Allahabad HC: Bank must return property papers after loan settlement

The Allahabad High Court has ordered a bank to release property documents within two weeks after a loan was fully settled. The court ruled that the bank has no right to retain the papers, siding with a homeowner who settled a previous owner's loan.

The Allahabad High Court has ruled that a bank cannot retain property documents once a loan has been fully settled, ordering the release of the papers within two weeks.

The Case Background

The verdict came while hearing a case involving a woman who had purchased a house in Ghaziabad in 2002 and later got the property mutated in her name. In 2012, the Bank of India informed her that the house was mortgaged, as the previous owner had stood as a guarantor for a Rs 5 lakh loan. The loan, which had remained unpaid for years, had accumulated dues of over Rs 22 lakh.

However, the bank later entered into a settlement with the present owner, who deposited Rs 5.5 lakh and was issued a no-dues certificate. Despite this, the bank refused to release the original property documents, arguing that they could only be returned to the original borrower or guarantor.

The petitioner argued that the bank's action was arbitrary and unfair, especially as she needed the documents for her daughter's marriage and to obtain further financial assistance.

Court's Ruling

A division bench of Justice Ajit Kumar and Justice Indrajeet Shukla observed that the bank had never objected to the transfer of the property and no civil or criminal case was pending against it. The court also noted that the original guarantor and borrower were untraceable and the loan had been settled through compromise.

The court held that the bank no longer had any right to retain the documents and directed it to release the property papers within two weeks based on the no-dues certificate.

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