Despite having repaid a loan taken against gold, the NBFC is refusing to return the gold to a client, contends that another loan was taken against the same gold collateral on the day of repayment

Loan against gold is a lucrative business, which is fast catching up here in India. Several large non-banking finance companies (NBFCs) like the Muthoot Group and Manappuram Finance have made giant strides in this segment. Muthoot has achieved a turnover of Rs20,000 crore while Manappuram has Rs546 crore under its kitty. But surprisingly, these fast-growing NBFCs do not seem to fall under the purview of either the Reserve Bank of India (RBI) or the Securities and Exchange Board of India (SEBI). As such, customers of these companies are made to run from pillar to post to try and get their grievances redressed.

It has come to Moneylife’s attention that the RBI has no hold over these companies. A recent complaint against Muthoot Finance, which was in fact referred to Moneylife by a senior RBI officer, is indicative of how powerless the authorities are in reining in such companies.

This customer, Pampa Sinha, based in Howrah, West Bengal, had taken a personal loan in February 2008 in two parts against a deposit of gold, weighing 81.900 grams. This gold was weighed privately by the company itself, without being referred to a registered goldsmith. This loan was paid back by the customer in May 2008, yet the company is refusing to hand over the gold kept as security.

During the repayment, the company made a hand note on the back of the receipt saying that the customer has yet to pay Rs4,766. When the customer went back to pay this amount, the company refused to take the money. Instead, they claimed that she had taken another personal loan against the deposit of the same gold (as collateral) from the company on the same date and time on which she had made the repayment. The company is demanding that the client repay the loan amounting to Rs66,000 plus interest on it. However, the customer has not taken any such loan.

Another glaring discrepancy is in the manner of sanctioning the loan to the customer. The company has not issued to the customer any document of their terms and conditions or any sanction letter of the loan taken in February 2008. However, the Companies Fair Code Practice of RBI is very firm in this regard.

The reason why the customer finds herself in a spot is that she is unable to get any help from the regulator or other authorities. The Kolkata RBI directed the customer to the Thiruvananthapuram RBI, since the company was registered in that city. However, even the RBI in Kerala’s capital has said that it is unable to look into the matter. The customer has also approached the Howrah police, in vain. The customer’s sister, Ms Patra, revealed, “We haven’t yet received any proper kind of help to recover our gold because according to legal authorities in West Bengal, there is no proper law in the State to take any proper legal step against an NBFC, for cheating people, if it is not registered in West Bengal.”

To make matters worse, the customer can’t take legal action against the company due to a technicality relating to the name of the company. The loan was issued to the customer in the name of “The Muthoot Finance Pvt Ltd”. This company was originally registered in this name, but was subsequently changed to “Muthoot Finance (P) Ltd” in July 2007. As the name under which the loan has been issued does not exist, the customer cannot legally challenge the company. How the company got by issuing the loan under a previously registered name is beyond comprehension. Through some conniving juggling of words, the company has made sure it stays away from the ‘long’ arm of the law.

The company was also harassing the customer by sending recovery agents to her home. However, through an intervention by a local news channel, the company stopped doing so.

When Moneylife tried contacting the company’s PR, we were told that the company we were referring to is Muthoot Fincorp, which does not come under the Muthoot Pappachan Group. However, a look at their website reveals that it does indeed fall under the same group. Our efforts to contact the other group, Muthoot Group, have also been ignored.

With the authorities seemingly powerless to deal with such issues, customers and investors in such companies and loan schemes need to be aware that there is very little scope for grievance redressal. — Moneylife Digital Team