The Bombay High Court has reaffirmed an important principle concerning the custody and return of original property documents after repayment of a loan. The Court has held that when a borrower deposits valuable original title documents with a bank as security for a loan, the bank has a corresponding responsibility to preserve those documents carefully and return them once the secured liability has been completely discharged.
The ruling is particularly significant for borrowers whose original sale deeds, lease deeds and other property records remain with banks or financial institutions even after the underlying loan has been repaid.
Bank Has a Duty to Preserve Original Property Documents
A Division Bench comprising Acting Chief Justice Ravindra V. Ghuge and Justice Gautam A. Ankhad observed that a borrower who has completely repaid the loan is entitled to legitimately expect the bank to maintain proper custody of the original title documents entrusted to it.
The Court made it clear that the responsibility for preserving, identifying, locating and returning original property documents rests primarily with the bank. This responsibility cannot be transferred to the borrower merely because the borrower did not immediately demand the return of the documents after repayment of the loan.
The observations were made while deciding a writ petition filed by In Vogue Creations against State Bank of India (SBI).
Loan Was Repaid But Original Documents Could Not Be Traced
The dispute arose from two properties whose original title documents had been deposited with the bank as security for credit facilities.
Documents concerning the first property had been deposited with the bank on July 26, 1979. A lease deed concerning the second property was also subsequently deposited with the same branch as security for the borrower’s financial facilities.
The borrower eventually repaid the loan facilities in full on August 28, 2003. Following repayment, the bank no longer had any outstanding claim or mortgage interest over the properties.
However, the original title documents were not returned.
The issue became particularly serious when, in December 2023, the bank acknowledged that it was unable to locate the original documents. The bank reiterated in March 2024 that the documents could not be traced.
The borrower consequently sought compensation and appropriate directions against the bank.
RBI Circular on Return of Property Documents
The borrower’s claim was also based on the Reserve Bank of India (RBI) Circular dated September 13, 2023, concerning the release of original movable and immovable property documents upon repayment or settlement of loans.
Under the RBI framework, regulated lenders are required to release original property documents within 30 days after the borrower has fully repaid or settled the loan.
Where the delay is attributable to the lender, compensation is payable to the borrower at the prescribed rate of ₹5,000 per day.
The Circular also specifically deals with situations where original documents are lost or damaged. In such circumstances, the lender is required to assist the borrower in obtaining duplicate or certified copies and bear the associated expenses.
Bank’s Defence Rejected by the Court
SBI argued that the RBI Circular could not be applied retrospectively because the loan had already been repaid in 2003.
The Court accepted this argument only to a limited extent. It held that the Circular could not retrospectively impose compensation obligations dating back to 2003. However, the Court clarified that the regulatory framework would apply where the obligation to release the documents arose on or after December 1, 2023.
The bank also relied upon the steps it had taken after discovering that the documents were missing. These included lodging an FIR, publishing newspaper advertisements and obtaining documents from MIDC.
The Court, however, held that such subsequent measures could reduce or mitigate the consequences of the loss but could not eliminate the bank’s fundamental responsibility arising from its failure to preserve and return the original documents.
Bombay High Court Awards ₹5,000 Per Day Compensation
The Bombay High Court directed SBI to pay compensation at the rate of ₹5,000 per day from December 1, 2023.
The ₹1 lakh already deposited by the bank pursuant to the Banking Ombudsman’s proceedings will be adjusted against the compensation payable under the Court’s order.
The compensation will continue until the bank provides certified copies of the relevant documents for both properties and reconstructs the title record with the supporting documents necessary to establish the borrower’s title.
The Court directed the bank to complete the entire exercise within 12 weeks.
The Court also rejected the bank’s contention that the ₹1 lakh deposited pursuant to the Banking Ombudsman’s advisory had exhausted the borrower’s remedy. It held that the Ombudsman proceedings and the writ proceedings operated in different fields, and the amount deposited did not determine or extinguish the bank’s liability.
Key Takeaway for Borrowers
The decision provides important protection to borrowers who deposit original property documents with banks as security for loans.
Once the secured debt has been fully discharged, borrowers can reasonably expect the lender to safeguard, identify and return their original title documents. Loss of such documents can create serious difficulties in establishing ownership, transferring property or creating fresh security.
The judgment therefore reinforces the principle that banks and financial institutions entrusted with valuable title documents must exercise a high degree of care in preserving them and must take appropriate steps to restore the borrower’s title records if the originals are lost.
Case Details
Case Title: In Vogue Creations vs. State Bank of India
Case Number: Writ Petition No. 10241 of 2025
Court: Bombay High Court
Decision: Compensation of ₹5,000 per day from December 1, 2023, along with directions for reconstruction and restoration of the title records.