27 June 2022

Can a bank retain property documents for use in another pending loan after a loan has been repaid? Bombay HC Opposes

Sunil vs. Union Bank of India

According to a decision by the Bombay High Court, a bank cannot claim a general lien on the title; papers of a borrower’s home even after; the loan has been repaid in order to keep them for its own purposes. In light of the aforementioned, the Bench of Justices AS Chandurkar and Urmila Joshi Phalke partially granted the present request and instructed; the Union Bank of India to deliver the title documents for the apartment even though; recovery proceedings in connection with another loan of the petitioner still pending before the DRT.

After the loan account is closed, the general lien on the security granted by the bank under Section 171 of the Indian Contracts Act would no longer be in effect. The petitioner in this case used his apartment as collateral to borrow 21 lakhs from the bank. In the meantime, a business where the petitioner was a director borrowed money from; the same bank, and the said business eventually went out of business. The petitioner made the decision to sell his apartment in order to pay off his obligations, and after doing so, he made a payment to the bank and closed the account.

However, the bank refused to surrender the title papers for the apartment on the grounds that top bank officials had not authorized the release of title documents, which led the petitioner to file a case with the High Court of Bombay. The Bank told the court that; the borrower should have gone to the DRT for help and that; it also went to the DRT to have the borrower’s property confiscated since he was a personal guarantor on the loan his firm had taken. The bank also argued that;  it was appropriate for them to place a general lien on the title document and keep it for use in proceedings before the DRT.

After hearing the arguments, the Bench disagreed with the bank’s claims and stated that; once the borrower paid off the personal loan debt he had taken out to purchase the apartment, their relationship had ended. In such circumstances, the bank not entitled to place a general lien on the title documents. Therefore, the court ordered the bank to provide the borrower with the title documents to the aforementioned apartment. The bank is free to pursue its case before the DRT, the judge further underlined.

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