In a decisive move, the Supreme Court has flagged the lack of robust title search practices in bank loan approvals, urging the Reserve Bank of India (RBI) to establish a standardized framework. This directive aims to safeguard public funds and ensure transparency in property transactions.
The Court underscored the need for rigorous title verification, emphasizing that inadequate or hastily prepared reports often lead to legal disputes, compromising both borrowers and lenders. It called for a collaborative effort by the RBI and stakeholders to create a systematic process for preparing title search reports, including accountability measures for bank officials who approve loans based on faulty documentation.
“Banks must exercise caution and diligence in dealing with inadequate title clearance reports,” the Court stated. “The quality of these reports directly impacts public money and larger societal interests. Establishing a standardized mechanism is essential not only to prevent such errors but also to hold officials accountable—financially or even criminally—when lapses occur.”
The Court also recommended setting uniform guidelines for fees and costs associated with title reports to ensure consistent quality. Currently, banks rely on reports from empaneled professionals without a unified regulatory framework, leaving room for discrepancies and potential fraud.
Highlighting a specific case, the bench of Justice J.B. Pardiwala and Justice R. Mahadevan pointed to an incident where a bank approved a loan against a property later found to have disputed ownership. Such scenarios, the Court noted, could have been avoided through thorough title investigations, verifying ownership and detecting adverse claims before approval.
The judgment signals a call to action for the RBI, advocating for stronger protections in the banking system to shield public funds and prevent future disputes.