When banks and housing finance institutions lose the original documents relating to property submitted to them by loan applicants, what recourse do the latter have?

Sanjay Sharma is an anxious man, as the bank which loaned him money lost his original documents. Sharma has been following up the matter with the bank for the past few months. The bank initially blamed the agent and the law firm that was supposed to have collected the documents at the time of registration. However, once they disowned responsibility, the bank kept saying that it had “misplaced” the documents and was trying to locate it. This went on for a while after which, now, it has accepted that the documents are not traceable. Sharma is planning to sell his property and fears it will not fetch the market value due to loss of the original documents. There is always the anxiety that an individual may have pledged his original papers elsewhere and therefore, buyers of properties are wary of certified copies of documents. Sharma is, therefore, negotiating with the bank to compensate him accordingly.

Sharma is not the first person to suffer the consequences of such negligence on the part of a bank. There are and have been several cases and in one such instance in C.L. Khanna vs. Dena Bank, decided by the National Consumer Disputes Redressal Commission in 2005, the commission directed the bank to file an FIR for loss of papers, issue a public notice in an English and vernacular newspaper about the loss, and then get a certified copy from the competent authority. In addition, the bank was asked to pay a compensation of Rs.1 lakh above and beyond, waive the interest on the loan amount from June 1989 and Rs. 25,000 as cost.

In a more recent complaint, decided by the Uttar Pradesh Consumer Disputes Redressal Commission in 2012, it is interesting to know that the commission has taken a more realistic stand. The opposite party, LIC Housing Finance, had misplaced the original documents of the complainant, Mr. Jain, who had repaid two of the loans he had taken from LIC earlier. The complainant pleaded with the commission to help him recover the documents and sought a compensation of Rs. 24 lakh. Jain said that when he settled the loan, he should get his papers back, adding that since he did not possess the original documents, he would not be able to apply for future loans from any of the financial institutions. The commission conceded that if the original sale deed was lost, only certified copies could be obtained from the registrar’s office and using this no loan could be obtained as it does not come under the definition of “equitable mortgage”. The complainant had suffered a huge loss due to lack of service on the part of LIC Housing Finance and accordingly, the commission directed the company to pay the consumer 85 per cent of the current market value of the property.

Thus, the above-mentioned incidents call for the Banking Regulator to bring about strict guidelines with regard to custody of documents and the measures to be taken by the banks and housing financial companies in case of their loss.

(The writer works with CAG, which offers free advice on consumer complaints to its members. For membership details/queries, contact 24914358/24460387 or helpdesk@cag.org.in)

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