QA Series - No. 23 - Documentation

 

The Banking Tutor

Question Answer Series 2025

S No 23                                                                    15-07-2025

Documentation 

01. What is the need of Agreement in Banking? 

Banking Business results in contractual relationship between the banker and the customer (both Depositor and Borrower) which needs to be supported by proper evidence. Obtention of Agreements is necessary in this regard. 

02. What is the purpose of Documentation in Banking ? 

The purposes of documentation are: 

a) to create a record of transaction 

b) to create a valid and effective charge on securities in favour of the bank. 

The documents obtained from the customers will be the primary evidence that can be produced in court of law to establish the Bank‘s right. 

03. What is the important aspect of documentation ? 

Proper execution and proper Stamping of Documents are the main aspect of documentation. 

04. What is the care to be taken when a document is signed by different persons staying in different places? 

When different persons have executed the documents on different dates, they are required to mention the date below their signature. In such cases, even though the last date will be treated as the date of completion of documentation, for computation of limitation, the date of first execution may be reckoned. 

05. Why Bank insists Borrower/Guarantor to sign all the pages of Document? 

All loan documents should be signed on every page at the end by the executant for having read the contents of the pages. Initials must not be allowed to be put in place of full signature. This is the universal practice with justifiable reasons. The obvious advantage of getting signature on each and every page of an agreement is that a borrower will be fully and completely bound by such execution. If it is not so signed, the borrower may allege that the bank has substituted the relevant pages of the agreement and that the documents executed by him contained some other matter or that the matter contained in the pages not signed by him is not binding on him. 

06. When corrections are there in the document is it suffice if the executant put initial on the document? 

No. All types of additions, alterations, insertions, strikings, over writings, erasings, interlining, deletions etc., in the documents must be authenticated by the borrower under his full signature in the same style as he has signed elsewhere in the documents.

07. What is the care to be taken in case of documents executed by Illiterate ? 

When a document is to be executed by an illiterate person, his Thumb Impression should be obtained. Wherever the loan documents are executed by illiterate person/s the narration such as ―LTI / RTI of Mr/Mrs…has to be written wherever thumb impressions are  affixed. 

08. What is the care to be taken in case of documents executed by persons not knowing the language of the document ? 

In case the borrower does not know the language of the document, it is necessary to explain the contents thereof to him and obtain a declaration to the effect by a person knowing the language of the document. 

09. What is the care to be taken in case of documents executed by Purdanishin ladies ? 

While obtaining documents from Purdanishin ladies, branches must ensure that the lady/ladies executing the documents freely understands/understand the nature and contents of the documents.  In such cases, a declaration  to be obtained by a person knowing the language of the document. Identification of the purdanishin lady and interpretation of the document should be done by a female declarant not related to the borrower. 

10. What is meant by Property Marking in case of Documentation? 

Whenever, executants sign the document in representative capacity, (proprietor, partner, Director, Guardian) rubber stamp indicating the capacity in which they have signed need to be affixed. Such affixing of the Stamp is called “Property Marking”. 

11. Whether Attestation is a must in all Documents ? 

Attestation of document should be done only on those documents which compulsorily require attestation. In case a document not requiring attestation is attested, the document attracts ad-valorem stamp duty. 

12. Can a related party to the loan attest the document ? 

A person who is a party to the document/deed cannot be attesting witness. 

13. Whether Bank is under obligation to explain details of document to Attesting Witness? 

No. Attesting Witness is not expected to be aware of the contents of the document. He is only attesting the signature of the executant.  

14. Can we can get the document attested before its execution by Borrower? 

No. After execution of document only Attestation to be done. The attesting witness must have witnessed either the actual execution or received an acknowledgement of execution from the executant. 

15. How many Witnesses are required? 

There must be minimum two witnesses. 

16. Whether both the witnesses present at the same time ? 

It is not necessary that both should be present at the same time. 

17. What will happen if a document not attested ? 

If a document requiring attestation is not attested but executed by the executant, the document will be treated as not duly executed. 

18. Whether Bank is under obligation to give copies of loan papers to borrower? 

Bank has  to make available a copy of the loan agreement along with a copy of all the loan papers to the borrowers, even in the absence of specific request from the borrower. In such cases, ensure that all the papers  are properly filled up before handing over copies. 

19. What are the Precautions to be taken in case of affixing revenue stamps ? 

As Revenue Stamp consists the State Emblem of India (the Lion Capital of Ashoka), ensure that it is affixed in a proper way, as we  have  to honour our State Emblem. 

20. Over a period of time there are chances of auto-removal of revenue stamps affixed. In such cases how we can prove that the document is affixed with revenue stamp? 

As an abundant precaution, obtain one more signature of executant away from the Revenue Stamp (in addition to signature across the Stamp). This helps in proving the fact that the document in question is signed by the executant. Further, in case the Stamp somehow gets removed from the document in the course of time, the blank space of the exact size matching with the size of the missing part of the signature  will help us to prove that the document is duly stamped and signed. 

21. What is the Jurisdiction Clause in an Agreement ? 

A jurisdiction clause in an agreement specifies which court or tribunal has the authority to hear and resolve disputes arising from that agreement. It determines the location where legal proceedings will take place if a disagreement occurs. 

22. Can we use Revenue Stamps obtained from Other States ? 

Yes, revenue stamps obtained from one state in India can generally be used in another state for transactions where revenue stamps are required. The Indian Stamp Act, 1899, is a central act, and revenue stamps issued under it are generally valid across all states. 

23. Can we use Postage Stamps in place of Revenue Stamps? 

No. we cannot use postal stamps in the place of revenue stamps. 

24. What is Legal Audit ? 

RBI has observed that large number of frauds were perpetrated on account of submission of forged documents by the borrowers which had been certified by professionals, i.e. Valuers / Advocates/ Chartered Accountants other than one who has given LSR. RBI has advised all banks to conduct Legal Audit. 

Legal Audit envisages re-verification of title deeds and other documents in respect of credit exposures of both fund based and non fund based, in aggregation of Rs.5 Crore and above as a part of regular audit exercise. It is to be conducted during succeeding RBIA immediately after 3 years from the date of first sanction or on crossing of the threshold limit of Rs.5 Crores. Subsequent legal audits shall be conducted after a gap of 3 years from the date of first legal audit. This shall coincide with succeeding RBIA due.

25. What is UCC Clause in Loan Agreement ? 

By incorporating Unconditionally Cancellable Credit Clause, into loan contracts Bank will get exemption from allocating capital against the loan amount still to be drawn. The clause will also give them the right to cancel disbursement unconditionally.

 

Next Issue  will be shared on 17^th   July 2025.

Sekhar Pariti

+91 9440641014

 

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