Kerala High Court Imposes Cost On Bank For Illegally Retaining Client's Documents After Closure Of Loan

The petitioner and her husband had taken a loan from the bank in 2009. The bank acknowledged the deposit of four title deeds by the petitioners as security for the housing loan availed from them. The documents, which included two exchange deeds, a release deed, and a sale deed, all of the Aluva Sub Registry Office, were retained by the bank.

However, despite the closure of the loan account, the title deeds relating to the property mortgaged were not returned. Though several letters were issued, the bank did not return the original title deeds. The petitioners contended that the refusal to release the original title deeds even after closure of the loan account is illegal, and the unilateral action of the bank in withholding the security documents after closure is arbitrary. Hence, they approached this Court seeking a direction to release their title deeds and also for a declaration that the bank has no authority to retain the petitioners' original title deeds, despite closure of the loan account. Petitioners have also sought compensation of Rs.10,00,000/-

The bank contended that the credit limit was closed and that the title deeds of the properties mortgaged were released. A detailed examination was conducted at the branch, which revealed that no files or documents were available there. Despite a thorough search to rule out the possibility of any misplacement, the title deeds could not be traced. It was also stated that the branch had shifted to new premises in July 2023, and many closed files were disposed of during the shifting process. The bank asserted that the title deeds of the petitioners were not retained or withheld at any point in time, as there were no pending dues, and that they were not in possession of the documents.

Court's findings

The Court found that there was no document evidencing the return of the title deeds. Hence, the second respondent is bound to answer the whereabouts of the title deeds. After examination, the Court found that the responsibility for the return of the documents of title of the petitioners vests with the bank. It is quite evident that the documents of title of the petitioners have been lost from the second respondent.

The Court referred to the Circular dated 13.09.2023 issued by the Reserve Bank of India, bearing No. DOR.MCS.REC.38/01.01.001/2023-24, which specifically states that in case of delay in releasing original documents of title, the bank shall compensate the borrower at the rate of Rs.5,000/- for each day of delay.

However, the Court emphasised that the public law remedy under Article 226 of the Constitution of India cannot be resorted to by the petitioners for claiming compensation in a matter of this nature, as the petitioners have an efficacious remedy before other forums. A direction incapable of compliance cannot be issued under Article 226 of the Constitution. Notwithstanding the above, it has to be declared that the second respondent has no authority to retain the original title deeds of the petitioner after closure of a loan account.

The Court concluded that the second respondent has no authority to retain the original title deeds of the petitioner after closure of the loan account.

An amount of Rs.50,000/- was imposed as costs on the second respondent, of which Rs.25,000/- shall be paid to the petitioners, and the balance Rs.25,000/- shall be paid to the Kerala Legal Services Authority. The costs shall be paid within 15 days from the date of receipt of a copy of this judgment. It is clarified that these costs shall not be set off against the compensation, if any, claimed by the petitioners.

Case Title: Sheela Francis Parakkal and Others v The Authorised Officer and Others

Citation: 2025 LiveLaw (Ker) 333

Case No: WP(C) NO. 11247 OF 2024

Counsel for Petitioners: Adv Praveen K. Joy

Counsel for Respondents: Sunil Shankar A, Vidya Gangadharan(K/000424/2020), P.Paulochan Antony, Sreejith K