The supreme court also proposed standardizing fees for title search reports to ensure their quality.
In a significant move to safeguard public funds and reinforce trust in the banking sector, the Supreme Court has urged the Reserve Bank of India (RBI) to establish a standardized framework for preparing title clearance reports for property loans. This directive comes in response to concerns over risks posed by inadequate or poorly prepared reports, which jeopardize financial stability and public trust.
Importance of Title Clearance Reports
A title clearance report is a critical legal document that confirms ownership and examines the history of a property. It ensures the property is free from encumbrances, disputes, or claims, offering assurance to buyers, lenders, and banks involved in property transactions. Banks heavily depend on these reports to evaluate the legitimacy of properties mortgaged for loans.
Supreme Court Highlights Risks from Poor Title Reports
A bench of the Supreme Court comprising Justices JB Pardiwala and R Mahadevan emphasized the importance of due diligence in preparing title reports. The court noted that banks often rely on low-cost, substandard reports, potentially endangering public funds.
“We find it necessary to highlight that banks must exercise caution with title clearance reports, especially when these reports are obtained cheaply or influenced by external factors. This concerns the protection of public money and is in the larger public interest,” the bench stated in its January 9 judgment.
Also Read: Title Search Report: Essentials, Types & Verification Steps
Call for Accountability and Standardization
The Supreme Court called on the RBI and other stakeholders to collaborate on creating a standardized, practical approach for preparing title search reports before loan approvals. It also recommended establishing accountability for bank officers who approve loans based on defective title reports, including the possibility of criminal action for negligence.
“It is essential for the RBI and other stakeholders to develop a robust mechanism for preparing title search reports and to determine the liability of officers who approve loans based on faulty documentation,” the judgment said.
Standardizing Fees for Quality Assurance
The court proposed standardizing fees for title search reports to ensure their quality. “Guidelines for fees and costs associated with title reports should be standardized to maintain high standards and consistency,” it noted.
Also Read: Supreme Court Quashes Disproportionate Assets Case, Advocates Dynamic Financial Review
Lack of Uniform Mechanism
Currently, no uniform framework governs the preparation of title clearance reports. Banks often rely on reports from empaneled lawyers or chartered accountants, but the absence of standardized guidelines leads to inconsistencies and errors.
The need for reform was underscored in a recent case where a bank approved a loan secured by a mortgaged property that later turned out to have unresolved title disputes. The court observed that a robust title search process would have verified ownership, detected adverse claims, and confirmed the property’s legal status, thereby preventing fraudulent transactions and protecting public funds.
Conclusion
The Supreme Court’s call for reform in title clearance reports aims to strengthen the foundation of the banking sector and mitigate risks associated with property loans. By standardizing the process, ensuring accountability, and maintaining quality, the proposed measures will bolster public confidence and protect financial institutions from potential fraud and losses.
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