Develop standardised approach for title search before sanctioning loans against property: SC to RBI

As banks fight protracted legal battles to get back money from borrowers who default after taking loans against property with disputed title deeds, the Supreme Court has asked the RBI and other stakeholders to develop a standardised practical approach for preparing title search reports before sanctioning loans.

Noting that it concerned protection of public money in the larger public interest, a Bench of Justice JB Pardiwala and Justice R Mahadevan said, “Therefore, it is essential for the Reserve Bank of India and other stakeholders to collaborate in developing a standardised and practical approach for preparing title search report before sanctioning loans and also for the purpose of determining liability (including potential criminal action) of the Officer who approves loan.”

While dismissing the Central Bank of India’s appeal against a Madhya Pradesh High Court order restoring the title of a plot mortgaged to the bank to genuine title deed holder Prabha Jain, the top court said there should also be standard guidelines for fees and costs associated with title search reports so as to ensure that they maintained high quality.

In the absence of a standardised approach for preparing title search reports before sanctioning loans, banks engage lawyers for the job and they often end up fighting cases to secure their money from defaulting borrowers.

In this case original plaintiff Prabha Jain’s land was fraudulently sold and the buyer took loan against the land and defaulted.

In its January 9 order, the Bench said “that banks should remain very careful with inadequate title clearance reports, more particularly, when such reports are obtained cheaply and at times for external reasons.”

Rejecting the bank’s contention that the civil court had no jurisdiction to try the suit in view of Section 34 of the SARFAESI Act that ousted its jurisdiction, the top court directed that the civil suits shall now proceed expeditiously in accordance with law.