Supreme Court (11.09.2021) In Bajarang Shyamsunder Agarwal Vs. Central Bank of India & Anr. [Criminal Appeal No. 1371 of 2019] held that;
a) If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for determination of leases. As the existence of a prior existing lease inevitably affects the risk undertaken by the bank while providing the loan, it is expected of Banks/Creditors to have conducted a standard due diligence in this regard. Where the bank has proceeded to accept such a property as mortgage, it will be presumed that it has consented to the risk that comes as a consequence of the existing tenancy. In such a situation, the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings.
b) If a tenancy under law comes into existence after the creation of a mortgage, but prior to the issuance of notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65A of the T.P. Act.
c) In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under Section 107 of the T.P. Act.
Excerpts of the order;
# 5. For the brevity of discussion, it may be pointed out that the appellant, who claims to be the tenant, asserts that the secured asset was let out to him by respondent no. 2-borrower/landlord in January, 2000 and he has been paying rent since then. Admittedly, the tenancy was based on an oral agreement. The appellant-tenant received a legal notice dated 25.07.2012, from respondent no. 2 borrower/landlord directing the appellant-tenant to vacate the premises within 15 days. The appellant-tenant preferred a suit being R.A.D Suit No. 652 of 2012 before the Court of Small Causes at Mumbai against the respondent no. 2 borrower/landlord. On 18.09.2012, the Small Causes Court allowed the application for interim injunction of the appellant-tenant filed in the above suit and respondent no. 2 borrower/landlord was restrained from disturbing the possession of the appellant – tenant.
# 6. Meanwhile, the High Court of Bombay, in Criminal Public Interest Litigation No. 24 of 2011, held that a Magistrate has the power to pass an order of eviction without giving an opportunity of hearing to the tenant under SARFAESI proceedings. An appeal against the aforesaid order along with a batch of other appeals was heard by this Court in Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. and Ors, (2014) 6 SCC 1 [hereinafter referred to as ‘Harshad Govardhan Case’]. This Court directed the Magistrate to decide the applications after giving the tenants an opportunity of hearing.
# 7. The appellant- tenant preferred an application in Case No. 42/SA/2012 before the Chief Metropolitan Magistrate, Esplanade, Mumbai. By the impugned order dated 31.12.2014, the Chief Metropolitan Magistrate after hearing the appellant-tenant, rejected the application holding that the appellant-tenant being a tenant without any registered instrument is not entitled for the possession of the secured asset for more than one year from the date of execution of unregistered tenancy agreement in accordance with the law laid down in Harshad Govardhan Case (supra).
# 8. Aggrieved by the same, appellant- tenant filed this appeal by way of Special Leave.
# 9. The learned senior counsel on behalf of the appellant-tenant submitted that-
a. The Appellant was a protected tenant under the Maharashtra Rent Control Act, 1999 [hereinafter referred to as the “Rent Act”], and was in occupation of the tenanted premises since October, 2005.
b. Even though there was no registered lease deed, the factum of tenancy can be demonstrated by multiple rent receipts.
c. The Small Causes Court made a prima facie determination of rights in his favour (refer to order in R.A.D. Suit No. 652 of 2012).
d. the appellant -tenant’s case is covered by the ruling of this Court in Harshad Govardhan Case (supra), and Vishal N. Kalsaria v. Bank of India and Ors., (2016) 3 SCC 762 [hereinafter referred to as ‘Vishal N. Kalsaria Case’].
# 11. Since the learned senior counsel on behalf of the appellant has extensively relied on the judgment of this Court passed in Harshad Govardhan Case (supra) and Vishal N. Kalsaria Case (supra) in support of the proposition that a tenant is protected from any ejectment proceedings under the SARFAESI Act, we have to examine if the law declared by these rulings accurately reflects the legal position and if these rulings applies to the facts of the present case.
# 16. Section 17 provides for an invaluable right of appeal to any person including the borrower to approach the Debt Recovery Tribunal (hereinafter referred to as the “DRT”). In Harshad Govardhan Case (supra) this Court held that the right of appeal is available to the tenant claiming under a borrower, however the right of repossession does not exist with the tenant. However, in Kanaiyalal Lalchand Sachdev and Ors. vs. State of Maharashtra and Ors., (2011) 2 SCC 782, this Court held that the DRT can, not only set aside the action of the secured creditor, but even restore the status quo ante. We do not intend to express any view on this issue since it is not relevant for the disposal of this appeal. We also note that Parliament has stepped in and amended Section 17 by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (44 of 2016). Under the amendment, possession can be restored to the “borrower or such other aggrieved person”.
# 17. Section 35 of the SARFAESI Act provides an overriding effect over “anything inconsistent contained in any other law”, in the following manner
“35. The provisions of this Act to override other laws. The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”
Section 35 is critical to this case and we will examine the conflicting views on Section 35.
# 18. The interplay between the SARFAESI Act and the right of the tenant was first examined by this Court in Harshad Govardhan Case (supra). It may be noted that the present appellant was a party to the aforesaid proceedings. This Court was confronted with the question as to whether the provisions of the SARFAESI Act affect the right of a lessee to remain in possession of the secured asset during the period of the lease. After noticing the scheme of the Act, this Court held that if the lawful possession of the secured asset is not with the borrower, but with a lessee under a valid lease, the secured creditor cannot take possession of the secured asset until the lawful possession of the lessee gets determined and the lease will not get determined if the secured creditor chooses to take any of the measures specified in Section 13 of the SARFAESI Act. Accordingly, this Court concluded that the Chief Metropolitan Magistrate /District Magistrate can pass an order for delivery of possession of secured asset in favour of secured creditor only when he finds that the lease has been determined in accordance with Section 111 of the T.P. Act.
# 19. The Court further held that if the Chief Metropolitan Magistrate / District Magistrate is satisfied that a valid lease is created before the mortgage and the lease has not been determined in accordance with Section 111 of the T.P. Act, then he cannot pass an order for delivery of possession of the secured asset to the secured creditor. In case, he comes to the conclusion that there is no valid lease either before the creation of mortgage or after the creation of the mortgage satisfying the requirements of Section 65A of the T.P. Act or even though there is a valid lease the same stands determined in accordance with Section 111 of the T.P. Act, he can pass an order for delivery of possession of the secured asset to the secured creditor.
# 20. This Court also recognised the inconsistency between Section 13(13) of the SARFAESI Act and Section 65A of the Transfer of Property Act. While Section 13(13) of SARFAESI prohibits a borrower from leasing out any of the secured assets after receipt of a notice under Section 13(2) without the prior written consent of the secured creditor, Section 65A of the T.P. Act enables the borrower/mortgagor to lease out the property. This inconsistency was resolved by holding that the SARFAESI Act will override the provisions of the T.P. Act.
# 21. Before concluding, the Court in Harshad Govardhan Case (supra), distinguished the implications of a registered and an unregistered instrument/oral agreement, in the following manner:
36. We may now consider the contention of the respondents that some of the appellants have not produced any document to prove that they are bona fide lessees of the secured assets. We find that in the cases before us, the appellants have relied on the written instruments or rent receipts issued by the landlord to the tenant. Section 107 of the Transfer of Property Act provides that a lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made “only by a registered instrument” and all other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Hence, if any of the appellants claim that they are entitled to possession of a secured asset for any term exceeding one year from the date of the lease made in his favour, he has to produce proof of execution of a registered instrument in his favour by the lessor. Where he does not produce proof of execution of a registered instrument in his favour and instead relies on an unregistered instrument or oral agreement accompanied by delivery of possession, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, will have to come to the conclusion that he is not entitled to the possession of the secured asset for more than a year from the date of the instrument or from the date of delivery of possession in his favour by the landlord. (emphasis supplied)
# 22. The second case which dealt with the issue of tenants’ rights under the SARFAESI Act is Vishal N. Kalsaria Case (supra). This Court was concerned with the question Whether a “protected tenant” under the Maharashtra Rent Control Act, 1999 can be treated as a lessee and whether the provisions of the SARFEASI Act, will override the provisions of the Rent Act?
# 23. After examining the legal and constitutional position, the Court held that while the SARFAESI Act has a laudable objective of providing a smooth and efficient recovery procedure, it cannot override the objective of Rent Acts to control the rate of rent and provide protection to tenants against arbitrary and unreasonable evictions. To resolve this conflict, this Court held that-
a) The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Act. The landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Act.
b) While a yearly tenancy requires to be registered, oral tenancy can still be proved by showing that the tenant has been in occupation of the premises before the Magistrate under Section 14 of the SARFAESI Act.
c) The non registration of the tenancy deed cannot be used against the tenant. For leasehold rights being created after the property has been mortgaged to the bank, the consent of the creditor needs to be taken.
d) Even though Section 35 of the SARFAESI Act has a non obstante clause, it will not override the statutory rights of the tenants under the Rent Control Act. The non obstante clause under Section 35 of the SARFAESI Act only applies to laws operating in the same field.
# 24. While we agree with the principle laid out in Vishal N. Kalsaria Case (supra) that the tenancy rights under the Rent Act need to be respected in appropriate cases, however, we believe that the holding with respect to the restricted application of the non obstante clause under section 35 of SARFAESI Act, to only apply to the laws operating in the same field is too narrow and such a proposition does not follow from the ruling of this Court in Harshad Govardhan Case (supra).
# 25. In our view, the objective of SARFAESI Act, coupled with the T.P. Act and the Rent Act are required to be reconciled herein in the following manner:
a) If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for determination of leases. As the existence of a prior existing lease inevitably affects the risk undertaken by the bank while providing the loan, it is expected of Banks/Creditors to have conducted a standard due diligence in this regard. Where the bank has proceeded to accept such a property as mortgage, it will be presumed that it has consented to the risk that comes as a consequence of the existing tenancy. In such a situation, the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings.
b) If a tenancy under law comes into existence after the creation of a mortgage, but prior to the issuance of notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65A of the T.P. Act.
c) In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under Section 107 of the T.P. Act.
# 34. In this context we may refer to R.V. Bhupal Prasad v. State of A.P. and Ors., AIR 1996 SC 140, wherein a two Judge Bench of this Court, speaking through Ramaswamy, J., made the following pertinent observations in paragraph 8 of the Report:
“8. Tenant at sufferance is one who comes into possession of land by lawful title, but who holds it, by wrong after the termination of the term or expiry of the lease by efflux of time. The tenant at sufferance is, therefore, one who wrongfully continues in possession after the extinction of a lawful title. There is little difference between him and a trespasser. “
# 35. On the same lines are the decisions of this Court in Smt. Shanti Devi v. Amal Kumar Banerjee, AIR 1981 SC 1550, Murlidhar Jalan (since deceased) through his Lrs. v. State of Meghalaya and Ors., AIR 1997 SC 2690 and D.H. Maniar and Ors. v. Waman Laxman Kudav, [1977] 1 SCR 403.
# 36. The operation of the Rent Act cannot be extended to a ‘tenant in-sufferance’ vis a vis the SARFAESI Act, due to the operation of Section 13(2) read with Section 13(13) of the SARFAESI Act. A contrary interpretation would violate the intention of the legislature to provide for Section 13(13), which has a valuable role in making the SARFAESI Act a self executory instrument for debt recovery. Moreover, such an interpretation would also violate the mandate of Section 35, SARFAESI Act which is couched in broad terms.
# 37. As noted above, this case does not mandate the additional protection to be provided under the Rent Act, to the appellant-tenant herein. The lower Courts are correct in ordering delivery of possession to the respondent no. 1-bank as the tenancy stands determined. Before we part, we must note that we have not interpreted the new amendment per se or the law with respect to other categories of tenants, which may be taken up in appropriate cases.
---------------------------------------------------------------
No comments:
Post a Comment