I don't know about the legality of withholding passports, but if I were you, I wouldn't make an issue of it, especially since you got your passport back within a reasonable time.

I see nothing wrong with the promissory note the company asked you to sign. Signing it was the right thing for you to do, with or without the threat of withholding your passport.

I sympathize with the inconvenience and indignity you had to put up with. If you want to blame someone for that, blame the thief.