Banks must be more careful in preserving important document of their customers

The minimum standards of banking practices, drawn up by the Banking Codes and Standards Board of India, expects banks to return within fifteen days of repayment

The minimum standards of banking practices, drawn up by the Banking Codes and Standards Board of India, expects banks to return within fifteen days of repayment of a loan by a customer, all documents and title deeds of the mortgaged property. In case of delay in handing over the papers or loss of such valuable papers, the bank has to compensate the consumer.

HT Image

However, forget compensation, in most cases, banks do not even acknowledge the loss of papers and even when consumers approach the consumer courts, resist paying the compensation, leading to prolonged legal battle. If one considers the appeals filed by banks in such cases before the consumer courts, it is obvious that they spend on their standing counsel, far more than the compensation that they eventually pay the customer.

In fact these cases highlight the need for banks to upgrade their system of storing and preserving important documents entrusted to them by their customers. Besides, in all such cases, they should investigate into the loss of papers, identify those responsible for the loss, hold them accountable and also take appropriate measures to prevent recurrence. It is equally important to get the victim, duplicate copies of the document and also pay adequate compensation.

A recent order of the apex consumer court underscores some of these issues. In this case, the complainant had taken a loan of Rs 3,50,000 to buy a house and after repayment of the loan, when she asked the bank for return of the original sale deed, the bank denied having ever received them. The lower consumer courts had asked the bank to return the original sale deed along with compensation of Rs 50,000 and costs of Rs 10,000.

The apex consumer commission modified this order, asked the bank to issue a certificate that the original deed was lost, pay the amounts awarded by the lower consumer commissions and in addition, pay Rs 1 lakh to compensate the consumer for the decrease in the value of the property on account of the loss of original papers(State Bank of India Vs Vallu Sowjanya, RP No 4550 of 2013, date of order: October 21, 2020)

In State Bank of India Vs Amitesh Mazumdar (RP No 2732 of 2019), decided on Jan 3, 2020, the lower consumer courts had asked the bank to give an acknowledgement of the loss of the title deed to the consumer, lodge a police complaint, issue notice on the loss in three newspapers, pay Rs 5 lakh as damages and Rs 30,000 as costs. The bank in its revision petition before the apex consumer court argued against the award of compensation.

Dismissing such a plea of the bank and upholding the award of compensation and costs to the consumer, the apex consumer court observed: “The erosion in the value of the property if it is to be sold without the Title Deeds would be substantial and in fact even the compensation awarded by the District Forum and maintained by the State Commission may not be sufficient to make up such erosion in the market value of the property”.

Again in Sheel Sohal Vs Axis Bank Ltd (CC No 1021 of 2016, order dated January 8, 2018), while awarding a compensation of Rs 10 lakhs, the Commission observed:. “ No one would extend a loan against equitable mortgage of the property only by deposit of the copies of the title documents of the house….”

In fact in a number of such cases, the apex consumer court has pointed to the difficulty in assessing the adverse effect of the loss of original papers on the value of the property. This also explains the varied compensation given in different cases, but damages in all such cases not only need to recompense the consumer, but also act as a deterrent in so far as banks are concerned.