New Delhi, Jan 27 (UNI) The Supreme Court on Monday called upon the Reserve Bank of India (RBI) and other stakeholders to collaborate on developing a standardized and practical framework for preparing title search reports before sanctioning loans.
The Apex Court also emphasized determining the liability, including potential criminal action of officers approving loans based on inadequate title reports.
A bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan highlighted the need for uniform guidelines governing the fees and quality standards for title search reports.
“Banks must exercise caution when relying on inadequate or cheaply obtained title clearance reports, especially when external factors influence their preparation. This involves public money and is a matter of public interest,” the bench remarked.
The observations came as the court dismissed a batch of appeals filed by the Central Bank, challenging a 2012 Madhya Pradesh High Court judgment. The High Court had overturned a trial court’s rejection of a civil suit under Order VII Rule 11 of the Code of Civil Procedure (CPC).
The original suit was filed by a woman who claimed her late husband’s elder brother sold inherited family properties, including mortgaged plots, without partition. One such plot was used to secure a loan from the bank. Following the loan default, the bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
The bank applied for Order VII Rule 11 of the CPC, asserting that the civil court lacked jurisdiction due to Section 17 of the SARFAESI Act. While the trial court dismissed the suit, the High Court allowed the plaintiff’s appeal.
The High Court ruled that Section 34 of the SARFAESI Act bars civil court jurisdiction only for matters within the purview of the Debts Recovery Tribunal (DRT) or its appellate body. It clarified that the SARFAESI Act was designed for swift debt recovery and not for adjudicating the validity of documents or resolving questions of title. Consequently, the High Court held that the civil court retains jurisdiction to declare sale or mortgage deeds as invalid.
The Supreme Court upheld the High Court’s reasoning, stating that the plaintiff could not have sought relief, such as possession recovery, from the DRT. It reaffirmed that DRT lacks jurisdiction to adjudicate matters involving the legality of sale or mortgage deeds.
Referring to Bank of Rajasthan Ltd. vs. VCK Shares & Stock Broking Services Ltd. (2023), the bench noted that civil court jurisdiction in independent suits against banks remains intact unless explicitly barred. It stressed that such jurisdictional bars must be strictly interpreted and not inferred.
Finding no error in the High Court’s decision, the Supreme Court directed that the civil suits proceed expeditiously under the law.
This judgment underscores the importance of robust title search mechanisms and clear jurisdictional boundaries in financial and legal disputes.
