Summary of this article
Borrower repaid loan completely, but SBI lost original property title documents.
High Court rejected bank's defense, citing sole responsibility to preserve records.
SBI must pay Rs 5,000 daily compensation until documents are reconstructed.
Losing original property papers can create headaches for borrowers, even after they have cleared their loan. The situation can get worse if the bank holding the papers is unable to locate them.
The Bombay High Court recently ruled on a case that involved property documents deposited with a bank as security for a loan. The court directed the State Bank of India to pay Rs 5,000 a day in compensation from December 1, 2023, until the documents are properly reconstructed.
What Happened
M/s In Vogue Creations had deposited the original title documents of two properties with the State Bank of India in 1979 as security for loan facilities. The loan was repaid fully on August 28, 2003.
The bank issued a No Dues/No Claims certificate on July 27, 2023, that confirms it had no claim or mortgage over the properties. while the original title documents were not returned.
According to the court, the bank acknowledged in December 2023 that it was unable to locate the title documents. It later lodged an FIR, published newspaper advertisements about the loss and took steps to obtain copies of some documents from MIDC.
The company approached the Banking Ombudsman, who advised the bank to pay Rs 1 lakh in compensation. The amount was deposited in the company's account in November 2024.
The company then approached the High Court, saying the loss of the original documents continued to cause prejudice because it intended to sell the properties.
What Bombay HC Said
State Bank of India argued that the company had not asked for the documents immediately after repaying the loan and had sought their return more than 15 years later. The bank also pointed to the shifting of its branch and the efforts made to locate the documents. The court rejected this argument.
According to the court, a borrower who has fully repaid a loan is entitled to assume that the bank holding valuable original title documents will maintain proper custody of them and return them after the secured liability has been discharged.
“The fact that the Petitioner may not have immediately approached the Respondent after repayment of the loan seeking return of the original documents cannot absolve the Respondent of its obligation to preserve the title documents,” the court said.
The court also made clear that maintaining and retrieving such documents was the bank's responsibility.
“The burden of maintaining a proper system for preservation, identification, retrieval and return of documents is solely on the Respondent. It cannot be shifted to the borrower merely because the borrower did not immediately seek their return,” the judgment said.
The court noted that the company had nothing to do with the bank's change of branch premises, internal transfer of records or change of personnel. It said these were matters within the bank's internal administrative domain.
The court also considered the steps taken by the bank after the documents went missing. Filing an FIR, publishing newspaper advertisements and obtaining copies from MIDC could help reduce the consequences of the loss, the court said, but “they do not, however, erase the primary default of the Bank.”
What The Court Ordered
The court referred to the RBI's September 13, 2023, circular, which requires lenders to return original property documents within 30 days of loan repayment. If the delay is attributable to the lender, compensation of Rs 5,000 per day is payable.
The court said the circular would not apply retrospectively to 2003. Since it covers cases where the release of documents falls due on or after December 1, 2023, the court directed State Bank of India to pay Rs 5,000 per day from that date until the title records are reconstructed.
The Rs 1 lakh already deposited by the bank will be adjusted against the compensation. The court gave the bank 12 weeks to complete the reconstruction.
