emphasis on paragraph No.36 in the same decision [Harshad
Govardhan Sondagars Case (Supra 1)] to substantiate the stand of
the bank that the tenants are entitled to possession of the secured asset
for any term exceeding one year from the date of lease made in their
favour, in case, they are able to prove that the leases are through
registered instruments. The Honble Supreme Court while adverting
to the purport of Section 107 of TP Act in the context of the claim of
the appellants therein that they were entitled to possession of a
secured asset for any term exceeding one year from the date of lease
made in their favour, they will have to produce proof of execution of
registered instrument in their favour by the lessor, holding, thus:
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 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 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.
27. Turning to the leases filed by the tenants in W.P. No.29825
of 2015, none of them could produce registered lease deeds in their
favour executed by the guarantor, and, therefore, the said leases have
to be construed as invalid instruments and no rights would flow to
resist the order passed by the learned Chief Metropolitan Magistrate
under Section 14 of the Act and the consequential notices issued by
the Advocate-commissioners dated 10.10.2015 requiring them to
vacate secured asset No.1. The tenant in W.P. (S.R.) No.215389 of
2015 though filed registered lease deed, dated 05.11.2002, concerning
Shop Nos.11 and 12 respectively, but they got determined by the
expiry of ten years period mentioned therein and the subsequent lease
on renewal is only by way of an agreement and no registered lease
deed is forthcoming as required by condition No.16 mentioned therein
referred to herein before. Therefore, we have no hesitation in holding
that the tenants have no right to question either the order passed under
Section 14 of the Act or the notice issued by the Advocate-
Commissioner, dated 10.10.2015.
HYDERABAD HIGH COURT
HONBLE SRI JUSTICE R. SUBHASH REDDY AND HONBLE SRI JUSTICE A. SHANKAR
WRIT PETITION Nos.34750 OF 2015
Dated:05-01-2016
Smt. P. Kiranmai.. Vs The Bank of Maharashtra, Bank Street, Koti, Hyderabad & others
Citation:AIR 2016 hyd 137
In the former two Writ Petitions i.e., W.P. Nos.34750 and
34756 of 2015, the petitioner (guarantor), who is one of the guarantors
to respondent No.4 (borrower) for the loan availed by it from
respondent No.1 viz., Bank of Maharashtra, Bank Street, Koti,
Hyderabad, sought Mandamus to declare the vacation notice, dated
10.10.2015, issued by respondent No.3, respective Advocate-
Commissioners, pursuant to the order, dated 21.09.2015, passed by
the learned Chief Metropolitan Magistrate, Namaplly, Hyderabad, in
Criminal M.P. No.2826 of 2013, under Section 14 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (for short SARFAESI
Act), as illegal, arbitrary and violative of principles of natural justice
and consequently to direct to drop all further proceedings.
2. Latter Writ Petition and Writ Petition (S.R.) i.e.,
W.P. No.39825 of 2015 and W.P. (S.R.) No.215389 of 2015 are filed
by the tenants of the petitioner in the former writ petitions by making
her as respondent No.5, not only challenging the vacation notice,
dated 10.10.2015, issued by the respective Advocate-Commissioners,
but also the very order, dated 21-09-2015, passed by the learned Chief
Metropolitan Magistrate, Nampally, Hyderabad, under Section 14 of
the Act and also seeking consequential relief to direct respondent
Nos.1 to 3 to drop all further proceedings including vacation of the
premises.
3. For the sake of convenience, respondent Nos.1 and 2 viz.,
Bank of Maharashtra, Bank Street Branch, Koti, Hyderabad, and its
Assistant General Manager respectively, are referred to as bank,
respondent No.3, who are respective Advocate-Commissioners, is
referred to as Advocate-Commissioner and respondent No.4, which
availed loans from the bank as borrower; and the petitioners, in
W.P. No.39825 of 2015 and W.P. (S.R.) No.215389 of 2015, who are
tenants of the guarantor, are referred to as tenants.
4. The case set out by the guarantor in W.P. No.34750 of 2015
is suffice to resolve the dispute between the parties in all the writ
petitions including the writ petition (S.R.).
(a) Secured asset in W.P. No.34750 of 2015 consists of a
building bearing Municipal No.3-4-510 with a cellar and five (5)
floors built up area of 12,421 square feet in an area of 404.41 square
yards, situated in Barkatpura, Hyderabad (hereinafter referred to as
Secured Asset No.1). In W.P. No.34756 of 2015, secured asset
consists of a building bearing Shop Nos.11, 12 and 13 in the ground
floor existing on plot Nos.267(P), 268, 269, 270, 271, 256, 257, 258,
259 and 260 (P) in Survey Nos.470, 471, and 472 with a built up area
of 2,703 square yards titled VERTEX PEARL Srinivasa Nagar
Colony, Kapra Municipality, Keesara Mandal, Ranga Reddy District,
Telangana (hereinafter referred to as Secured Asset No.2). Both
secured assets belong to the guarantor. She stood as guarantor to
respondent No.4 for prompt repayment of the loan amount and
mortgaged both the properties.
(b) The guarantor states that she leased out the first floor to
Trinetra Super Market under a lease deed, dated 10.11.2004,
and presently More Super Market is located therein. She has also
leased out some area to M/s. Real Shoppey Private Limited under a
lease deed, dated 04.09.2012 for a period of six (6) years, some
portion to Dr. Kavitha Kulkarni, who is running a Poly Clinic, under a
lease deed, dated 10.08.2005, some other area to M/s. PSI Soft
(Private) Limited under a lease deed, dated 15.10.2007, and the pent
house to one Y. Kamala Pathi under a registered lease deed, dated
05-11-2002, for a period of ten (10) years and the same was extended
for a further period of ten years. Of course, total details are not
forthcoming. It is, thus, according to her, the secured asset is in
occupation of the tenants.
(c) She states that the borrower, which is a company registered
under the Companies Act producing Kraft Paper, obtained two term
loans. Petitioner states the details, thus:
The 4th respondent obtained two term loans
of Rs.5.3 crores and Rs.4 Crores, cash credit facility
of Rs.4.00 Crores, and Rs.1 Crore of letter of credit
from respondents 1 and 2..
The above facilities were accorded to the borrower on 10.01.2013 by
the bank. She states that the borrower while conducting trial
production suffered various installation problems and later due to
bifurcation of the State, it has stopped its production which resulted in
borrower failing in paying the term loan installments and the bank
classifying the borrowers account as Non Performing Asset (NPA).
The guarantor states that when the bank issued notice, dated
01.02.2014 under Section 13(2) of the Act to the borrower, borrower
answered it requesting to restructure the loan account by conducting
Techno Economic Viability (TEV) study. Accordingly, the bank
appointed one N.V.V.N. Satyanarayana and Associates, Chartered
Accountant Company, to conduct TEV study by letter, dated
16.04.2014. While the matter stood thus, the bank issued possession
notice under Section 13(4) of the Act, dated 12.08.2014. On service
of notice, the borrower made a request to restructure the loan account
by mentioning reasons therefor.
(d) It is also stated that the bank filed Criminal M.P. No.2826
of 2013 on the file of learned Chief Metropolitan Magistrate,
Nampally, Hyderabad, seeking the relief under Section 14 of the Act
and pursuant to the orders passed therein for execution, Advocate-
Commissioner issued notice, dated 10.10.2015, to vacate the secured
asset within fifteen (15) days from the date of receipt of the notice.
The said notice was served on the guarantor on 12.10.2015.
(e) It is according to the guarantor that the tenant has a right to
be in possession of the secured asset as a lessor during subsistence of
the lease and that right cannot be taken away save by the authority of
law, and, therefore, when the secured creditor moves the Chief
Metropolitan Magistrate for assistance to take possession of the
secured asset, the secured creditor must make the tenant/lessee as a
party and proceed in accordance with Section 65-A of the Transfer of
Property Act (for short TP Act). The guarantor has also stated that it
is incumbent on the secured creditor to issue notice in accordance
with Rule 8 of the Security Interest (Enforcement) Rules 2002 (for
short Rules), but, no such notice was issued to the tenant nor was
heard before passing the orders under Section 14 of the Act and thus,
the notice impugned is contrary to the decision of the Honble
Supreme Court in Harshad Govardhan Sondagar v. International
Assets Reconstruction Company Limited and others by referring
to the prohibition contained in Sub-Section (3) of Section 14 of the
Act. The guarantor sates that she approached this Court as notice
prior to passing the impugned order was not served on her.
(f) In W.P. No.34756 of 2015, similar grievance is ventilated
and, therefore, we are of the opinion that it is unnecessary to refer to
the averments in detail except to the extent that the guarantor has
granted lease of the secured asset in favour of Just Bakery under a
registered lease deed, dated 05.11.2002, initially for a period of ten
(10) years and later it was extended for a further period of ten (10)
years.
(g) In W.P. No.39825 of 2015, the petitioners are tenants in the
Secured Asset No.1 covered by W.P. No.34750 of 2015. Petitioner
No.1 (tenant) claims that he obtained lease to run Super Market under
a lease deed, dated 11.11.2014, from the guarantor. Petitioner No.2
(tenant) obtained lease on 01.08.2005 and running a clinic in the
premises, whereas petitioner No.3 (tenant) obtained lease on
15.10.2007 and running a software company. They raised very same
pleas agitated by the guarantor in the former two writ petitions.
(h) In W.P. (S.R.) No.215389 of 2015, petitioner (tenant)
claims that it is a tenant of the guanrator, who is the petitioner in
former two writ petitions, and running Just Bakery in the secured
asset. It also raised very same pleas as stated above stating that it
obtained lease under registered lease deeds, dated 12.06.2002 and
13.06.2002 for a period of ten (10) years with a condition of further
renewal for a further period of ten (10) years. Thus, the tenants
sought identical reliefs challenging the order passed under Section 14
of the Act and the pursuant notice issued by the Advocate
Commissioner for vacation of the secured asset in their occupation.
5 (a) Respondent No.2 - Chief Manager / Authorised Officer of
the Bank filed counter affidavit in W.P. No.34750 of 2015, dated
05.11.2015, on behalf of himself and respondent No.1 - bank.
According to the bank, the guarantor mortgaged the secured asset to
the loan facilities sanctioned to the borrower to a tune of
Rs.14.12 crores on 10.01.2013. Further, it has issued letters of credit
for Rs.1,30,76,851/- at the request of the borrower. The guarantor
mortgaged the schedule property by depositing the original sale deeds
with declaration for proposed equitable mortgage on 28.01.2013,
specifically stating therein, thus:
I further confirm that I am presently in self
occupation, possession and custody of the said
immovable properties which are free from any
charge, mortgage, encumbrances, claim, demand,
dispute, lis pendens, proceedings, injunction,
litigation, attachment, pledge, lease, sub-lease,
licence, trespass, tenancy, sub-tenancy or lien
and that I shall not hereafter create or allow
or permit at any time any lease, sub-lease,
licence, tenancy, sub-tenancy, trespass, lien,
pledge, charge, mortgage, encumbrance,
litigation, attachment, injunction, claim demand
or dispute over upon or into or shall not part with
possession, occupation or custody or shall not
induct any person in possession, occupation or
custody of the said immovable properties or any
part thereof.
The guarantor has also executed letter of confirmation on
30.01.2013. According to the bank, the leases mentioned by the
guarantor have to be treated as unregistered lease deeds as it is not
specifically mentioned that the said leases are registered instruments.
Hence, the leases, dated 10.11.2004, 04.09.2012, 10.08.2005, and
15.10.2007 cannot be construed as valid leases and no protection can
be sought under the provisions of the TP Act. The bank also states
that the guarantor has not filed any objections against the demand
notice issued under Section 13(2) of the Act. The bank states that
since no remittance in the loan account were made from 19.12.2014,
the account was classified as NPA on 31.03.2015.
(b) Concerning proposal made by the borrower for
restructuring the account, the bank states that its Head Office has not
accepted for the same since the borrower has not paid the overdue in
view of devolvement of letters of credit as promised by it.
The bank states that neither the borrower company nor its guarantor
can demand restructuring, as a matter of right, and the bank would
take into account all the circumstances and if the proposal merits
consideration, it will restructure the account wherever it is feasible
and do not discriminate against anybody in that regard.
(c) In W.P. No.39285 of 2015, bank filed its counter which is
almost replica of the counter filed in W.P. No.34750 of 2015 with the
exception of referring to the observations made by this Division
Bench in the case of Dr. K. Venkatesh v. Indian Overseas Bank,
Hyderabad in W.P. No.16043 of 2015, dated 30.07.2015, and also
observations of yet another Division Bench of this Court in an
identical case claiming that the leases set up by the guarantor are
unregistered and bogus one and that the tenants as well as the
guarantors are to be prosecuted for creating false documents and filing
them before the States highest Court of Justice on the ground that
they were not filed along with the writ petitions initially and some of
the leases were filed only at a subsequent stage.
6. Admittedly, none of the petitioners (tenants) in these
petitions did file any reply affidavit.
7. Heard C.B. Ram Mohan Reddy, learned counsel for the
guarantor, Sri C. Subba Rao, learned counsel for the tenants, and
Sri M.V.K. Viswanadham, learned standing counsel for the Bank.
8. Learned counsel for the guarantor would submit that Rule 8
of the Rules mandates the secured creditor to issue notice to the
borrower and no such notice was issued either to the borrower or the
tenant before passing the orders under Section 14 of the Act.
He would also submit that it is incumbent upon the secured creditor to
make lessee as a party when intends to move the Chief Metropolitan
Magistrate for assistance to take possession of the secured asset in
accordance with Section 65-A of the Transfer of Property Act.
Therefore, it is according to the learned counsel that the notices issued
by the Advocate-Commissioner are contrary to the decision of the
Honble Supreme Court in Harshad Goverdhan Sondagars Case
(Supra 1). The learned counsel also would submit that in view of the
prohibition contained in Section 3 of the Act that the order passed in
accordance with the provisions of Section 14 of the Act shall become
final and shall not be called in question in any Court or before any
authority, the only remedy available is to invoke jurisdiction of this
Court under Article 226 of the Constitution of India.
(c) Learned counsel also placed reliance on the decisions in
Anthony v. K.C. Ittoop & Sons and others , Rana Vidya Bhushan
Singh v. Ratiram , V. Dhanapal Chettiar v. Yesodai Ammal ,
Zameer Ahmed Latifur Rehman Sheikh v. State of Maharashtra
and others , Antony v. K.C. Ittoop and Sons and others ,
Government of A.P. and another v. J.B. Educational Society and
another , M. Karunanidhi v. Union of India and another , Central
Bank of India v. State of Kerala and others , Girnar Traders (3)
v. State of Maharashtra and others , Offshore Holdings Private
Limited v. Bangalore Development Authority and others ,
Mardia Chemicals Limited v. Union of India and others and M/s.
Transcore v. Union of India and another of Honble Supreme
Court, Board of Trustees of V.O. Chidambaranar, Tuticorin v.
M/s. PSA SICAL Terminals Limited, Chennai and others and
Indian Bank v. M/s. Nippon Enterprises South, Chennai and
others of Madras High Court, Pushpangadan v. Federal Bank
Limited of Kerala High Court, Sanjeev Bansal v. Oman
International Bank Saog , Tara Chand and others v. Ganga Ram
and others , Puran Chand and Company v. Ganesh Lal Tara
Chand of Delhi High Court, and Ratan Kumar Khaitan v. United
Bank of India of Calcutta High Court. Learned counsel also placed
reliance on the decisions of the Honble Supreme Court in Bharat
Singh and others v. State of Haryana and others and Keshavlal
Khemchand and Sons & Others v. Union of India & Others .
9. (a) Learned counsel for the bank would submit that the
guarantor has not filed alleged lease deeds along with the writ petition
and even did not indicate whether the first four leases referred to in
the first writ petition were registered or not and unless the leases are
registered leases entered into prior to demand notice under
Section 13(2) of the Act, either the guarantor or the so-called lessees
have no right to question the order passed under Section 14 of the Act
and the pursuant action of the Advocate-Commissioner in issuing
notice to effect the secured asset and deliver possession thereof. The
learned counsel also would submit that the request made by the
borrower for restructuring the loan was not accepted by the Head
Office of the bank, and, therefore, the request for restructuring was
not pending when the order under Section 14 of the Act was passed.
It is his submission that the account of the borrower was declared as
NPA by following due procedure and then only measure under
Section 14 of the Act was resorted to.
(b) His yet another submission is that the guarantor has
executed duly notarized mortgagors declaration while confirming the
equitable mortgage in favour of the bank and affirmed that the secured
assets in both the petitions are under her self-occupation and
possession and custody and are free from any charge, mortgage,
encumbrances, claim, demand, dispute, lis pendens, proceedings,
injunction, litigation, attachment, pledge, lease, sub-lease, licence,
trespass, tenancy, sub-tenancy or lien and assured that she shall not
thenceforth create or allow or permit at any time any lease, sub-lease
etc., and, therefore, she is debarred from pleading that leases were
executed way-back in 2004, 2005, 2007 and 2012 and that the tenants
are in possession of the secured asset and consequently she has no
right to seek any relief as the one sought for herein.
(c) Even learned counsel placed reliance on the decision in
Harshad Goverdhan Sondagars Case (Supra 1) in support of his
argument that the notice prior to the order passed under Section 14 of
the Act can only be issued where tenant is inducted into possession
under a valid lease deed, in other words, under the registered lease
deed.
10. Learned counsel for the tenants would submit that their
possession is protected by the provisions of Section 65-A of the TP
Act and, therefore, before passing orders under Section 14 of the Act,
notice ought to have been served in the proceedings to afford an
opportunity to defend their possession.
11. We would now like to examine whether the leases referred
to by the guarantor and the tenants are valid leases either to seek
protection under Section 65-A of the TP Act or to agitate their rights
in an application filed under Section 14 of the Act.
12. Admittedly, the borrower has availed term loans and credit
facility from the bank on 10.01.2013. It is not in dispute that the
guarantor herein has mortgaged the secured asset in favour of the
bank for prompt clearance of the loans contracted by the borrower.
It is also not in dispute that the demand notice under Section 13(2) of
the Act was issued by the bank on 06.03.2014. Further, admittedly,
no-objections were filed by the guarantor as envisaged under Section
13(3A) of the Act for the demand notice issued under Section 13(2) of
the Act.
13. The disputed question is, according to the guarantor and the
tenants, the leases precede mortgage in favour of the bank, and,
therefore, effecting notice in a petition filed under Section 14 of the
Act is mandatory in view of the provisions of Section 65-A of the
TP Act, and, therefore, sought to quash the impugned notices issued
by the Advocate-Commissioners as pleaded by the guarantor and to
quash the very order passed by the learned Chief Metropolitan
Magistrate under Section 14 of the Act and the consequential notice
issued by the Advocate-Commissioner, dated 10.10.2015, and further
to drop the said proceedings as pleaded by the tenants.
14. Initially, we intend to refer to the submission of the
guarantor that on receipt of notice under Section 13(4) of the Act,
the borrower requested the bank to restructure the loan account and
also sought for change in the management as the new strategic
investors have agreed to bring in the required funds for the purpose of
fulfilling the commitments and when such a request was pending
consideration, the proceedings under Section 14 of the Act were
initiated by the bank for the purpose of taking possession and control
of the said secured asset by the secured creditor.
15. We are of the considered view that the guarantor having
not availed of the opportunity afforded by the provisions of Section
13(3A) of the Act is not entitled to make a request for restructuring
the loan account after it was declared as NPA. Further, even such a
request was turned down by the bank which fact is mentioned in the
counter affidavit filed by the bank. The very fact that no reply is filed
refuting the said fact is a circumstance, which disfavours the
guarantor.
16. The guarantor, though, pleaded that leases were prior to
execution of the mortgage in favour of the bank, she has not filed
copies of the lease deeds for the reasons best known to her.
Only her tenants, when they filed W.P. No.39825 of 2015 in relation
to secured asset No.1 and the tenant in relation to secured asset No.2
in W.P. (S.R.) No.215389 of 2015, filed copies of lease
deeds/agreements which we intend to advert to at this stage itself.
17. Petitioner No.1 (tenant) in W.P. No.39825 of 2015 filed
lease agreement, dated 11.11.2004, executed by the guarantor with the
terms and conditions relating to the rental value etc. Admittedly, the
said lease agreement is an unregistered one despite the fact that it
specifically contains a covenant that duration would be for a period of
fifteen (15) years. The tenant agreed to enhance the rent by 10% at
the interval of every thirty six (36) months. Condition No.16 therein
reads thus:
This Lease Deed is drawn in duplicate on stamp
paper of Rs.100; each party shall retain a copy
thereof. The LESSEE and LESSOR shall bear the
Stamp Duty and registration charges etc., equally for
the registration of this Lease Agreement/ Deed.
It is obvious that no registered lease deed was entered into pursuant to
the aforesaid condition. Had it not been so, nothing prevented
petitioner No.1 to file registered lease deed in place of the said lease
agreement.
18. Concerning petitioner No.2 (tenant), it is also a lease
agreement, dated 10.08.2005, for a period of ten (10) years and can be
renewed at the option of lessor. The said lease agreement is an
unregistered one.
19. Concerning petitioner No.3 (tenant), it has filed rent
agreement dated 15.10.2007 for a period of ten (10) years with
renewal clause at the option of lessor. It is also only an agreement
and unregistered one. Thus, none of the petitioners have a valid lease
deed in their favour from the guarantor.
20. Concerning secured asset No.2, the tenant in W.P. (S.R.)
No.215389 of 2015, though, entered into registered lease deed, dated
12.06.2002, concerning Shop Nos.11 and 12 respectively, duration
was for a period of ten (10) years subject to further renewal for a
further period of five (5) years at the option of tenant. It has also filed
a lease deed, dated 04.05.2012 concerning both Shop Nos.11 and 12
in continuation of the earlier lease deeds, though, the duration being
six years period, the same is an unregistered lease deed. Thus, it is
clear, though, valid lease deed existed way-back in 2002 concerning
Shop Nos.11 and 12, but, when the leases were renewed in 2012, no
registered lease deed was entered into indicating that the current lease
is not a valid lease.
21. Now, we would like to refer to the decisions relied on by
both sides to see whether by virtue of the aforesaid lease
deeds/agreements, the guarantor and the tenants are entitled to
question the order passed by the learned Chief Metropolitan
Magistrate under Section 14 of the Act and the notices issued by the
Advocate-Commissioners dated 10.10.2015.
22. Adverting to the decision on which reliance was placed by
the learned counsel for the guarantor in Anthonys Case (Supra 2),
Rana Vidya Bhushan Singhs Case (Supra 3), V. Dhanapal
Chettiars Case (Supra 4), Zameer Ahmed Latifur Rehman
Sheikhs Case (Supra 5), Puran Chand and Companys Case
(Supra 12), Board of Trustees of V.O. Chidambaranars Case
(Supra 14), M/s. Nippon Enterprises South, Chennais Case (Supra
15), Pushpangadans Case (Supra 16), , Sanjeev Bansals Case
(Supra 17), Tara Chands Case (Supra 18), and Ratan Kumar
Khaitans Case (Supra 20), we are of the view, that they would not
render any assistance to advance the case of the petitioners. Even the
decisions in J.B. Educational Societys Case (Supra 7),
M. Karunanidhis Case (Supra 8), Central Bank of Indias Case
(Supra 9), Girnar Trader (3)s Case (Supra 10) and Offshore
Holdings Private Limiteds Case (Supra 11) also, would not assist
the guarantor in advancing her case as these decisions are rendered in
the context of interpretation of statutes.
23. The other three decisions relied on by the learned counsel
for the guarantor relate to the provisions of the Act. In Mardia
Chemicals Limiteds Case (Supra 12), the Honble Supreme Court
held that classification of debt as NPA is not at whims or fancies of
the financial institutions and banks and they are required to follow the
policy laid down by the Reserve Bank of India providing guidelines in
the matter of declaring an asset to be a Non-Paying Asset known as
RBIs Prudential norms on income recognition, asset classification
and provisioning - pertaining to advances, through a circular, dated
30.08.2001. The Honble Supreme Court has also struck down
sub-section (2) of Section 17 then existing, holding that condition of
pre-deposit of 75% was not only onerous and oppressive but also
unreasonable and arbitrary and violative of Article 14 of the
Constitution of India. It was further held that hearing cannot be
demanded by a debtor at the stage when notice under Section 13(2) of
the Act was issued.
24. In M/s. Transcores Case (Supra 13), the Honble
Supreme Court while dealing with the provisions of Section 13 of the
Act held that the remedy under the NPA Act 2002 is unconditional
remedy to the DRT Act 1993 and together they constitute one remedy
and, therefore, doctrine of election does not apply. Thus, these two
decisions relied on by the learned counsel for the guarantor also
would not render any assistance.
25. Learned counsel for the guarantor/tenants drawn our
attention to the observations of the Honble Supreme Court in
Harshad Govardhan Sondagars Case (Supra 1) contained in
paragraph Nos.15, 16, 17, 18 and 21 to the effect that the secured
creditor cannot take over possession of the secured asset until
possession of the tenant/lessee gets determined and Section 65-A of
the TP Act empowers a mortgagor to make leases while lawfully in
possession of the mortgaged property and such leases shall be binding
on the mortgagee. It is, therefore, his submission that the provisions
of the Act do not have the effect of terminating the leases made by the
borrower or the mortgagor made in accordance with the provisions of
the TP Act. We are of the considered view, that the power granted to
the mortgagor to effect leases of the property lawfully in his
possession, which was under mortgage, is subject to certain conditions
mentioned in sub-section (2) of Section 65-A of the TP Act.
Clause (c) of sub-section (2) mandates that no such lease shall contain
a covenant for renewal. Further, such power vested in a mortgager is
subject to further condition that the leases will have to be valid leases.
Furthermore, there is infraction of Clause (e) of Sub-Section (2) of
Section 65-A of the TP Act. An embargo is enlaid through the said
clause that in the case of lease of buildings, whether leased with or
without the land on which they stand, duration of lease shall in no
case exceed three (3) years and the lease shall contain a covenant for
payment of rent and a condition of re-entry on the rent not being paid
with a time therein specified. At this juncture itself we make it clear
that we have no hesitation in observing that unless a lease is registered
one, it cannot be construed as a valid lease. Therefore, the guarantor
in the former two writ petitions cannot seek benefit of Section 65-A of
the TP Act. Even in paragraph No.21, on which much emphasis has
been laid by the learned counsel for the tenants, the Honble Supreme
Court used the expressions a valid lease and lawful possession.
Further, the lease deeds/agreements, except the lease deed concerning
petitioner No.1 (tenant) in W.P. No.39825 of 2015, contain a covenant
for renewal of lease which is contrary to the condition envisaged
through Clause (c) of Sub-Section (2) of Section 65-A of the Act and
also Clause (e) thereof in view of the fact that duration of leases is
exceeding three (3) years in all the instruments, and, therefore, no
assistance can be sought by the tenants by recourse to Section 65-A of
the Act. Therefore, this decision also would not aid the tenants to
advance their case.
26. On the other hand, learned counsel for the bank laid
emphasis on paragraph No.36 in the same decision [Harshad
Govardhan Sondagars Case (Supra 1)] to substantiate the stand of
the bank that the tenants are entitled to possession of the secured asset
for any term exceeding one year from the date of lease made in their
favour, in case, they are able to prove that the leases are through
registered instruments. The Honble Supreme Court while adverting
to the purport of Section 107 of TP Act in the context of the claim of
the appellants therein that they were entitled to possession of a
secured asset for any term exceeding one year from the date of lease
made in their favour, they will have to produce proof of execution of
registered instrument in their favour by the lessor, holding, thus:
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 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 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.
27. Turning to the leases filed by the tenants in W.P. No.29825
of 2015, none of them could produce registered lease deeds in their
favour executed by the guarantor, and, therefore, the said leases have
to be construed as invalid instruments and no rights would flow to
resist the order passed by the learned Chief Metropolitan Magistrate
under Section 14 of the Act and the consequential notices issued by
the Advocate-commissioners dated 10.10.2015 requiring them to
vacate secured asset No.1. The tenant in W.P. (S.R.) No.215389 of
2015 though filed registered lease deed, dated 05.11.2002, concerning
Shop Nos.11 and 12 respectively, but they got determined by the
expiry of ten years period mentioned therein and the subsequent lease
on renewal is only by way of an agreement and no registered lease
deed is forthcoming as required by condition No.16 mentioned therein
referred to herein before. Therefore, we have no hesitation in holding
that the tenants have no right to question either the order passed under
Section 14 of the Act or the notice issued by the Advocate-
Commissioner, dated 10.10.2015. Equally so, in regard to the request
made by the guarantor. We are, therefore, of the considered view, that
all the writ petitions and writ petition (S.R.) are devoid of merit.
28. In the result, all the Writ Petitions and Writ Petition (S.R.)
filed by the guarantor and the tenants/lessees stand dismissed.
There shall be no order as to costs.
29. As a sequel thereto, Miscellaneous Applications, if any,
pending in the writ petitions as well as writ petition (S.R.) stand
closed.
___________________________
R. SUBHASH REDDY, J
___________________________
A. SHANKAR NARAYANA, J
January 5, 2016.
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