Madras High Court Closes Plea on Gold Loans After RBI Statement

The Madras High Court has closed a public interest litigation petition that sought new rules for non-banking financial institutions offering gold loans and auctioning pledged jewellery. Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan disposed of the case after the Reserve Bank of India stated it had already issued the necessary directions and guidelines.

RBI Submission

Appearing for the central bank, counsel Chevanan Mohan told the Division Bench that the Reserve Bank of India operates under the RBI Act of 1934 to maintain monetary stability and manage the country's currency and credit system. He explained that the central bank holds regulatory powers under several laws, including the Banking Regulation Act, the Foreign Exchange Management Act, the Payment and Settlement Systems Act, and the Credit Information Companies Act.

Existing Guidelines

The counsel noted that the Reserve Bank of India has issued multiple updates and a Fair Practices Code over the years, including a circular on September 28, 2006, and a Master Direction on October 19, 2023. He told the court that the central bank continuously sets binding rules on dos and don'ts for gold loans and pledged gold auctions.

Context

Non-banking financial institutions provide loans to people in need of quick cash by keeping gold jewellery as collateral. When borrowers fail to repay their dues, these lenders often auction the pledged gold to recover their money. Courts frequently close public interest petitions on regulatory matters when statutory bodies satisfy the bench that existing rules already cover the issues raised.