Banks Must Be Very Careful While Sanctioning Loans With Inadequate Title Clearance Reports: Supreme Court
The Supreme Court was deciding Civil Appeals in which the lead one arose from the High Court's Judgment by which it set aside the Additional District Judge’s Order in a Civil Suit.
The Supreme Court observed that the Banks must be very careful with inadequate title clearance reports particularly when the same are obtained cheaply and at times for external reasons.
The Court observed thus in a batch of Civil Appeals in which the lead one arose from the Judgment of the Madhya Pradesh High Court by which it set aside the Additional District Judge’s Order in a Civil Suit.
The two-Judge Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan remarked, “Before 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. Therefore, it is essential for the Reserve Bank of India and other stakeholders to collaborate in developing a standardized and practical approach for preparing title search report before sanctioning loans and also for the purpose of determining liability (including potential criminal action) of the Officer who approves loan.”
The Bench added that there should be standard guidelines for fees and costs associated with title search reports so as to ensure that they maintain high quality.
AOR O.P. Gaggar appeared for the Appellants while Advocate Umesh Babu Chaurasia appeared for the Respondents.
Brief Facts
As per the Plaintiff’s (Respondent) case, a land was purchased by her late father-in-law vide Sale Deed in 1967 and after his death in 2005, the same was inherited in equal shares by her late husband, husband’s elder brother, and mother-in-law. After the death of her husband, his 1/3rd share was inherited by her. However, without any partition amongst the heirs, husband’s elder brother divided the land into several plots and sold them of illegally to different persons. Such plot was sold to the Defendant in 2008, who in turn mortgaged the same with the Central Bank of India (Appellant) for obtaining loan.
The person who obtained land defaulted, and hence, the Bank decided to proceed further in accordance with the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The Plaintiff claimed that the Sale Deed as well as the mortgage could be said to be a nullity. She claimed possession of the land in the Suit and the Bank preferred an Application under Order VII Rule 11 of the Civil Procedure Code (CPC), praying that the Plaint be rejected as the Civil Court has no jurisdiction to try the same in view of Section 17 of SARFAESI Act. The Trial Court rejected the Plaint and the Plaintiff carried the case in Appeal before the High Court. The High Court allowed her Appeal and being aggrieved, the Bank approached the Apex Court.
Reasoning
The Supreme Court in the above regard, noted, “This Court in Electrosteel Castings Ltd. v. UV Asset Reconstruction Co. Ltd. & Ors. (2022) 2 SCC 573 has held that mere allegations of fraud in the plaint will not overcome the bar under Section 34. The said case involved the assignment deed whereby Section 13(2) notice was issued to the plaintiff. The plaintiff claimed the assignment deed to be fraudulent and filed the suit. This Court declared that the suit was barred under Section 34. The case is crucial because it hinged on the fact that there were only allegations of fraud in the plaint without anything further. The drafting was clever to overcome Section 34.”
The Court further explained that, if there is something more than mere allegations of fraud, the Civil Court’s jurisdiction won’t be ousted.
The Court said that the Debts Recovery Tribunal (DRT) is a creature of the Recovery of Debts and Bankruptcy Act, 1993 (RDB Act) and is empowered to exercise powers under that Act and the SARFAESI Act of 2002. It added that the Tribunal is bound by the powers conferred to it by the Parliament.
“Interestingly, when this Court in Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. reported in (2014) 6 SCC 1 held that the tenant cannot approach the DRT because the re-possession can be only in favour of the borrower, the Parliament stepped in and amended the SARFAESI Act. Sub-sections (3) and (4) of Section 17 respectively are instructive to the level of examination that the DRT can undertake, and the same is limited to the validity of the measures under sub-section (4) of section 13”, it also noted.
The Court observed that the DRT is not permitted to examine the validity of the earlier Sale Deed, whereafter the mortgage was executed in favour of the Bank.
“… no error not to speak of any error of law could be said to have been committed by the High Court in passing the impugned order”, it concluded.
Accordingly, the Apex Court dismissed the Appeal and directed that the Civil Suits be proceeded further expeditiously in accordance with law.
Cause Title- Central Bank of India & Anr. v. Prabha Jain & Ors. (Neutral Citation: 2025 INSC 95)
Appearance:
Appellants: AOR O.P. Gaggar and Advocate Sachindra Karn.
Respondents: AORs Rameshwar Prasad Goyal, Pragati Neekhra, Advocates Umesh Babu Chaurasia, Prity Kumari, Manjula Chaurasia, Maneesh Pathak, Aditya Bhanu Neekhra, Atul Dong, and Aniket Patel.
