Manappuram Finance has been directed to pay the prevailing market value of 31.3 grams of auctioned gold, along with Rs 20,000 in compensation and Rs 5,000 towards litigation costs, after the Karnataka State Consumer Disputes Redressal Commission found lapses in the lender’s auction process during the Covid-19 pandemic.

The commission held that the company failed to comply with mandatory auction procedures and should have granted the borrower additional time amid the crisis.

A bench of judicial member Ravi Shankar and member Sunita C Bagewadi were hearing an appeal filed by Manappuram Finance against a 2023 ruling of the District Consumer Disputes Redressal Commission, Hassan.

“It is right to direct the appellant (Mannapuram Finance Limited) to pay the amount equivalent to the prevailing market value of the gold as on the relevant date to the respondent (Nagesh B R) after obtaining the arrears payable by the respondent towards the interest of the gold loan at the time of respective auctions, along with compensation of Rs 20,000 and litigation cost of Rs 5,000,” the commission said on June 10.

The case arose from a complaint filed by Hassan resident Nagesh B R, who had pledged gold ornaments weighing 31.3 grams on three different occasions in 2020 and availed loans totalling Rs 89,028 from Manappuram Finance.

According to the complaint, Nagesh had pledged 16.9 grams of gold for Rs 44,000 on December 16, 2020, a 9.8-gram chain for Rs 30,000 on July 13, 2020, and a 4.6-gram chain for Rs 15,028 on December 5, 2020.

He contended that although he received notices seeking payment of interest during the Covid-19 lockdown, he was Covid-positive at the time and was unable to make the payments.

When he visited the finance company’s branch on October 10, 2021, to clear the dues, he was informed that the pledged gold had already been auctioned on July 27, 2021.

After receiving no response to a legal notice issued in April 2022, he approached the consumer commission alleging a deficiency in service.

On June 12, 2023, the consumer commission in Hassan issued an order directing the return of the pledged gold.

Manappuram Finance admitted that the borrower had availed the loans and pledged the ornaments, but maintained that the auction was conducted only after repeated defaults in interest payments.

The company argued that notices were issued to the borrower before the auction and that he had also been informed by telephone.

It claimed the auction was carried out in accordance with the terms and conditions governing gold loan accounts.

The state commission, however, noted that since the gold had already been auctioned, a direction to return the ornaments would serve no practical purpose.

Modifying the Hassan district commission’s order, it directed Manappuram Finance to pay an amount equivalent to the prevailing market value of 31.3 grams of gold as on the relevant auction dates, after deducting the borrower’s outstanding dues.

The company was also directed to pay Rs 20,000 as compensation and Rs 5,000 towards litigation expenses. In the event of non-compliance, the amount payable towards the gold value will carry interest at 6 per cent per annum from the date of default until realisation.

The appeal was accordingly disposed of with modifications, reaffirming that lenders must strictly adhere to due process while enforcing recovery measures, particularly during exceptional situations such as the Covid-19 pandemic.