Supreme Court Urges RBI to Standardise Title Clearance Reports for Property Loans

The Supreme Court has urged the RBI to standardise title clearance reports for property loans to mitigate risks posed by defective reports. It also called for accountability in the banking sector, suggesting criminal liability for officers approving loans based on faulty reports, and recommended uniform guidelines for costs and quality.

The Supreme Court of India has urged the Reserve Bank of India (RBI) and other relevant stakeholders to establish a standardised framework for preparing title clearance reports, which are crucial for sanctioning property loans. The Court emphasised the importance of these reports in verifying the ownership and legal status of properties, which banks use as collateral for loans.

In a recent judgment, the bench noted that inadequate or poorly prepared title clearance reports can expose public funds to significant risks and damage trust in the financial system. These reports ensure that a property is free from encumbrances or disputes, thereby protecting both buyers and lenders. The Court also highlighted the potential criminal liability of bank officers who approve loans based on defective reports.

The Court recommended that the RBI collaborate with other stakeholders to develop a uniform approach for title clearance reports, while ensuring that the costs associated with preparing these reports are standardised. It also stressed the need for high-quality reports, urging banks to exercise caution when dealing with reports obtained cheaply or for external reasons.

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Currently, the preparation of title search reports lacks standardised guidelines, leading to inconsistencies in the reports banks rely on. The absence of such a system was brought to light in a case where a bank sanctioned a loan based on a flawed title search, resulting in legal disputes over the property. The Court called for reforms to protect public money and prevent fraudulent transactions in the banking sector.