls within the expression “other thing” under Section 94(1) of the Bharatiya Nagarik Suraksha Sanhita, 2023.” It further recorded: “A notice issued under Section 94 BNSS merely facilitates investigation by requiring production and does not, by itself, amount to seizure, attachment, or adjudication of proprietary rights.”
The Court directed: “No ground being made out, the petition stands dismissed. it would be for the petitioner to produce the gold articles before the investigating officer and for the investigating officer to examine whether the gold articles produced are said to have been stolen from respondent No.2 and if so stolen, to comply with the requirements of Section 106 of the BNSS.”
“Further needless to say, that it would be for the petitioner to answer all the queries that are raised by respondent No.1 during the course of the investigation. Nearly three months having elapsed from the date of such directions, it would be for respondent No.1 to place all the above details on record within a period of 2 weeks from today. Though the petition is dismissed, re-list on 17.02.2026 to report for compliance.”
Advocates Representing the Parties
For the Petitioners: Sri. Anish Jose Antony, Advocate
For the Respondents: Smt. K.P. Yashodha, AGA for Respondent No.1; Sri. Balasubrahmanya K.M., Advocate.
Case Title: IIFL Finance Ltd. v. State of Karnataka & Anr.
Neutral Citation: NC: 2026: KHC:7104
Case Number: Writ Petition No. 31057 of 2025
Bench: Justice Suraj Govindaraj
