Gold jewellery stolen after being pledged for a loan: What must the bank pay the borrower? Consumer commission answers

A Karnataka consumer commission has ruled that a bank cannot limit compensation to the net gold value when jewellery pledged as security for a gold loan is stolen while in the bank's custody. The lender must also account for making charges and the value of stones in the jewellery, the commission held.

The ruling came in a dispute involving Canara Bank's Bukkapattana branch in Tumkur district, where gold jewellery pledged by a borrower for two gold loans was stolen in a robbery. The Karnataka State Disputes Redressal Commission dismissed the bank's appeal and confirmed an order directing it to pay an additional ₹88,362, along with 9% interest, ₹30,000 as compensation and ₹10,000 towards litigation expenses.

The order was passed on July 30, 2026, in Appeal No. 556/2020, Branch Manager, Canara Bank v. B.K. Balaraju.

Gold pledged for two loans was stolen from bank custody

The borrower, B.K. Balaraju, had taken two gold loans from Canara Bank's Bukkapattana branch on August 30, 2017. He pledged 120.80 grams of gold under one loan account and 133 grams under the other. Each loan was for ₹1.50 lakh.

The jewellery remained in the bank's custody but was subsequently stolen during a robbery. After the incident, the bank issued a letter dated July 26, 2018, offering to settle the borrower by paying the value of the gold.

For the first loan account, the bank considered a net gold weight of 90 grams and valued it at ₹2,600 per gram. It paid ₹1,56,033 towards the gold value.

For the second loan, the jewellery had a gross weight of 133 grams and a net gold weight of 85 grams. The bank calculated the value at ₹2,500 per gram, amounting to about ₹2,12,500.

The borrower, however, argued that paying only for the gold content did not fully compensate him for the jewellery that had been lost. He sought an additional ₹88,362, representing 20% towards making charges and 3% towards the value of stones.

After the bank declined to pay the additional amount, he approached the Tumkur District Consumer Commission, alleging deficiency in service and unfair trade practice.

Consumer commission says bank must pay more than gold value

The Tumkur District Consumer Commission allowed the complaint on July 3, 2020, in CC No. 69/2019. It directed Canara Bank to pay ₹88,362 with 9% interest from August 29, 2018. The bank was also directed to pay ₹30,000 as compensation and ₹10,000 towards litigation expenses.

Canara Bank challenged the decision before the Karnataka State Disputes Redressal Commission.

The bank argued that it had already paid the value of the net gold and that the borrower had not produced documents establishing the claimed 20% making charges and 3% stone value. According to the bank, there was therefore no deficiency in service and the district commission's order should be set aside.

The State Commission rejected the argument.

It held that when gold ornaments kept in the custody of a bank are lost through robbery or theft, the bank has a duty to settle their value at prevailing rates. Importantly, the commission said that this value includes making charges as well as the value of stones.

The commission also rejected the bank's contention that the borrower needed to produce an invoice specifically establishing the making charges. It observed that making charges are ordinarily levied on gold ornaments and held that the bank was liable to pay them when the jewellery was lost while in its custody.

The State Commission consequently dismissed Canara Bank's appeal and confirmed the District Commission's order.

What this means for gold loan borrowers

The ruling is significant for consumers who pledge jewellery for gold loans because it distinguishes between the value of the raw gold and the value of the jewellery as an ornament.

In this case, the bank had calculated compensation using the net gold weight and the prevailing rate per gram. The consumer commission held that this did not fully settle the value of the jewellery because the ornaments also carried making charges and stone value.

The Karnataka State Commission therefore confirmed the direction requiring Canara Bank to pay the additional ₹88,362 with 9% interest, besides ₹30,000 compensation and ₹10,000 towards litigation expenses.

The judgment does not mean that every stolen gold ornament will automatically result in the same amount of compensation. The ruling concerns the specific facts and evidence before the consumer commissions. However, it makes clear that where pledged jewellery is lost while in a bank's custody, compensation cannot necessarily be restricted to the net value of the gold alone.