In a significant ruling, the Kerala State Consumer Disputes Redressal Commission has held that retaining a customer’s original property documents without a valid reason after the closure of a loan account amounts to a deficiency in service. The Commission directed the manager of Federal Bank’s Pudunagaram branch to pay ₹2.5 lakh to the complainant as compensation and litigation costs.
According to the complaint, the woman had availed a Prathyasa loan from the bank in 2016 and deposited the original title deeds of her property as collateral. The loan was fully repaid in 2021. In 2019, she obtained another loan under the Prime Minister’s Employment Generation Programme (PMEGP), for which the same property documents continued to be used as security.
The complainant stated that she later learned that property collateral was not mandatory for PMEGP loans below ₹10 lakh. She alleged that bank officials told her she would lose the government subsidy if she withdrew the title deeds. Despite the relevant loan account being closed in March 2023, the bank allegedly retained the original documents for nearly 16 months.
She further claimed that she required the property documents for important family matters, including her daughter’s marriage, but was unable to access them because they remained with the bank. After receiving no satisfactory response from the bank, she approached the bank’s head office and later filed a complaint through the Prime Minister’s Grievance Portal. The bank subsequently acknowledged that no property had been charged as collateral for the PMEGP loan and eventually returned the documents in August 2024.
While hearing the case, the Commission observed that the bank failed to provide any satisfactory explanation for retaining the title deeds for approximately one year and four months after the loan account was closed on March 22, 2023. It held that, in the absence of any valid justification, the continued retention of the documents was arbitrary and illegal.
However, the Commission rejected the complainant’s claims that she had suffered financial losses because she was forced to sell another property at a lower price or that her daughter’s marriage proposal was affected. It noted that these allegations were not supported by sufficient evidence. The Commission also clarified that the bank was legally entitled to retain the documents until the loan account was officially closed.
Allowing the complaint in part, the Commission found the bank manager guilty of deficiency in service and directed the bank to pay ₹2 lakh as compensation and ₹50,000 towards litigation costs within 45 days.
In its defence, the bank argued that the complainant had availed multiple loans under different schemes and had voluntarily deposited the property documents as collateral. It denied any negligence or deficiency in service, stating that the documents were returned in July and August 2024. The bank also contended that the complaint was motivated by personal grievance and claimed that the actual dispute related to charges deducted from the complainant’s account for failing to maintain the minimum balance.
The ruling reinforces that banks cannot continue to retain borrowers’ original property documents once the legal basis for doing so has ceased. Unjustified retention of such documents after the closure of a loan account may constitute a deficiency in service under consumer protection law, making the bank liable to compensate the affected customer.
