Property purchase: the EC factor

Adhil Shetty Posted: Nov 17, 2012 at 0022 hrs
EC is a common term that we get to hear when looking for a new piece of property. However, most of us still do not understand the implications as well as importance of going through the Encumbrance Certificate or EC at this stage. Proper and authentic documentation forms a vital part of all kinds of property transactions and any carelessness here could prove quite costly at a subsequent stage and might involving various kinds of legal hassles.

What is the EC?

Encumbrance literally means the liability or charge that the property has been subjected as a form of mortgage, which the owner has not yet discharged completely. The EC is primarily a certificate to authenticate the free title of ownership of the property that one is looking to acquire. This certificate issued by the local sub registrar’s office informs the prospective buyer that the property is free of legal dues or any other kind of mortgage at that point. It includes details of financial transactions that the property has undergone during a specified period (usually 30 years) in terms of change of ownership or mortgage.

There are two basic kinds of ECs that are issued - Form 15 and Form 16. The Form 16 is issued when there is ‘Nil Encumbrance Due’ meaning that the property is free of mortgage. The Form 15 is issued when any kind of outstanding mortgage is in existence with details of transactions and parties involved along with reference of documents where such a deed has been executed.

What it does not say

Despite being a good indicator of the property’s ownership status the EC fails to provide comprehensive information, which is why an independent investigation is required while buying the property. Under the Registration Act, 1908 there are certain types of transactions that are not required to be reflected in an EC. Such transactions include:

* Deposit as mortgage by the owner with any bank or financial institution of original documents of the property as a collateral security to obtain credit.

* Any lease that is valid for less than a year need not be shown in the EC.

* Documents of testamentary nature are also exempt from being reflected through the EC.

* Any kind of verbal arrangement of family settlement may also not be understood by going through the EC. Even cases where a separate financial settlement has been reached among the owner and any other party will not be shown in the EC.

How to Obtain it

Despite its limitations as stated above the EC provides valuable preliminary information regarding the ownership of the property, which is very important to know before buying it. There is a standard procedure for applying and obtaining the EC:

Step1: One has to make an application on Form 22 with a Rs 2 stamp paper affixed to the local tehsildar or any other equivalent ranking revenue official of that area along with complete address proof and details of ownership of the property whose EC is required. The application must contain complete description of the property in terms of measurements and boundary specifications.

Step 2: This application has to be submitted to the jurisdictional sub-registrar after paying the official charges for the purpose. Usually it is counted as per the number of years of information that is being sought with each year considered to be commencing on April 1 and ending on March 31. Fractions of period less than a year are not considered for this purpose.

Step 3: The application is then forwarded from the sub registrar’s office to the tehsildar for verification before issuing the EC.

Step 4: The tehsildar carries out a detailed study of all transactions that have been registered on that property during the period for which the information is being sought by the applicant. This is the aspect that consumes maximum time as it has to be a detailed report based on which, a Form 15 or Form 16 shall be issued by the sub-registrar. The normal time frame involved at this stage is about 15-30 days which may extend beyond that. A little follow up with the tehsildar’s office might be helpful in saving some time.

Step 5: The tehsildar then submits his report to the sub-registrar who will issue the EC accordingly. One can expedite the process by collecting the EC physically rather than waiting it to arrive by post.

One should be careful not to rely completely on the EC and carry out comprehensive due diligence.

—The author is CEO, BankBazaar.com