Madras High Court closes PIL regarding gold loans and auctions

According to a report by The Hindu, the Madras High Court has closed a public interest litigation filed against the Union Ministry of Finance and the Reserve Bank of India (RBI). This public interest litigation sought directions to regulate the activities of non-banking financial companies that lend money by pledging gold ornaments and auction the pledged jewelry upon failure to repay on time. This petition, filed by A. Joseph Sagayaraj of Trichy, was heard by a division bench comprising Chief Justice Sureshwar Arvind Dharmadhikari and Justice G. Arul Murugan. The court disposed of the case after taking on record the RBI's submission, which stated that the central bank has already issued necessary guidelines in addition to formulating a fair practices code to be adopted by financial institutions, and it continues to update these guidelines periodically.

RBI counsel Chevanan Mohan told the division bench that the central bank was established under Section 3 of the Reserve Bank of India Act, 1934, for the purpose of issuing currency notes and keeping reserves to ensure financial stability in the country. The primary objective of the RBI is to operate the country's currency and credit system to its advantage. The counsel stated that the RBI acts as a banker to the central government, state governments, and other banks in the country. It exercises the supervisory and regulatory powers envisaged under various laws, including the Banking Regulation Act (of 1949), the Foreign Exchange Management Act (of 1999), the Payment and Settlement Systems Act (of 2007), and the Credit Information Companies (Regulation) Act (of 2005).

The counsel also stated that the RBI Act was amended in 1963, empowering the central bank to supervise, control, and regulate the acceptance of deposits by non-banking financial companies. This law was further amended in 1983 when the acceptance of public deposits by unincorporated bodies, partnership firms, and individuals was also brought under the regulation, supervision, and control of the central bank. Mr. Mohan stated that the 1997 amendment to the law empowered the RBI to issue guidelines for the sound and healthy operation of non-banking financial companies and to ensure the quality of their assets.

He stated that, exercising the powers conferred under Section 45L, the RBI issued a circular on September 28, 2006, prescribing comprehensive guidelines on fair practices to be adopted by all financial institutions. Listing the follow-up actions taken by the RBI since then, the counsel stated that a 'Master Direction' was also issued on October 19, 2023. The counsel told the court that the RBI has prepared detailed guidelines from time to time on what to do and what not to do regarding gold loans and the auction sale of pledged gold, which are binding on non-banking financial companies, and with this, he requested the court to close the PIL petition, which the court accepted and closed the case.