Upgrad LLM

auction of gold


I had taken a Gold Loan of Rs.5.5 Lakhs from Manappuram Finance (a NBFC Company). The interest accrued for the preceding 12 months is 2 Lakhs and the total outstanding payable is 7.5 Lakhs. The Market value of the Gold is also 7.5 Lakhs. So I decided not to redeem the same.


The Company auctioned off the ornaments deliberately at a low consideration of 6 lakhs (sold to their private members).


Now the company is asking me to repay the balance or shortfall amount, failing which legal proceedings will be initiated against me.


I have gone through the loan agreement copy meticulously and there is NO terms, conditions or stipulations that I will be responsible for payment of shortfall amount arisen due to auction at low consideration.


When there is no such clause, I am under the impression that I don’t owe them any money or I am not responsible for payment.


Just in case, if suit is filed, do you think I have recourse to law. Do you think I have to pay the company in the absence of specific terms, conditions or clause.

Corporate Lawyer

Can you clarify if the ompany issued you with notice of auction? If so, RBI has stipulated norms on the basis of which the auction can take place and the company which has given gold loan cannot participate in the auction. The auction has to be carired out by pannel of auctioners which is registered with Reserve Bank of India.

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Yes, The Company has been issuing Demand Notices every quarter in Telugu Language, which I do not understand (although the Loan agreement is in English language). 


The Agreement copy clearly stipulates that the gold can sold through Public auction or Private Sale.


I don't have a problem with auction or anything.


The only thing I bother is they deliberately sold the gold ornaments at low consideration (I suspect they sold to their private benami persons at high cost).


In any case, the contract does not at all mention that I will have to pay Shortfall amount arisen due to auction at low prices. Therefore, I am under the impression, that in the abscence of expilcit cluase, a demand cannot be made.


Please clarify the same.


I appreciate your valuable time.


Mr. Vivek,

In the loan agreement, you have undertaken to pay the entire debt. This is personal liability. Gold pledged for the gold loan is only security for the bank to fall back on it in the event of your default to pay the debt. It does not mean that your liability does not exceed the value of the gold that may fetch in auction. You are undoubtedly liable for the balance amount of debt remained unrecovered. If you have not redeemed the pledge, this does not save you from the liability. You may contact the bank and seek for settlement of reasonable concession so that the burden in the liability may come down to some extent. Bank will succeed in its suit, if filed, for balance amount of debt and you will be burdened with interest utill repayment plus costs the bank may incur for initiating proceedings against you. I hope it is clear to you now.




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