Borrower Has Right To Expect Bank To Safeguard, Return Title Documents After Loan Repayment: Bombay HC

Mumbai, Sep 9 (KNN) The Bombay High Court has ruled that a borrower who fully repays a loan is entitled to expect a bank or financial institution to properly preserve and return the original title documents deposited as security. 

A Division Bench of Acting Chief Justice Ravindra V. Ghuge and Justice Gautam A. Ankhad observed that lenders must maintain proper custody of such documents and return them once the secured liability is discharged.

The bench noted that a bank remains responsible for preserving and returning original property title documents deposited as security even if a borrower does not immediately seek their return after repaying the loan.

It directed the State Bank of India (SBI) to pay compensation of Rs 5,000 per day from December 1, 2023 after it failed to trace original title documents relating to two properties.

The court was hearing a writ petition filed by In Vogue Creations, whose loan facilities had been fully repaid in August 2003. The title documents for the properties had been deposited with SBI as security in 1979. Despite the repayment and issuance of a no-dues certificate, the bank failed to return the originals and later acknowledged that they could not be traced.

Responsibility Rests With Bank

The court rejected SBI’s argument that the borrower’s delay in seeking the documents absolved the bank of responsibility. It said preservation, identification, retrieval and return of documents entrusted to the bank remain its responsibility and cannot be shifted to the borrower because of a delay in requesting their return.

The court noted that steps taken by SBI, including filing an FIR, publishing newspaper notices and obtaining replacement copies, could mitigate the consequences but did not erase the bank’s primary default. 

It directed the bank to obtain certified or duplicate copies and reconstruct the title records with the necessary supporting documents.

RBI Circular Not Retrospective

The court, however, rejected the borrower’s claim for compensation from 2003, holding that the RBI’s September 13, 2023 circular on release of property documents applies to cases where the obligation to release documents arose on or after December 1, 2023.

Accordingly, the Rs 5,000-per-day compensation will run from December 1, 2023 until SBI provides certified copies for both properties and completes reconstruction of the title record. The Rs 1 lakh already deposited by SBI following the Banking Ombudsman’s advisory will be adjusted against the compensation.

The court directed SBI to complete the exercise within 12 weeks.

(KNN Bureau)