Due Diligence- An Advocate’s Best Opinion about ownership of an immovable property.


This article analyses the spectrum of due diligence on title and how to mitigate the defects through effective documentation


Due diligence on title can never amount to a certification. It is, at best, an opinion that an advocate can arrive at, based on specific steps and searches.

Why so? The revenue records are often not fool-proof; there is no central repository, court records are not maintained according to property under litigation, vested interests refuse to make a clean breast of things, etc. etc. So what are these steps and searches?

In Ramniklal Kotak V/s. Varsha Builders (AIR 1992 Bom 62), in a slightly different context, the Bombay High Court stipulated guidelines for investigation of title. These guidelines are the last word on the matter.

Here are some of the basic dos that an advocate must bear in mind:

(a) Study of the plans:

Ideally, all of us should visit the site. However, given our busy schedules, this may not be possible. Plans, therefore, must substitute actual site visits.


The Town Planning Authorities also offer Development Plans Remarks. Forests, reservations, water bodies, accesses are the things to look out for. My personal fascination with Plans goes way back to 2007 when I first laid my eyes on a Village Map: the entire village on the conference table, complete with topographical notations. Well, if the client is in the middle of a 100+ Acre acquisition, it serves as a good starting point.


(b) Review of revenue records, property taxes invoices:

Though not title documents, revenue records contain a wealth of information. Sometimes, it is the only source that can help us determine whether the tenure of the land is freehold; whether there is any compulsory government acquisition order affecting the property; whether there is an easement on the property; so on and so forth.


Needless to clarify, arrears of property taxes is a first charge on the property.


(c) Inspection of original title documents:

The owner of the property must be in possession of the title documents. If not, then in all probability, he has mortgaged the property. There is also the possibility that he is not really the owner in some of the instances!


(d) Searches for at least past 30 years at the offices of the Sub-Registrar of Assurances, and on the Ministry of Corporate Affairs’ Website (MCA’s Portal):

This also serves as independent corroboration. Under Section 17 of the Registration Act, 1908 all documents pertaining to immovable property are compulsorily registerable. Hence, the searches yield excellent results.


Similarly, under the Companies Act, no mortgage can be enforced unless registered with the Registrar of Companies.


Primarily, thanks to MCA’s portal, this exercise is just a matter of a couple of hours and Rs. 100/-.


(e) Publication of Public Notices, in at least two Newspapers, inviting objections coupled with raising general and specific requisitions on title upon the owner, usually bring out a lot of skeletons out of the cupboard.


My very first due diligence assignment was nothing short of a thriller. It had the works: an MOU executed at gun point, 80 claimants, an adopted daughter who sprang up out of nowhere. Our office was flooded with objections in response to Public Notices issued in the local dailies. At last count, the objections came very close to a neat 100. It is this assignment that taught me the importance of Public Notices.


In all honesty, I go by the touch and feel of the project. It’s something that has always stood me in good stead. One can’t be careful enough.

Where the stakes are not too high, such as a simple leave and license agreement or a short lease, many title issues are mitigated through representations and warranties, backed by indemnities.

In case of high stakes the owner is compelled to make out a clear and marketable title.

For this, he may obtain a registered release deed from other stake holders (usually a married sister), approach the high court for sale of a minor’s interest in the property, settle a suit to put an end to lis pendis.


Remember, fools rush in where angels fear to read.


Advocate Divya Malcolm of Malcolm & Malcolm specializes in Real Estate. The views expressed are her own.


Author:

Advocate Divya Malcolm ( Advocate, Proprietor of Malcolm & Malcolm, Ex-Partner Kochhar & Co.).





Credit to Bombay Chamber of commerce and industry.

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