In a large batch of appeals moved by tenants of properties mortgaged to banks, the Supreme Court last week stated that the Securitisation Act (Sarfaesi) will prevail over the provisions of the Transfer of Property Act, though there are some inconsistencies between the two. In these 75 cases, led by Harshad Govardhan vs International Assets Reconstruction Ltd, the property owners who had taken loans did not repay the amounts leading to Sarfaesi proceedings.
The tenants in those properties resisted their eviction by the secured creditors under the Act, claiming their right to occupy the premises, leading to the appeals on the question of their rights when the property is being taken over by creditors. The court ruled, among things, that a lease of a secured asset made by the borrower after he receives notice from the creditor will not be a valid lease. The judgment also discussed the rights and remedies available to lessees when the property is being taken over by the creditors for the fault of the borrowers. Since the appeals differed on facts in each case, the court classified them into different categories, depending on whether the lease was signed before or after the Sarfaesi proceedings started. The court then remanded the cases to the chief metropolitan magistrate in Mumbai to decide according to the principles laid down in the judgment.Reportable
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL No. 736 OF 2014
(Arising out of S.L.P. (Crl.) No.1666 of 2012)
Harshad Govardhan Sondagar
...... Appellant
Versus
International Assets Reconstruction Co.
Ltd. & Ors.
The appellants claim to be tenants of different
premises in Mumbai. These premises were mortgaged
to different banks as securities for loans advanced by
the banks (hereinafter referred to as ‘the secured
creditors’).
As the borrowers have defaulted in
repayment of their secured debts or instalments
thereof and their accounts in respect of such debts
have been classified by the secured creditors as non-
performing assets, the secured creditors have issued
notices of 60 days period under sub-section (2) of
Section 13 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest
Act, 2002 (for short ‘SARFAESI Act’) to the borrowers
saying that they intend to enforce the secured assets
in the event of non-payment of the secured debts. As
the borrowers have failed to discharge their liability in
full within the period of sixty days from the date of
notice, the secured creditors have exercised their right
under sub-section (4) of Section 13 of the SARFAESI
Act to take possession of the secured assets of the
borrowers. The secured assets, however, consist of the
premises under possession of the appellants.
The
secured creditors have, therefore, made a request
under Section 14(1) of the SARFAESI Act to the Chief
9
Metropolitan Magistrate, Mumbai, to take possession
of the premises and handover the possession of the
premises to the secured creditors in accordance with
the provisions of Section 14 of the SARFAESI Act.
Threatened by dispossession of the premises under
their possession by the Chief Metropolitan Magistrate,
Mumbai, under Section 14 of the SARFAESI Act, the
appellants have moved this Court in this batch of
cases. Their case is that they are not borrowers, but
they are lessees of the borrowers and are entitled to
remain in possession of the secured assets. A Division
Bench of the Bombay High Court in M/s Trade Well, a
Proprietorship Firm, Mumbai & Anr. v. Indian Bank &
Anr. [2007 CRI. L.J. 2544] has, however, held that
when a secured creditor takes measures under sub-
section (4) of Section 13 of the SARFAESI Act on
account of failure of the borrower to repay his liability
and approaches the Chief Metropolitan Magistrate for
assistance to take possession of the secured assets,
the liability of the borrower having been crystallized,
there can be no adjudication by the Chief Metropolitan
1
Magistrate and possession has to be taken by a non-
adjudicatory process and there is no question of
pointing out to the Chief Metropolitan Magistrate at
that stage that the person who is to be dispossessed is
a tenant.
The Division Bench of the Bombay High
Court has further held in M/s Trade Well (supra) that
the remedy of the borrower as well as a third-party is
to file an application under Section 17 of the
SARFAESI Act before the Debts Recovery Tribunal and
in case the borrower or a third-party succeeds, the
Debts Recovery Tribunal can restore possession of the
secured assets to the borrower or a third-party. This
view taken by the Bombay High Court in M/s Trade
Well (supra) has been followed in the impugned
judgment dated 20.08.2011 of the High Court passed
in the case of International Assets Reconstruction
Company Limited
v. Union of India & Ors.
The
grievance of the appellants is that if the impugned
judgment of the High Court is implemented, the
appellants have no option but to surrender possession
to the Chief Metropolitan Magistrate, Mumbai, and
move the Debts Recovery Tribunal under Section 17 of
the SARFAESI Act. Such a remedy, according to the
appellants, is not actually available under Section 17
of the SARFAESI Act and if the remedy is available, it
is meaningless as they have to move out from the
tenanted premises and only in the event the Debts
Recovery Tribunal decides in favour of the appellants,
they may come back to the tenanted premises.
Aggrieved by the impugned judgment, they have,
therefore, filed these appeals by way of special leave
under Article 136 of the Constitution.
Contentions of the learned counsel for the appellants:
3.
Mr. C.A. Sundaram, learned senior counsel appearing
for the appellants, submitted that under Article 300A
of the Constitution, every person has a constitutional
right not to be deprived of his property save by
authority of law.
He submitted that a tenant is a
lessee and has a right to be in possession of the
property of the lessor during the period of the lease
and this right cannot be taken away save by authority
of law.
He submitted that there is nothing in the
provisions of the SARFAESI Act, and in particular
Section 13 of the said Act, to show that this right of a
lessee to remain in possession of the secured asset
during the period of the lease stands extinguished
when the secured creditor initiates action under
Section 13 of the SARFAESI Act.
He submitted that
the language of sub-section (13) of Section 13 of the
SARFAESI Act, however, shows that no borrower shall,
after receipt of notice under sub-section (2) of section
13, transfer by way of sale, lease or otherwise any of
his secured assets referred to in the notice, without the
prior written consent of the secured creditor.
He
submitted that this provision in the SARFAESI Act is a
clear indication that a lease of a secured asset by the
borrower before receipt of a notice by him under sub-
section (2) of Section 13 of the SARFAESI Act was not
prohibited under the said Act. He submitted that in
the absence of any express language in the SARFAESI
Act affecting a lease of a secured asset made by the
borrower in favour of a lessee, the lease continues to
be a valid lease even after the secured creditor initiates
action under Section 13 of the SARFAESI Act.
4.
In support of this argument, he cited a decision of the
Constitution Bench of this Court in C.B. Gautam v.
Union of India & Ors. [(1993) 1 SCC 78]. In this case,
the provisions of Section 269-UD and Section 269-UE
of the Income Tax Act, 1961 made by Parliament to
prevent evasion of tax by transfer of immovable
property for an apparent consideration less than the
market price of the property were under challenge as
ultra vires the Constitution. Sub-section (1) of Section
269-UD of the Income Tax Act, 1961 provided that on
an order for purchase by the Central Government of an
immovable property, the Central Government would be
liable to pay as compensation to the owner of the
property an amount equal to the amount of apparent
consideration and sub-section (1) of Section 269-UE
provided that in case an order for compulsory
purchase is made under sub-section (1) of Section
269-UD, the property in respect of which the order is
made shall vest in the Central Government free from
1
all encumbrances and sub-section (2) of Section 269-
UE further provided that the transferor or any other
person who may be in possession of the immovable
property in respect of which an order under sub-
section (1) of Section 269-UD is made is required to
surrender or deliver possession of the property to the
appropriate
authority
or
any
other
person
duly
authorised by the appropriate authority within fifteen
days of the service of the order on him.
This Court
held that if there is a lessee in occupation of the
property concerned, his leasehold rights would be
destroyed
and
he
would
have
to
handover
the
possession of the property to the appropriate authority
or any other person nominated by the appropriate
authority and this clearly shows that an order for
compulsory purchase results in the leasehold rights
being destroyed. This Court further held that an order
for
compulsory
purchase
in
such
cases
would
necessarily result in gross injustice to the lessees and
to their being deprived of their rights without their
being in any way involved in the attempt at a tax
1
evasion. This Court, therefore, read down sub-section
(2) of Section 269-UE so as to make it inapplicable to
bonafide lessees in possession of the property.
He
submitted that this Court should accordingly hold in
this case that the rights of bonafide lessees under a
lease executed prior to receipt of notice under sub-
section (2) of Section 13 of the SARFAESI Act by the
borrower are not affected by the action of secured
creditor under Section 13 of the SARFAESI Act.
He
relied on the observation of this Court in ICICI Bank
Ltd. v. SIDCO Leathers Ltd. & Ors. [(2006) 10 SCC 452]
that while enacting a statute, Parliament cannot be
presumed to have taken away the right to property
which is a constitutional right.
5.
Mr. Sundaram next submitted that the view taken by
the Bombay High Court in M/s Trade Well (supra) and
in the impugned judgment that a third-party such as a
lessee can under Section 17 of the SARFAESI Act make
an application before the Debts Recovery Tribunal and
that in case he succeeds, the Debts Recovery Tribunal
can restore possession of the secured assets to the
1
lessee is not at all correct.
He referred to the
provisions of sub-section (3) of Section 17 of the
SARFAESI Act to show that the Debts Recovery
Tribunal can restore possession of the secured assets
only to the borrower and not to the lessee.
He
submitted that the Debts Recovery Tribunal has no
power under Section 17 of the SARFAESI Act to restore
possession of the secured assets to a lessee.
He
submitted that under the SARFAESI Act no notice
either by the secured creditor or by the Chief
Metropolitan Magistrate or the District Magistrate is
required to be given to a lessee of the secured assets in
possession of the secured creditor and in the absence
of such a notice, the lessee will not have any
opportunity to move either the Debt Recovery Tribunal
under Section 17 or the Chief Metropolitan Magistrate
or the District Magistrate under Section 14 of the
SARFAESI Act.
He submitted that sub-section (3) of
Section 14 of the SARFAESI Act further provides that
no act of the Chief Metropolitan Magistrate or the
District Magistrate or any officer authorised by the
1
Chief Metropolitan Magistrate or District Magistrate to
take possession of the secured assets shall be called in
question in any court or before any authority and this
would mean that a lessee would have no remedy
against
the
decision
of
the
Chief
Magistrate or the District Magistrate.
Metropolitan
He submitted
that as there is no remedy under the SARFAESI Act to
protect the lawful possession of the lessee under a
lease and the Act also does not bar the remedies under
the respective local tenancy laws, this Court should
hold that the remedies for the parties in a case where
the secured assets are in possession of the lessees are
under the respective tenancy laws. These arguments
of Mr. Sundaram were adopted by all other counsel
appearing for the lessees.
Contentions of the learned counsel for the respondents:
6.
Mr. Vikas Singh, learned senior counsel appearing for
the State Bank of India and the Indian Banks
Association,
submitted
that
while
there
are
no
restrictions on the right of the borrower to make a
1
lease of an immovable property prior to the mortgage,
once a mortgage is created, his right to make a lease of
the mortgaged property is regulated by the provisions
of Section 65A of the Transfer of Property Act, 1882.
He submitted that under Section 65A of the Transfer of
Property Act, a mortgagor, while lawfully in possession
of the mortgaged property, has the power to make
leases thereof subject to the provisions of sub-section
(1) of Section 65A of the said Act. He submitted that if
a lease made by a mortgagor satisfies the requirements
of sub-section (2) of Section 65A of the Transfer of
Property Act, it will be a valid lease and will be binding
on the secured creditor.
He submitted that sub-
section (3) of Section 65A of the Transfer of Property
Act further made it clear that if a contrary intention is
expressed
in
the
mortgage-deed,
prohibiting
the
mortgagor from making a lease of the mortgaged
property while he is in lawful possession of the same,
the mortgagor cannot make a lease and if such lease is
made, such lease will not be binding on the mortgagee.
According to him, possession of the lessee under the
1
following two categories of leases: (i) leases created
prior to the mortgage and (ii) leases created in
accordance with Section 65A of the Transfer of
Property Act is protected by law, and possession of
other persons claiming to be lessees is not protected by
law.
7.
Mr. Vikas Singh next submitted that sub-section (13)
of Section 13 of the SARFAESI Act further provides
that no borrower shall, after receipt of notice referred
to in sub-section (2) of Section 13 of the SARFAESI
Act, transfer by way of lease, any of his secured assets
referred to in the notice, without prior written consent
of the secured creditor.
He submitted that if the
borrower makes a lease of the secured assets after
receipt of a notice under sub-section (2) of Section 13
of the SARFAESI Act without the prior written consent
of the secured creditor, the lease would accordingly be
void and the possession of the secured asset of the
lessee is not protected by law.
8.
In support of these submisions, Mr. Vikas Singh relied
on the decision of the Delhi High Court in Shri Sanjeev
2
Bansal v. Oman International Bank SAOG & Anr. 131
(2006) DLT 729 and the decision of the Madras High
Court in Sree Lakshmi Products v. State Bank of India
(AIR 2007 Madras 148) in which the two High Courts
have held that tenancies created in contravention of
Section 65A of the Transfer of Property Act are not
binding on the secured creditor and cannot come in
the way of the secured creditor taking possession of
the tenanted premises under the SARFAESI Act.
He
also cited the decision of this Court in Sunita
Jugalkishore Gilda v. Ramalal Udhoji Tanna (dead)
through LRs. & Ors. [(2013) 10 SCC 258] in which this
Court has held that the rule of lis pendens in Section
52 of the Transfer of Property Act, 1882 applies to a
suit on a mortgage/by
mortgagee as well and,
therefore, if a mortgagor grants a lease during the
pendency of a suit for sale by the mortgagee, the lessee
is bound by the result of the suit.
Relying on this
decision, he submitted that once the secured creditor
issues a notice to a borrower to take possession of a
secured asset and the borrower despite such notice,
2
transfers the possession of the secured asset by way of
lease to a lessee without prior consent of the secured
creditor, the lessee of such a lease is bound to
surrender possession of the secured asset to the
secured creditor.
9.
Mr. Vikas Singh submitted that though the SARFAESI
Act is silent on the remedies available to a lessee who
is in lawful possession of a secured asset, in the case
of the aforesaid two categories of leases created prior to
the mortgage and created after the mortgage in
accordance with Section 65A of the Transfer of
Property Act, the lessee has a remedy of filing an
application under Section 17(1) of the SARFAESI Act
as
the
application
under
Section
17(1)
of
the
SARFAESI Act can be filed by “any person” and not
just the borrower.
He submitted that the SARFAESI
Act has been enacted to enable the secured creditors
to recover the secured debts without the intervention
of courts and tribunals and third-parties claiming to
be lessees but not bonafide lessees under leases which
are not in accordance with Section 65A of the Transfer
2
of Property Act should not be allowed to frustrate this
laudable object of the Act by preventing the secured
creditors from taking the possession of the secured
assets and realizing the secured debts. In support of
this submission, he referred to the observations of this
Court in Central Bank of India v. State of Kerala and
Others [(2009) 4 SCC 94], Authorised Officer, Indian
Overseas Bank and Another v. Ashok Saw Mill [(2009)
8 SCC 366] and United Bank of India v. Satyawati
Tondon & Others [(2010) 8 SCC 110].
He submitted
that the remedy of a bonafide lessee is, therefore, to
surrender
possession
under
Section
14
of
the
SARFAESI Act and to file an application under Section
17(1) of the SARFAESI Act before the Debts Recovery
Tribunal and in case he succeeds before the Debts
Recovery Tribunal to establish that the lease was
created prior to the mortgage and the lease was to the
knowledge of the secured creditor or that the lease was
created after the mortgage in accordance with Section
65A of the Transfer of Property Act, the Debts Recovery
Tribunal will restore possession of the secured asset.
2
The other counsel appearing for the respondents
adopted the aforesaid arguments of Mr. Vikas Singh
and further submitted that the appellants, who have
not filed documents to show that they are bonafide
lessees, should not be afforded the protection against
the action initiated by the secured creditors to take
possession of the secured asset under Section 13 of
the SARFAESI Act.
10.
Mr. Shrish Kumar Mishra, learned counsel appearing
for the Oriental Bank of Commerce in Civil Appeal
arising out of S.L.P. (C) No.6639 of 2012, however,
made a departure from the submissions made by Mr.
Vikas Singh. He submitted that under sub-section (4)
of Section 13 of the SARFAESI Act, the secured
creditor has a right to take over the possession of the
secured assets and since Section 35 of the SARFAESI
Act provides that the provisions of the SARFAESI Act
shall
have
effect,
notwithstanding
anything
inconsistent therewith contained in any other law for
the time being in force, sub-section (4) of Section 13 of
the SARFAESI Act will override the rights of the lessee
2
to remain in possession of the secured assets.
He
relied on a decision of this Court in Raghunath Rai
Bareja and Another v. Punjab National Bank and
Others. [(2007) 2 SCC 230] for the proposition that the
court must in accordance with the mischief rule of
interpretation give a purposive interpretation to the
provisions of the statute.
He argued that if this
mischief rule of interpretation is adopted by this Court,
then the correct interpretation of sub-section (4) of
Section 13 read with Section 35 of the SARFAESI Act
would be that a lease will stand terminated on the
secured
creditor
deciding
to
take
the
measures
contemplated under sub-section (4) of Section 13 of
the SARFAESI Act.
Opinion of the Court on the questions of law raised in
these Appeals:
11.
The first question that we have to decide is whether
the provisions of the SARFAESI Act have in any way
affected the right of a lessee to remain in possession of
the secured asset during the period of a lease.
A
‘secured asset’ has been defined in Section 2(zc) of the
2
SARFAESI Act to mean the property on which the
security interest is created. In case of an immovable
property, a security interest is created in a secured
asset by way of a mortgage in favour of the secured
creditor.
There may be cases where before the
mortgage is created in respect of an immovable
property, the borrower had already leased out the
immovable property in favour of a lessee either as the
owner or as a person competent or authorised to
transfer the immovable property in accordance with
Section 7 of the Transfer of Property Act. If such a
lease is made, by virtue of Section 8 of the Transfer of
Property Act, the lessee will have the right to enjoy the
leased property in accordance with the terms and
condition of the lease irrespective of whether a
subsequent mortgagee of the immovable property has
knowledge of such a lease or not.
12.
After the mortgage of an immovable property is created
by the borrower in favour of a secured creditor, the
right of the borrower to lease a mortgaged property is
regulated by Section 65A of the Transfer of Property
2
Act.
Section 65A of the Transfer of Property Act is
extracted hereinbelow:
“65A.
Mortgagor's power to lease.-
(1) Subject to the provisions of sub- section
(2), a mortgagor, while lawfully in possession
of the mortgaged property, shall have power
to make leases thereof which shall be
binding on the mortgagee.
(2)(a) Every such lease shall be such as
would be made in the ordinary course of
management of the property concerned, and
in accordance with any local law, custom or
usage.
(b) Every such lease shall reserve the best
rent that can reasonably be obtained, and no
premium shall be paid or promised and no
rent shall be payable in advance.
(c) No such lease shall contain a covenant for
renewal.
(d) Every such lease shall take effect from a
date not later than six months from the date
on which it is made.
(e) In the case of a lease of buildings,
whether leased with or without the land on
which they stand, the duration of the lease
shall in no case exceed three years, and the
lease shall contain a covenant for payment of
the rent and a condition of re- entry on the
rent not being paid within a time therein
specified.
(3) The provisions of sub- section (1) apply
only if and as far as a contrary intention is
not expressed in the mortgage- deed; and the
provisions of sub- section (2) may be varied
2
or extended by the mortgage- deed and, as so
varied and extended, shall, as far as may be,
operate in like manner and with all like
incidents, effects and consequences, as if
such variations or extensions were contained
in that sub- section.
Thus, sub-section (1) of Section 65A of the Transfer of
Property Act states that the mortgagor has the power to
make lease of a mortgaged property while he is in lawful
possession of the same subject to the provisions of sub-
section (2) of Section 65A of the Transfer of Property Act and
such lease is binding on the mortgagee. Sub-section (3) of
Section 65A further provides that such a power is available
with the mortgagor to make a lease of the mortgage property
only if and as far as a contrary intention is not expressed in
the mortgage-deed.
Thus, so long as the mortgage-deed
does not prohibit a mortgagor from making a lease of the
mortgaged property and so long as the lease satisfies the
requirements of sub-section (2) of Section 65A, a lease made
by a borrower as a mortgagor will not only be valid but is
also binding on the secured creditor as a mortgagee.
13.
We may now consider whether the provisions of the
SARFAESI Act have the effect of terminating these
2
valid leases made by the borrower or the mortgagor
made in accordance with the provisions of the Transfer
of Property Act. Section 35 of the SARFAESI Act , on
which the High Court has placed reliance in the case of
M/s Trade Well (supra) as well as in the impugned
judgment is reproduced hereinbelow:
“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 of the SARFAESI Act, therefore, provides that the
provisions
of
the
SARFAESI
Act
shall
have
effect,
notwithstanding anything inconsistent therewith contained
in any other law for the time being in force. Thus, if there is
any provision in the SARFAESI Act and if there is any
provision in any other law which is inconsistent therewith,
the provision of the SARFAESI Act will have effect and not
the provision of any other law.
The only section in the
SARFAESI Act which confers a statutory right on the
secured creditor to take possession of the secured asset and
enforce the secured asset for the realization of the secured
2
debt is Section 13.
We will, therefore, have to find out
whether there is any provision in Section 13 of the
SARFAESI Act which is inconsistent with the right of a
borrower or a mortgagor to make a lease in accordance with
the provisions of the Transfer of Property Act and the
corresponding right of a lessee to remain in possession of
the property leased out to him during the period of a lease.
14.
Section
13
of
the
SARFAESI
Act
is
extracted
hereinbelow:
“13. Enforcement of security interest.-
(1).
Notwithstanding anything contained
in section 69 or section 69A of the
Transfer of Property Act, 1882 (4 of 1882),
any security interest created in favour of
any secured creditor may be enforced,
without the intervention of the court or
tribunal, by such creditor in accordance
with the provisions of this Act.
(2)
Where any borrower, who is under a
liability to a secured creditor under a
security agreement, makes any default in
repayment of secured debt or any
instalment thereof, and his account in
respect of such debt is classified by the
secured creditor as non-performing asset,
then, the secured creditor may require the
borrower by notice in writing to discharge
in full his liabilities to the secured creditor
within sixty days from the date of notice
failing which the secured creditor shall be
3
entitled to exercise all or any of the rights
under sub-section (4).
(3)
The notice referred to in sub-section
(2) shall give details of the amount payable
by the borrower and the secured assets
intended to be enforced by the secured
creditor in the event of non-payment of
secured debts by the borrower.
(3A) If, on receipt of the notice under sub-
section (2), the borrower makes any
representation or raises any objection, the
secured creditor shall consider such
representation or objection and if the
secured creditor comes to the conclusion
that such representation or objection is
not acceptable or tenable, he shall
communicate within 15 days of receipt of
such representation or objection the
reasons for non-acceptance of the
representation or objection
to
the
borrower:
Provided
that
the
reasons
so
communicated or the likely action of the
secured creditor at the stage of
communication of reasons shall not confer
any right upon the borrower to prefer an
application to the Debts Recovery Tribunal
under Section 17 or the Court of District
Judge under Section 17A.
(4)
In case the borrower fails to
discharge his liability in full within the
period specified in sub-section (2), the
secured creditor may take recourse to one
or more of the following measures to
recover his secured debt, namely:-
(a)
take possession of the secured
assets of the borrower including the
right to transfer by way of lease,
3
assignment or sale for realising the
secured asset;
(b) take over the management of the
business of the borrower including the
right to transfer by way of lease,
assignment or sale for realising the
secured asset;
Provided that the right to transfer by
way of lease, assignment or sale shall
be
exercised
only
where
the
substantial part of the business of the
borrower is held as security for the
debt.
Provided further that where the
management of whole, of the business
or part of the business is severable, the
secured creditor shall take over the
management of such business of the
borrower which is relatable to the
security or the debt;
(c)
appoint any person (hereafter
referred to as the manager), to manage
the secured assets the possession of
which has been taken over by the
secured creditor;
(d) require at any time by notice in
writing, any person who has acquired
any of the secured assets from the
borrower and from whom any money is
due or may become due to the
borrower, to pay the secured creditor,
so much of the money as is sufficient
to pay the secured debt.
(5)
Any payment made by any person
referred to in clause (d) of sub-section (4)
to the secured creditor shall give such
3
person a valid discharge as if he has made
payment to the borrower.
(5A) Where the sale of an immovable
property, for which a reserve price has
been specified, has been postponed for
what of a bid of an amount not less than
such reserve price, it shall be lawful for
any officer of the secured creditor, if so
authorised by the secured creditor in this
behalf, to bid for immovable property on
behalf of the secured creditor at any
subsequent sale.
(5B) Where the secured creditor, referred
to in sub-section (5A), is declared to be the
purchaser of the immovable property at
any subsequent sale, the amount of the
purchase price shall be adjusted towards
the amount of the claim of the secured
creditor for which the auction of
enforcement of security interest is taken
by the secured creditor, under sub-section
(4) of section 13.
(5C) The provisions of section 9 of the
Banking Regulation Act, 1949 (10 of 1949
shall, as far as may be, apply to the
immovable property acquired by secured
creditor under sub-section (5A).
(6)
Any transfer of secured asset after
taking possession thereof or take over of
management under sub-section (4), by the
secured creditor or by the manager on
behalf of the secured creditor shall vest in
the transferee all rights in, or in relation
to, the secured asset transferred as if the
transfer had been made by the owner of
such secured asset.
(7)
Where any action has been taken
against a borrower under the provisions of
3
sub-section (4), all costs, charges and
expenses which, in the opinion of the
secured creditor, have been properly
incurred by him or any expenses
incidental thereto, shall be recoverable
from the borrower and the money which is
received by the secured creditor shall, in
the absence of any contract to the
contrary, be held by him in trust, to be
applied, firstly, in payment of such costs,
charges and expenses and secondly, in
discharge of the dues of the secured
creditor and the residue of the money so
received shall be paid to the person
entitled thereto in accordance with his
rights and interests.
(8)
If the dues of the secured creditor
together with all costs, charges and
expenses incurred by him are tendered to
the secured creditor at any time before the
date fixed for sale or transfer, the secured
asset shall not be sold or transferred by
the secured creditor, and no further step
shall be taken by him for transfer or sale
of that secured asset.
(9)
In the case of financing of a financial
asset by more than one secured creditors
or joint financing of a financial asset by
secured creditors, no secured creditor
shall be entitled to exercise any or all of
the rights conferred on him under or
pursuant to sub-section (4) unless
exercise of such right is agreed upon by
the secured creditors representing not less
than sixty percent in value of the amount
outstanding as on a record date and such
action shall be binding on all the secured
creditors:
3
Provided that in the case of a company in
liquidation, the amount realised from the
sale of secured assets shall be distributed in
accordance with the provisions of section
529A of the Companies Act, 1956 (1 of
1956):
Provided further that in the case of a
company being wound up on or after the
commencement of this Act, the secured
creditor of such company, who opts to
realise his security instead of relinquishing
his security and proving his debt under
proviso to sub-section (1) of section 529 of
the Companies Act, 1956 (1 of 1956), may
retain the sale proceeds of his secured
assets after depositing the workmen’s dues
with the liquidator in accordance with the
provisions of section 529A of that Act:
Provided also that the liquidator referred to
in the second proviso shall intimate the
secured creditors the workmen’s dues in
accordance with the provisions of section
529A of the Companies Act, 1956 (1 of
1956) and in case such workmen’s dues
cannot be ascertained, the liquidator shall
intimate
the
estimated
amount
of
workmen’s dues under that section to the
secured creditor and in such case the
secured creditor may retain the sale
proceeds of the secured assets after
depositing the amount of such estimated
dues with the liquidator:
Provided also that in case the secured
creditor deposits the estimated amount of
workmen’s dues, such creditor shall be
liable to pay the balance of the workmen’s
dues or entitled to receive the excess
amount, if any, deposited by the secured
creditor with the liquidator:
3
Provided also that the secured creditor shall
furnish an undertaking to the liquidator to
pay the balance of the workmen’s dues, if
any.
Explanation.-For the purposes of this sub-
section,-
(a)
record date means the date agreed
upon by the secured creditors representing
not less than three-fourth in value of the
amount outstanding on such date;
(b) amount outstanding shall include
principal, interest and any other dues
payable by the borrower to the secured
creditor in respect of secured asset as per
the books of account of the secured creditor.
(10) Where dues of the secured creditor are
not fully satisfied with the sale proceeds of
the secured assets, the secured creditor
may file an application in the form and
manner as may be prescribed to the Debts
Recovery Tribunal having jurisdiction or a
competent court, as the case may be, for
recovery of the balance amount from the
borrower.
(11) Without prejudice to the rights
conferred on the secured creditor under or
by this section the secured creditor shall be
entitled to proceed against the guarantors or
sell the pledged assets without first taking
any of the measures specified in clauses (a)
to (d) of sub-section (4) in relation to the
secured assets under this Act.
(12) The rights of a secured creditor under
this Act may be exercised by one or more of
his officers authorised in this behalf in such
manner as may be prescribed.
3
(13) No borrower shall, after receipt of
notice referred to in sub-section (2), transfer
by way of sale, lease or otherwise (other
than in the ordinary course of his business)
any of his secured assets referred to in the
notice, without prior written consent of the
secured creditor.”
15.
When we read the different provisions of Section 13 of
the SARFAESI Act extracted above, we find that sub-
section (4) of Section 13 provides that in case the
borrower fails to discharge his liability in full within
sixty days from the date of notice provided in sub-
section (2) of Section 13 of the SARFAESI Act, the
secured creditor may take recourse to one or more of
the measures mentioned therein to recover his secured
debt. One of the measures mentioned in clause (a) in
sub-section (4) of Section 13 of the SARFAESI Act is to
take possession of the secured assets of the borrower
including the right to transfer by way of lease. Where,
however, the lawful possession of the secured asset is
not with the borrower, but with the lessee under a
valid lease, the secured creditor cannot take over
possession of the secured asset until the lawful
possession of the lessee gets determined.
There is,
3
however, no mention in sub-section (4) of Section 13 of
the SARFAESI Act that a lease made by the borrower
in favour of a lessee will stand determined on the
secured creditor deciding to take any of the measures
mentioned in Section 13 of the said Act. Sub-section
(13) of Section 13 of the SARFAESI Act, however,
provides that after receipt of notice referred to in sub-
section (2) of Section 13 of the SARFAESI Act, no
borrower shall lease any of his secured assets referred
to in the notice, without the prior written consent of
the secured creditor.
This provision in sub-section
(13) of Section 13 of the SARFAESI Act and the
provisions of the Transfer of Property Act enabling the
borrower or the mortgagor to make a lease are
inconsistent with each other. Hence, sub-section (13)
of Section 13 of the SARFAESI Act will override the
provisions of Section 65A of the Transfer of Property
Act by virtue of Section 35 of the SARFAESI Act, and a
lease of a secured asset made by the borrower after he
receives the notice under sub-section (2) of Section 13
3
from the secured creditor intending to enforce that
secured asset will not be a valid lease.
16.
We may now consider the nature of the right of the
lessee and as to when the lease under the Transfer of
Property Act gets determined. Sections 105 and 111 of
the Transfer of Property Act, which are relevant in this
regard, are quoted hereinbelow:
“105. Lease defined:- A lease of immovable
property is a transfer of a right to enjoy such
property, made for a certain time, express or
implied, or in perpetuity, in consideration of a
price paid or promised, or of money, a share of
crops, service or any other thing of value, to be
rendered periodically or on specified occasions
to the transferor by the transferee, who
accepts the transfer on such terms.
Lessor, lessee, premium and rent defined:-
The transferor is called the lessor, the
transferee is called the lessee, the price is
called the premium, and the money, share,
service or other thing to be so rendered is
called the rent.
111. Determination of lease:- A lease of
immovable property determines-
(a) by efflux of the time limited thereby,
(b)
where
such
time
is
limited
conditionally on the happening of some
event-by the happening of such event,
3
(c) where the interest of the lessor in the
property terminates on, or his power to
dispose of the same extends only to, the
happening of any event-by the happening
of such event,
(d) in case the interests of the lessee and
the lessor in the whole of the property
become vested at the same time in one
person in the same right,
(e) by express surrender, that is to say, in
case the lessee yields up his interest
under the lease to the lessor, by mutual
agreement between them,
(f) by implied surrender,
(g) by forfeiture; that is to say, (1) in case
the lessee breaks an express condition
which provides that, on breach thereof,
the lessor may re-enter; or (2) in case the
lessee renounces his character as such
by setting up a title in a third person or
by claiming title in himself; or (3) the
lessee is adjudicated an insolvent and the
lease provides that the lessor may re-
enter on the happening of such event;
and in any of these cases the lessor or his
transferee gives notice in writing to the
lessee of his intention to determine the
lease,
(h) on the expiration of a notice to
determine the lease, or to quit, or of
intention to quit, the property leased,
duly given by one party to the other.
Section 105 thus provides that a lessee of an immovable
property has a right to enjoy such property, for a certain
4
time or in perpetuity when a lessor leases an immovable
property transferring his right to enjoy such property for a
certain time or in perpetuity. Section 111 of the Transfer of
Property Act, 1882 provides the different modes by which a
lease gets determined.
Thus, so long as a lease of an
immovable property does not get determined, the lessee has
a right to enjoy the property and this right is a right to
property and this right cannot be taken away without the
authority of law as provided in Article 300A of the
Constitution. As we have noticed, there is no provision in
Section 13 of the SARFAESI Act that a lease in respect of a
secured asset shall stand determined when the secured
creditor decides to take the measures mentioned in Section
13 of the said Act.
Without the determination of a valid
lease, the possession of the lessee is lawful and such lawful
possession of a lessee has to be protected by all courts and
tribunals.
17.
We may now look at the provisions of Section 14 of
the SARFAESI Act to find out whether it confers any
power on the Chief Metropolitan Magistrate or the
District Magistrate to assist the secured creditor in
4
taking possession of the secured asset which is in
lawful possession of the lessee under a valid lease.
Section
14
of
the
SARFAESI
Act
is
extracted
hereinbelow:
“14. Chief Metropolitan Magistrate or
District Magistrate to assist secured creditor
in taking possession of secured asset (1)
Where the possession of any secured assets is
required to be taken by the secured creditor or
if any of the secured asset is required to be sold
or transferred by the secured creditor under the
provisions of this Act, the secured creditor may,
for the purpose of taking possession or control
of any such secured asset, request, in writing,
the Chief Metropolitan Magistrate or the
District Magistrate within whose jurisdiction
any such secured asset or other documents
relating thereto may be situated or found, to
take possession thereof, and the Chief
Metropolitan Magistrate or, as the case may be,
the District Magistrate shall, on such request
being made to him—
(a) take possession of such asset and
documents relating thereto; and
(b) forward such assets and documents to
the secured creditor.
Provided that any application by the secured
creditor shall be accompanied by an affidavit
duly affirmed by the aurhorised officer of the
secured creditor, declaring that—
(i) the aggregate amount of financial
assistance granted and the total claim of
the Bank as on the date of filing the
application;
4
(ii) the borrower has created security
interest over various properties and that
the Bank or Financial Institution is
holding a valid and subsisting security
interest over such properties and the
claim of the Bank or Financial Institution
is within the limitation period;
(iii) the borrower has created security
interest over various properties giving the
details of properties referred to in sub-
clause (ii) above;
(iv) the borrower has committed default in
repayment of the financial assistance
granted aggregating the specified amount;
(v) consequent upon such default in
repayment of the financial assistance the
account of the borrower has been
classified as a non-performing asset;
(vi) affirming that the period of sixty days
notice as required by the provisions of
sub-section (2) of section 13, demanding
payment of the defaulted financial
assistance has been served on the
borrower;
(vii) the objection or representation in
reply to the notice received from the
borrower has been considered by the
secured creditor and reasons for non-
acceptance
of
such
objection
or
representation had been communicated to
the borrower;
(viii)
the borrower has not made any
repayment of the financial assistance in
spite of the above notice and the
Authorised Officer is, therefore, entitled to
4
take possession of the secured assets
under the provisions of sub-section (4) of
section 13 read with section 14 of the
principal Act;
(ix) that the provisions of this Act and the
rules made thereunder had been complied
with:
Provided further that on receipt of the affidavit from
the Authorised Officer, the District Magistrate or the
Chief Metropolitan Magistrate, as the case may be,
shall after satisfying the contents of the affidavit
pass suitable orders for the purpose of taking
possession of the secured assets:
Provided also that the requirement of filing affidavit
stated in the first proviso shall not apply to
proceeding pending before any District Magistrate or
the Chief Metropolitan Magistrate, as the case may
be, on the date of commencement of this Act.]
[1A) The District Magistrate or the Chief Metropolitan
Magistrate may authorise any officer subordinate to
him,--
(i)
(ii)
to take possession of such assets and
documents relating thereto; and
to forward such assets and documents to
the secured creditor.
(2) For the purpose of securing compliance with
the provisions of sub-section (1), the Chief
Metropolitan Magistrate or the District
Magistrate may take or cause to be taken such
steps and use, or cause to be used, such force,
as may, in his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate
or the District Magistrate done in pursuance of
this section shall be called in question in any
court or before any authority. “
4
18.
The opening words of sub-section (1) of Section 14 of
the SARFAESI Act make it clear that where the possession
of any secured assets is required to be taken by the secured
creditor or if any of the secured asset is required to be sold
or transferred by the secured creditor “under the provisions
of the Act”, the secured creditor may, for the purpose of
taking possession or control of any such secured asset,
request, in writing, the Chief Metropolitan Magistrate or the
District Magistrate within whose jurisdiction any such
secured asset or other documents relating thereto may be
situated or found, to take possession thereof. Thus, only if
possession of the secured asset is required to be taken
under the provisions of the SARFAESI Act, the secured
creditor can move the Chief Metropolitan Magistrate or the
District Magistrate for assistance to take possession of the
secured asset. We have already held that Section 13 of the
SARFAESI Act does not provide that the lease in respect of a
secured asset will get determined when the secured creditor
decides to take the measures in the said section.
Hence,
possession of the secured asset from a lessee in lawful
4
possession under a valid lease is not required to be taken
under the provisions of the SARFAESI Act and the Chief
Metropolitan Magistrate or the District Magistrate, therefore,
does not have any power under Section 14 of the SARFAESI
Act to take possession of the secured asset from such a
lessee and hand over the same to the secured creditor.
When, therefore, a secured creditor moves the Chief
Metropolitan Magistrate or the District Magistrate for
assistance to take possession of the secured asset, he must
state in the affidavit accompanying the application that the
secured asset is not in possession of a lessee under the
valid lease made prior to creation of the mortgage by the
borrower or made in accordance with Section 65A of the
Transfer of Property Act prior to receipt of a notice under
sub-section (2) of Section 13 of the SARFAESI Act by the
borrower. We would like to clarify that even in such cases
where the secured creditor is unable to take possession of
the secured asset after expiry of the period 60 days of the
notice to the borrower of the intention of the secured
creditor to enforce the secured asset to realize the secured
debt, the secured creditor will have the right to receive any
4
money due or which may become due, including rent, from
the lessee to the borrower. This will be clear from clause (d)
of sub-section (4) of Section 13, which provides that in case
the borrower fails to discharge his liability in full within the
notice period, the secured creditor may require, at any time
by notice in writing, any person who has acquired any of the
assets from the borrower and from whom any money is due
or may become due to the borrower, to pay the secured
creditor, so much of the money as is sufficient to pay the
secured debt.
19.
The opening words of sub-section (1) of Section 14 of
the SARFAESI Act also provides that if any of the secured
asset is required to be sold or transferred by the secured
creditor under the provisions of the Act, the secured creditor
may
take
the
assistance
of
the
Magistrate or the District Magistrate.
Chief
Metropolitan
Where, therefore,
such a request is made by the secured creditor and the
Chief Metropolitan Magistrate or the District Magistrate
finds that the secured asset is in possession of a lessee but
the lease under which the lessee claims to be in possession
of the secured asset stands determined in accordance with
4
Section 111 of the Transfer of Property Act, the Chief
Metropolitan Magistrate or the District Magistrate may pass
an order for delivery of possession of secured asset in favour
of the secured creditor to enable the secured creditor to sell
and transfer the same under the provisions of the
SARFAESI Act.
Sub-section (6) of Section 13 of the
SARFAESI Act provides that any transfer of secured asset
after taking possession of secured asset by the secured
creditor shall vest in the transferee all rights in, or in
relation to, the secured asset transferred as if the transfer
had been made by the owner of such secured asset.
In
other words, the transferee of a secured asset will not
acquire any right in a secured asset under sub-section (6) of
Section 13 of the SARFAESI Act, unless it has been effected
after the secured creditor has taken over possession of the
secured asset.
Thus, for the purpose of transferring the
secured asset and for realizing the secured debt, the
secured creditor will require the assistance of the Chief
Metropolitan Magistrate or the District Magistrate for taking
possession of a secured asset from the lessee where the
4
lease stands determined by any of the modes mentioned in
Section 111 of the Transfer of Property Act.
20.
We may now deal with the remedies available to the
lessee where he is threatened to be dispossessed by any
action taken by the secured creditor under Section 13 of the
SARFAESI Act.
Sub-rules (1) and (2) of Rule 8 of the
Security Interest (Enforcement) Rules, 2002 provide for a
possession notice where the secured asset is an immovable
property. Sub-rules (1) (2) and (3) of Rule 8 of the Security
Interest (Enforcement) Rules, 2002 as well as Appendix IV of
the said Rules, which is the form of such possession notice,
are extracted hereunder:
“8. Sale of immovable secured assets.- (1)
Where the secured asset is an immovable
property, the authorised officer shall take or
cause to be taken possession, by delivering a
possession notice prepared as nearly as
possible in Appendix IV to these rules, to the
borrower and by affixing the possession notice
on the outer door or at such conspicuous
place of the property.
(2) The possession notice as referred to in
sub-rule (1) shall also be published, as soon
as possible but in any case not later than
seven days from the date of taking
possession, in two leading newspaper] one in
vernacular
language
having
sufficient
4
circulation in that locality, by the authorised
officer.
(3) In the event of possession of immovable
property is actually taken by the authorised
officer, such property shall be kept in his own
custody or in the custody of any person
authorised or appointed by him, who shall
take as much care of the property in his
custody as an owner of ordinary prudence
would, under the similar circumstances, take
of such property.......”
“APPENDIX-IV
[See rule-8(1)]
POSSESSION NOTICE
(for Immovable property)
Whereas
The undersigned being the authorised officer
of the _______________ (name of the
Institution) under the Securitisation and
Reconstruction of Financial Assets and
Enforcement of Security Interest [Act, 2002
(54 of 2002)] and in exercise of powers
conferred under Section 13(12) read with rule
9 of the Security Interest (Enforcement) Rules,
2002
issued
demand
notice
dated
_______________calling upon the borrower Shri
_______________/M/s_______________to repay
the amount mentioned in the notice being Rs.
_______________(in
words_______________)
within 60 days from the date of receipt of the
said notice.
The borrower having failed to repay the
amount, notice is hereby given to the
borrower and the public in general that the
undersigned has taken possession of the
property described herein below in exercise of
5
powers conferred on him/ her under Section
13(4) of the said 27[Act] read with rule 9 of
the said rules on this _______________day
of_______________of the year_______________.
The borrower in particular and the public in
general is hereby cautioned not to deal with
the property and any dealings with the
property will be subject to the charge of the
_______________ (name of the Institution) for
an amount Rs. _______________and interest
thereon.
_____________________________________________
Description of the Immovable Property
_____________________________________________
All that part and parcel of the property
consisting of Flat No. _______/Plot No. _______
In Survey No. _______/City or Town Survey
No. _______/Khasara no. _______Within the
registration
Sub-district_______
and
District_______.
Bounded;
On the North by
On the South by
On the East by
On the West by
Authorised Officer
(Name of the Institution)
Date:
Place:
___________________________________________”
A reading of sub-rules (1) and (2) of Rule 8 of the Security
Interest (Enforcement) Rules, 2002 would show that the
5
possession notice will have to be affixed on the outer door or
at the conspicuous place of the property and also published,
as soon as possible but in any case not later than seven
days from the date of taking possession, in two leading
newspapers, one in vernacular language having sufficient
circulation in that locality, by the authorised officer. At this
stage, the lessee of an immovable property will have notice
of the secured creditor making efforts to take possession of
the secured assets of the borrower.
21.
When, therefore, a lessee becomes aware of the
possession being taken by the secured creditor, in respect of
the secured asset in respect of which he is the lessee, from
the
possession
notice
which
is
delivered,
affixed
or
published in sub-rule (1) and sub-rule (2) of Rule 8 of the
Security Interest (Enforcement) Rules, 2002, he may either
surrender possession or resist the attempt of the secured
creditor to take the possession of the secured asset by
producing before the authorised officer proof that he was
inducted as a lessee prior to the creation of the mortgage or
that he was a lessee under the mortgagor in accordance
with the provisions of Section 65A of the Transfer of
5
Property Act and that the lease does not stand determined
in accordance with Section 111 of the Transfer of Property
Act. If the lessee surrenders possession, the lease even if
valid gets determined in accordance with clause (f) of
Section 111 of the Transfer of Property Act, but if he resists
the attempt of the secured creditor to take possession, the
authorised officer cannot evict the lessee by force but has to
file an application before the Chief Metropolitan Magistrate
or the District Magistrate under Section 14 of the SARFAESI
Act and state in the affidavit accompanying the application,
the name and address of the person claiming to be the
lessee.
When such an application is filed, the Chief
Metropolitan Magistrate or the District Magistrate will have
to give a notice and give an opportunity of hearing to the
person claiming to be the lessee as well as to the secured
creditor, consistent with the principles of natural justice,
and then take a decision.
If the Chief Metropolitan
Magistrate or District Magistrate is satisfied that there is a
valid lease created before the mortgage or there is a valid
lease created after the mortgage in accordance with the
requirements of Section 65A of the Transfer of Property Act
5
and that the lease has not been determined in accordance
with the provisions of Section 111 of the Transfer of
Property Act, he cannot pass an order for delivering
possession of the secured asset to the secured creditor. But
in case he comes to the conclusion that there is in fact no
valid lease made either before creation of the mortgage or
after creation of the mortgage satisfying the requirements of
Section 65A of the Transfer of Property Act or that even
though there was a valid lease, the lease stands determined
in accordance with Section 111 of the Transfer of Property
Act, he can pass an order for delivering possession of the
secured asset to the secured creditor.
22.
Sub-section (3) of Section 14 of the SARFAESI Act
provides that no act of the Chief Metropolitan Magistrate or
the District Magistrate or any officer authorised by the Chief
Metropolitan Magistrate or District Magistrate done in
pursuance of Section 14 shall be called in question in any
court or before any authority. The SARFAESI Act, therefore,
attaches finality to the decision of the Chief Metropolitan
Magistrate or the District Magistrate and this decision
cannot be challenged before any court or any authority.
5
But this Court has repeatedly held that statutory provisions
attaching finality to the decision of an authority excluding
the power of any other authority or Court to examine such a
decision will not be a bar for the High Court or this Court to
exercise jurisdiction vested by the Constitution because a
statutory provision cannot take away a power vested by the
Constitution.
To quote, the observations of this Court in
Columbia Sportswear Company v. Director of Income Tax,
Bangalore [(2012) 11 SCC 224]:
“17. Considering the settled position of law
that the powers of this Court under Article
136 of the Constitution and the powers of the
High Court under Articles 226 and 227 of the
Constitution could not be affected by the
provisions made in a statute by the
Legislature making the decision of the
tribunal final or conclusive, we hold that
sub-section (1) of Section 245S of the Act,
insofar as, it makes the advance ruling of the
Authority binding on the applicant, in
respect of the transaction and on the
Commissioner and income-tax authorities
subordinate to him, does not bar the
jurisdiction of this Court under Article 136 of
the Constitution or the jurisdiction of the
High Court under Articles 226 and 227 of the
Constitution to entertain a challenge to the
advance ruling of the Authority.”
In our view, therefore, the decision of the Chief Metropolitan
Magistrate or the District Magistrate can be challenged
5
before the High Court under Articles 226 and 227 of the
Constitution by any aggrieved party and if such a challenge
is made, the High Court can examine the decision of the
Chief Metropolitan Magistrate or the District Magistrate, as
the case may be, in accordance with the settled principles of
law.
23.
We may next consider whether a lessee has any
remedy by way of an appeal under Section 17 of the
SARFAESI Act when the secured creditor attempts to take
over possession of the secured asset which is in possession
of the lessee. Sub-sections (1), (2) and (3) of Section 17 of
the SARFAESI Act are extracted hereinbelow:
“17. Right to appeal.--(1) Any person
(including borrower), aggrieved by any of the
measures referred to in sub-section (4) of
section 13 taken by the secured creditor or
his authorised officer under this Chapter,
may make an application alongwith such
fee, as may be prescribed to the Debts
Recovery Tribunal having jurisdiction in the
matter within forty-five days from the date
on which such measure had been taken:
Provided that different fees may be
prescribed for making the application by the
borrower and the person other than the
borrower.
5
Explanation.--For the removal of doubts, it
is hereby declared that the communication
of the reasons to the borrower by the
secured creditor for not having accepted his
representation or objection or the likely
action of the secured creditor at the stage of
communication of reasons to the borrower
shall not entitle the person (including
borrower) to make an application to the
Debts Recovery Tribunal under this sub-
section.
(2) The Debts Recovery Tribunal shall
consider whether any of the measures
referred to in sub-section (4) of section 13
taken by the secured creditor for
enforcement of security are in accordance
with the provisions of this Act and the rules
made thereunder.
(3) If, the Debts Recovery Tribunal, after
examining the facts and circumstances of
the case and evidence produced by the
parties, comes to the conclusion that any of
the measures referred to in sub-section (4)
of section 13, taken by the secured creditor
are not in accordance with the provisions of
this Act and the rules made thereunder, and
require restoration of the management of
the business to the borrower or restoration
of possession of the secured assets to the
borrower, it may by order, declare the
recourse to any one or more measures
referred to in sub-section (4) of section 13
taken by the secured creditors as invalid
and restore the possession of the secured
assets to the borrower or restore the
management of the business to the
borrower, as the case may be, and pass
such order as it may consider appropriate
and necessary in relation to any of the
5
recourse taken by the secured creditor
under sub-section (4) of section 13.”
24.
When we read sub-section (1) of Section 17 of the
SARFAESI Act, we find that under the said sub-section “any
person (including borrower)”, aggrieved by any of the
measures referred to in sub-section (4) of Section 13 taken
by the secured creditor or his authorised officer under the
Chapter, may apply to the Debts Recovery Tribunal having
jurisdiction in the matter within 45 days from the date on
which such measures had been taken. We agree with the
Mr. Vikas Singh that the words ‘any person’ are wide
enough to include a lessee also. It is also possible to take a
view that within 45 days from the date on which a
possession notice is delivered or affixed or published under
sub-rules (1) and (2) of Rule 8 of the Security Interest
(Enforcement) Rules, 2002, a lessee may file an application
before the Debts Recovery Tribunal having jurisdiction in
the matter for restoration of possession in case he is
dispossessed of the secured asset. But when we read sub-
section (3) of Section 17 of the SARFAESI Act, we find that
the
Debts
Recovery
Tribunal
has
powers
to
restore
5
possession of the secured asset to the borrower only and not
to any person such as a lessee.
Hence, even if the Debt
Recovery Tribunal comes to the conclusion that any of the
measures referred to in sub-section (4) of Section 13 taken
by the secured creditor are not in accordance with the
provisions of the Act, it cannot restore possession of the
secured asset to the lessee.
Where, therefore, the Debts
Recovery Tribunal considers the application of the lessee
and comes to the conclusion that the lease in favour of the
lessee was made prior to the creation of mortgage or the
lease though made after the creation of mortgage is in
accordance with the requirements of Section 65A of the
Transfer of Property Act and the lease was valid and binding
on the mortgagee and the lease is yet to be determined, the
Debts Recovery Tribunal will not have the power to restore
possession of the secured asset to the lessee.
In our
considered opinion, therefore, there is no remedy available
under Section 17 of the SARFAESI Act to the lessee to
protect his lawful possession under a valid lease.
25.
The High Court, however, has relied on Transcore v.
Union of India & Anr. [(2008) 1 SCC 125] for holding that the
5
SARFAESI Act provides for recovery of possession by non-
adjudicatory process and it removes all fetters on the right
of the secured creditor and that the secured creditor is
entitled to take recourse to any one or more of the measures
specified in Section 13(4) of the SARFAESI Act to recover a
secured debt, notwithstanding anything contained in any
other law for the time being in force. The High Court has
also relied on the aforesaid decision of this Court in the case
of Transcore (supra) to record a finding that the scheme of
Section 13(4) read with Section 17(3) of the SARFAESI Act
shows
that
if
the
borrower
is
dispossessed
not
in
accordance with the provisions of the SARFAESI Act, the
Debts Recovery Tribunal is entitled to restore status quo
ante. The High Court has also relied on the observations of
this Court in Transcore (supra) that the disputes which are
sought to be avoided by Rule 8 read with Rule 9 of the
Security Interest (Enforcement) Rules, 2002 are those where
third party interest is created overnight and third party
takes up the defence of being a bona fide purchaser for
value without notice.
We have perused the aforesaid
decision of this Court in Transcore (supra) and we find that
6
in that case, the question whether the secured creditor, in
exercise of its rights under Section 13 of the SARFAESI Act,
can take over possession of the secured asset in possession
of a lessee under a valid lease was not considered nor was
the question whether there is anything in the SARFAESI Act
inconsistent with the right of a lessee to remain in
possession of the secured asset under the Transfer of
Property Act considered.
In our view, therefore, the High
Court has not properly appreciated the judgment of this
Court in Transcore (supra) and has lost sight of the opening
words of sub-section (1) of Section 13 of the SARFAESI Act
which state that notwithstanding anything contained in
section 69 or section 69A of the Transfer of Property Act,
1882, any security interest created in favour of any secured
creditor may be enforced, without the intervention of the
court or tribunal, by such creditor in accordance with the
provisions of the Act.
The High Court has failed to
appreciate that the provisions of Section 13 of the
SARFAESI Act thus override the provisions of Section 69 or
section 69A of the Transfer of Property Act, but does not
override the provisions of the Transfer of Property Act
6
relating to the rights of a lessee under a lease created before
receipt of a notice under sub-section (2) of Section 13 of the
SARFAESI Act by a borrower. Hence, the view taken by the
Bombay High Court in the impugned judgment as well as in
M/s Trade Well (supra) so far as the rights of the lessee in
possession of the secured asset under a valid lease made by
the mortgagor prior to the creation of mortgage or after the
creation of mortgage in accordance with Section 65A of the
Transfer of Property Act is not correct and the impugned
judgment of the High Court insofar it takes this view is set
aside.
26.
A further question of law raised in these appeals is
whether
the
tenants
have
remedies
under
the
concerned tenancy law. In the State of Maharashtra,
the Maharashtra Rent Control Act, 1999 is in force
and this Act applies to premises let for the purposes of
residence, education, business, trade or storage
specified in Schedule I and Schedule II of the Act as
well as houses let out in areas to which the Bombay
Rents, Hotel and Lodging House Rates Control Act,
1947 applied before the commencement of the Act.
6
Section 33 of the Maharashtra Rent Control Act is
titled ‘Jurisdiction of courts’ and it provides that the
courts named therein ‘shall have jurisdiction to
entertain and try any suit or proceeding between a
landlord and a tenant relating to the recovery of rent
or possession of any premises and to decide any
application made under the Act and the applications
which are to be decided by the State Government or
an officer authorised by it or the Competent Authority.
The question of law that we have to consider is
whether the appellants as tenants of premises in the
State of Maharashtra including Mumbai will have any
remedy to move these courts having jurisdiction under
Section 33 of the Maharashtra Rent Control Act and
obtain the relief of injunction against the secured
creditor taking possession of the secured asset from
the appellants.
The answer to this question is in
Section 34 of the SARFAESI Act, which is extracted
hereinbelow:
“34. Civil court not to have jurisdiction.- No
civil court shall have jurisdiction to entertain
any suit or proceeding in respect of any
matter which a Debts Recovery Tribunal or
6
the Appellate Tribunal is empowered by or
under this Act to determine and no injunction
shall be granted by any court or other
authority in respect of any action taken or to
be taken in pursuance of any power conferred
by or under this Act or under the Recovery of
Debts Due to Banks and Financial
Institutions Act, 1993 (51 of 1993).
A reading of the second limb of Section 34 of the SARFAESI
Act would show that no injunction shall be granted by any
court or other authority in respect of any action taken or to
be taken in pursuance of any power conferred by or under
the Act.
Thus, when action is sought to be taken by the
secured creditor under Section 13 of the SARFAESI Act or
by the Chief Metropolitan Magistrate or the District
Magistrate under Section 14 of the SARFAESI Act, the Court
or
the
authority
mentioned
in
Section
33
of
the
Maharashtra Rent Control Act cannot grant the injunction
to prevent such action by the secured creditor or by the
Chief Metropolitan Magistrate or the District Magistrate.
Even otherwise, Section 33 of the Maharashtra Rent Control
Act vests jurisdiction in the courts named therein to decide
disputes between the landlord and the tenant and not
6
disputes between the secured creditor and the tenant under
landlord who is a borrower of the secured assets.
27.
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 immoveable
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
immoveable 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
6
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 an year from the date of the
instrument or from the date of delivery of possession
in his favour by the landlord.
Orders and directions of this Court in the facts of the
cases before the Court:
28.
Having
expressed
our
opinion
on
the
different
questions of law raised in these appeals, we may now
pass orders and directions considering the broad facts
of the three different categories of the case before us:
(i)
In Criminal Appeals arising out of Special Leave
Petition (Criminal) Nos.9426 of 2012, 9170 of
2012, 9163 of 2012, 9253 of 2012, 9164 of
2012, 9160 of 2012, 379 of 2013, 1467 of 2013,
1782 of 2013, 3575 of 2013, 4062 of 2012, 4063
6
of 2012, 4053 of 2012, 4068 of 2012, 4119 of
2012, 4129 of 2012, 7835 of 2013, 8365 of
2013, 9217 of 2013, 10346 of 2013, 6587 of
2012, 6639 of 2012, 6523 of 2012, 6622 of
2012, 7731 of 2012, 7747 of 2012 and 4618 of
2012, the appellants claim that they are in
possession of the secured asset under a lease
made prior to the mortgage but the Chief
Metropolitan Magistrate, Mumbai, has passed
orders under Section 14 of the SARFAESI Act for
delivery of possession of the secured asset to the
respective secured creditors.
These orders
passed by the Chief Metropolitan Magistrate,
Mumbai, are set aside and the matters are
remitted to the Chief Metropolitan Magistrate to
pass fresh orders in accordance with this
judgment and any other law that may be
relevant after giving an opportunity of hearing to
the appellants and the secured creditors.
(ii)
In Criminal Appeals arising out of Special Leave
Petition (Criminal) Nos.4064 of 2012, 4117 of
6
2012, 4114 of 2012, 4124 of 2012, 4052 of
2012, 4058 of 2012, 4061 of 2012, 4057 of
2012, 4620 of 2012, 6612 of 2012, 7722 of
2012, 7744 of 2012, 7749 of 2012, 7743 of
2012, 4130 of 2012 and 4125 of 2012 when the
appellants filed the Special Leave Petitions under
Article 136 of the Constitution of India, the
applications of the secured creditors under
Section 14 of the SARFAESI Act were pending.
In case the applications are still pending, the
Chief Metropolitan Magistrate or the District
Magistrate, as the case may be, will consider the
claims of the appellants that they were in
possession of the secured asset under a lease
made prior to the creation of the mortgage and
decide the applications under Section 14 in
accordance with this judgment and any other
law that may be relevant.
In case, during the
pendency of these appeals, orders have been
passed by the Chief Metropolitan Magistrate or
the District Magistrate under Section 14 of the
6
SARFAESI Act, the orders so passed will stand
quashed and the Chief Metropolitan Magistrate
or the District Magistrate will pass fresh orders
in accordance with this judgment and any other
law that may be relevant after giving an
opportunity of hearing to the appellants and the
secured creditors.
(iii)
In the Criminal Appeals arising out of Special
Leave Petition (Criminal) Nos.4619 of 2012, 6598
of 2012, 6522 of 2012, 7745 of 2012, 7746 of
2012 and 4120 of 2012, when the Special Leave
Petitions were filed under Article 136 of the
Constitution of India, no application under
Section 14 of the SARFAESI Act had been filed
by
the
secured
creditors.
In
case
such
application under Section 14 of the SARFAESI
Act has been filed in the meanwhile or is filed in
future, the Chief Metropolitan Magistrate or the
District Magistrate, as the case may be, will
decide the applications in accordance with this
judgment and any other law that may be
6
relevant after giving opportunity of hearing to the
appellants and the secured creditors.
(iv)
In all these appeals, the Chief Metropolitan
Magistrate or the District Magistrate, as the case
may be, will pass final orders under Section 14
of the SARFAESI Act within four months from
the date of filing of certified copy of this
judgment by either the lessee/tenant or the
secured creditor.
(v)
With the aforesaid directions and orders, the
appeals are allowed. The parties shall bear their
own costs.
.............................J.
(A. K. Patnaik)
.............................J.
(V. Gopala Gowda)
New Delhi,
April 03, 2014.
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