Section 94 BNSS | Financial Institutions Entitled To Retain Custody Of Pledged Gold Provided Undertaking Is Filed Before Trial Court: Telangana High Court

"When pledged articles are retained by a financial institution as part of its ordinary business and are subject to criminal proceedings, the institution may be permitted to retain possession upon filing an undertaking before the Trial Court to produce such property as and when directed." Telangana High Court, in a ruling dated September 29, 2026, has affirmed that financial institutions are entitled to retain possession of gold ornaments pledged with them even when such property is the subject matter of a criminal investigation.

A bench presided by Justice T. Madhavi Devi held that the police cannot summarily coerce a finance company to hand over pledged assets under the guise of Section 94 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), provided the institution submits a formal undertaking to the jurisdictional trial court.

The petitioner, Cholamandalam Investment and Finance Company Ltd., approached the High Court challenging a notice issued by the police under Section 94 of the BNSS. The police had demanded the surrender of gold ornaments pledged by a borrower, who was an accused in a case involving alleged offences under the Bharatiya Nyaya Sanhita (BNS) and the Chit Funds Act. The petitioner sought protection, fearing arbitrary interference in its business operations and the loss of its security interest in the pledged property.

The court was primarily tasked with determining whether the police, under the power of production of documents or things as stipulated in Section 94 of the BNSS, could compel a financial institution to surrender pledged assets during an investigation. Further, the court addressed the balance between the state's right to investigate criminal offences and the legitimate business rights of non-banking financial companies holding security interests.

The court observed that the investigation must not result in the unnecessary disruption of a financial institution's ordinary business. By placing reliance on the Supreme Court’s decision in Muthoot Fincorp Limited v. The Station House Officer, the court reiterated that the law provides a middle ground that safeguards both the integrity of the investigation and the commercial rights of the pledgee.

Adherence to Precedent

The court emphasized that the procedural mandate under the BNSS does not grant the police an unfettered right to seize assets from a third-party financier. Instead, the court adopted the procedure established by the Supreme Court to ensure the property remains available for the trial court’s eventual disposal.

Mandatory Undertakings Required

The High Court directed the petitioner to file an affidavit of undertaking before the trial court within four weeks. The court laid down stringent conditions, requiring the petitioner to produce the pledged ornaments for inspection, photography, or panchanama whenever summoned by the Investigating Officer. The petitioner is explicitly prohibited from releasing, selling, or permitting the redemption of these ornaments by the borrower or any other party without the prior permission of the court.

"The petitioner shall not hand over, release, or permit redemption of the pledged ornaments in favour of respondent No.5 or any other person without prior permission of the concerned Court."

Scope Upon the filing of the required affidavit, the Investigating Officer is permitted to proceed with the investigation and file the final report. The Trial Court is tasked with overseeing the process and ensuring that the ornaments remain protected throughout the pendency of the criminal trial. This ruling clarifies that the police, while conducting an investigation into alleged financial crimes, must respect the custodial rights of financial institutions over pledged collateral, provided such institutions act as officers of the court regarding the preservation of the evidence.

Date of Decision: 29 September 2026