Dr. S Shobha Vs Muthoot Finance Ltd. (Supreme Court of India)
The dispute originated from three writ petitions filed before the Karnataka High Court by a borrower challenging recovery actions taken by a private finance company in relation to three gold loans. The loans were for ₹15,00,100, ₹4,65,000 and ₹4,15,000. Upon default in repayment, the financier issued notices proposing auction of the pledged gold. The borrower sought writ reliefs directing waiver of penalty and compound interest, reduction of the interest rate from 26.87% to 1.17%, and consequential reliefs against the recovery process.
Read SC Judgment in this case: Arbitration and Civil Remedies Prevail Over Writ in Loan Recovery Case: Karnataka HC
During the pendency of the writ petitions, interim orders were passed. Despite this, the pledged gold was auctioned and a sum of ₹24,39,085 was realised and deposited with the Registry of the High Court. The Single Judge entertained the writ petitions and directed release of the deposited amount in favour of the petitioner, while also directing the financier to return the gold or its value, leaving liberty to the petitioner to pursue further claims before an appropriate forum.
The financier challenged this decision in writ appeals. The Division Bench examined the maintainability of the writ petitions and found that the respondent company was a private company registered under the Companies Act, 1956. It did not qualify as “State” or an instrumentality of State under Article 12 of the Constitution. The transaction in question was a private commercial loan secured by pledge of gold and did not involve any public function or sovereign activity. Consequently, writ jurisdiction under Article 226 was held to be unavailable.
