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Synopsis

While cautioning banks against inadequate title clearance reports, the Supreme Court recently asked the Reserve Bank of India (RBI) and other stakeholders to collaborate on developing a standardized and practical framework for conducting title searches before sanctioning loans.

A bench of Justice J.B. Pardiwala and Justice R Mahadevan in its order, said, "As we close this litigation, we deem it necessary to observe 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. This concerns the protection of public money and is in the larger public interest."

The Court further reiterated that the said framework should also involve determining the liability of the officer who approves the loan, including potential criminal action.

"Additionally, there should be standard guidelines for fees and costs associated with title search reports so as to ensure that they maintain high quality," the court added.

Court made these observations while dealing with appeals arising out of a judgment by the Madhya Pradesh High Court, which had set aside the Additional District Judge’s order in a civil suit.

According to the plaintiff, Prabha Jain, her late father-in-law purchased a piece of land, and after his death, the property was inherited in equal shares by her late husband, her husband’s elder brother, and her mother-in-law. After the death of her husband, the plaintiff inherited one-third of his share.

However, her husband’s elder brother, without any formal partition among the heirs, divided the land into several plots and illegally sold them to different persons. One such plot was sold to a defendant through a registered sale deed, who, in turn, mortgaged the property to the Central Bank of India to obtain a loan but later defaulted on the repayment.

It was the plaintiff's case that the sale deed and the mortgage deed should be declared null and void and that the defendant had no right to sell the disputed plot.

In this backdrop, the bank approached the Top Court, contending that civil courts had no jurisdiction to hear the suit under Section 34 of the SARFAESI Act.

While dismissing the appeal, the Top court upheld the High Court's decision. It clarified that the jurisdiction of civil courts remains intact in the present case. "The jurisdiction to declare a sale deed or a mortgage deed being illegal is vested with the civil court under Section 9 of the Code of Civil Procedure. Therefore, the civil Court has the jurisdiction to adjudicate upon the first two reliefs finally, "the court said.

Case Title:  CENTRAL BANK OF INDIA vs. SMT. PRABHA JAIN