The Madras High Court closed a plea to regulate gold lending and auctioning of pawned jewellery

RBI has formulated detailed guidelines regarding dos and don’ts in relation to gold lending and auctioning of pledged gold from time to time which are binding on non-banking financial institutions. Representative file image. | Photo credit: Paul Noronha

The Madras High Court has dismissed a PIL seeking to direct the Union Finance Ministry and the Reserve Bank of India (RBI) to regulate non-banking financial institutions that lend money by accepting gold jewelery as collateral and eventually auction off the pledged jewelery for non-payment of dues.

Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan disposed of the case filed by A. Joseph Sagayaraj of Tiruchi after noting the RBI’s submission that apart from the framework guidelines for the adoption of a code of fair practices by financial institutions, it had already issued the necessary guidelines and that it had also updated the guidelines regularly.

RBI counsel Chevanan Mohan told the Division Bench that the central bank is a corporation set up under Section 3 of the RBI Act, 1934 to regulate the issuance of currency notes and maintenance of reserves to ensure monetary stability in the country. The RBI’s primary objective was to operate the country’s monetary and credit system to its advantage.

“The RBI acts as the banker to the Central Government, State Governments and other banks of the country. It exercises supervisory and regulatory powers as laid down in various legislations including the RBI Act, the Banking Regulation Act, 1949, the Foreign Exchange Management Act, 1999, the Payment and Settlement Systems Act, 2007 and the Credit Information Societies (Regulation) Act5 of 2005.”

The counsel also said that the RBI Act was amended in 1963, which enabled the central bank to supervise, control and regularly accept deposits by non-banking financial institutions as well. The law was further amended in 1983, when the acceptance of public deposits by unregistered entities, partnership firms and individuals was also subject to central bank regulation, supervision and control.

Mr. Mohan said that the 1997 amendment act empowered the RBI to issue guidelines for sound and healthy functioning of non-banking financial institutions and to ensure the quality of their assets. In exercise of the powers vested in it under Section 45L, the RBI issued a circular on 28 September 2006 prescribing general guidelines for fair practices to be adopted by all such financial institutions.

Enumerating the follow-up measures taken by the RBI since then, the counsel said that a “principal order” was also issued on October 19, 2023. “The RBI has from time to time formulated detailed guidelines regarding loans and auctions of gold which are binding on non-banking financial institutions,” he added, calling for the PIL to close the petition.

Published – 07 Nov 2026 14:23 IST