In our previous month’s article, we covered certain aspects of what actions should be taken when a bank misplaces the original documents. In this article, we will delve into the recommendations made by the Kanugo Committee on this issue, the steps taken by the RBI to address these matters and the types of judgments consumer courts can provide in cases where banks misplace the original documents.
The RBI has received numerous complaints stating that banks delay the delivery of property documents, even when the loan has been repaid according to the agreed-upon schedule. To address this issue, the RBI has established a committee led by former RBI governor B.P. Kanugo. Their recommendations include:
- Imposing penalties on banks in cases where they lose the original documents.
- Requiring banks to return all original documents within a fixed timeframe once a loan is repaid.
- Introducing penalty provisions if banks fail to return all original documents within the specified timeframe. Additionally, banks would be liable to compensate the customer on a per-day basis for any delays.
- Mandating that banks bear all expenses related to obtaining duplicate documents if they have lost the originals.
The Reserve Bank of India (RBI) has mandated that regulated entities must return original property documents to retail loan borrowers within 30 days of full loan repayment. Failure to do so will result in a penalty of ₹5,000 per day imposed on the banks for each day of delay in returning the documents. However, in certain cases, regulated entities have an additional 30 days to complete the process before penalties apply, making a total of 60 days. This directive is applicable to various types of loans, including consumer credit, education loans, loans for property development, and investments in financial assets such as shares and debentures. RBI emphasized that this compensation is separate from any other compensation the borrower may be entitled to under applicable laws.
The new regulation applies to a range of regulated entities, including banks, non-banking financial companies (including housing finance companies), asset reconstruction companies, local area banks, and cooperative banks. The RBI introduced these guidelines in response to inconsistent practices among regulated entities regarding the release of property documents, which led to customer complaints and disputes.
These regulations apply to cases where the release of original property documents becomes due on or after December 1. The RBI’s decision to implement these rules follows recommendations made by a committee led by former deputy governor B.P. Kanungo, which proposed that lenders providing home loans should compensate borrowers and face fines if they lose property documents.
Original property documents are crucial for establishing ownership and facilitating future transactions. Typically, banks use these documents as collateral when granting loans. When there are defaults, banks rely on these documents to transfer ownership and recover outstanding dues.
Delays in returning property documents can occur for various reasons, including the bank’s other liabilities with the borrower, document storage issues, and the need for multiple parties to provide clearance.
The NCDRC Penalizes ICICI Bank for Misplaced Property Records
In a consumer-oriented ruling, the National Consumer Disputes Redressal Commission (NCDRC) has ordered ICICI Bank Ltd. to pay a compensation of Rs 25 lakh for misplacing the original property documents related to a person who had taken a housing loan from the bank.
Manoj Madhusudhanan had borrowed a sum of Rs 1.86 crore from the bank and, as collateral, handed over various original property documents when executing the sale deed. Unfortunately, during transit, some of these crucial property documents were lost. This compelled Madhusudhanan to seek redress from the banking ombudsman when the bank failed to resolve the matter.
The ombudsman instructed the bank to provide duplicate copies of the lost documents, issue a public notice about the loss, and pay Madhusudhanan Rs 25,000 as compensation for the service deficiency.
However, Madhusudhanan was not satisfied with this resolution and took his case to the NCDRC, alleging severe negligence on the bank’s part. He demanded a compensation of Rs 5 crore for the loss and the mental distress he had endured. He argued that his property’s legal standing, based on the recreated or duplicate papers, would be weaker compared to the original documents, potentially affecting the property’s value for real estate purposes or as collateral.
The bank attempted to shift blame onto the courier company, but the consumer court rejected this argument. The court made it clear that the bank was responsible for safeguarding the original title documents, and it could not pass the responsibility to the courier company, which was acting as an agent of the bank.
The court also emphasized that the loss of the original papers jeopardizes the legal ownership of the property. Ultimately, the NCDRC ruled that the bank must retrieve all the reconstructed and duly certified document copies at its own expense. Additionally, the court awarded Madhusudhanan a compensation of Rs 25 lakh and ordered the bank to cover his litigation costs, amounting to Rs 50,000.
(Source – For case study – BQ Prime)
