9911796707
TMI Blog2007 (2) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... Foundry, who is the principal borrower had availed of some loans from the respondent-State Bank of India after mortgaging the land and building comprised in SF No. 189/2 by executing a memorandum of mortgage in favour of the respondent-bank. On the failure of the borrower to pay back the loan, the respondent-bank had invoked the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'SARFAESI Act') and had taken symbolic possession of the entire property on 29-11-2003. It is the case of the petitioner that a portion of the aforesaid property was originally leased to the petitioner under a lease deed dated 10-9-1986 and the lease was renewed by a subsequent lease deed dated 5-4-2003. The petitioner claims that an advance of Rs. 2 lakhs was originally paid in cash and it was increased to Rs. 4 lakhs at the time of the renewal of the lease which was also paid in cash. It is the further case of the petitioner that the respondent recognised the petitioner's tenancy and addressed a letter dated 29-11-2003 asking the petitioner to pay the rent. Accordingly the petitioner paid the rent in March 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Financial Corporations Act, 1951 could not evict a tenant. He also placed reliance on the decision of the Supreme Court in C.B. Gautam v. Union of India [1993] 1 SCC 78, where the Supreme Court quashed the expression 'free from all encumbrances' in section 269UD of the Income-tax Act, 1961 as being violative of article 14 of the Constitution. 3. In reply, Mr. S. Sethuraman, learned counsel appearing for the respondent-bank submitted that unregistered lease deeds relied upon by the petitioner are sham documents which have been created only with a view to defeat the legitimate claim of the respondent-bank. He submitted that in Mardia Chemicals Ltd. v. Union of India [2004] 51 SCL 513 , the Supreme Court has held that in cases where a secured creditor has taken action under section 13(4) it would be open for the borrower to file an application under section 17 of the SARFAESI Act. Therefore, the remedy available to the petitioner is to approach DRT and the petitioner cannot invoke the extraordinary jurisdiction of this Court under article 226 of the Constitution of India. He further submitted that in Transcore v. Union of India [2007] 73 SCL 11 , a two-Judge Bench of the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e borrower, to file an appeal (application) under section 17 of the Act. In the said judgment, the Court further observed that if the borrower, after service of notice under section 13(2) of the Act, raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered by the bank/financial institution with due application of mind and reasons for not accepting the objections briefly must be given to the borrower. In the said judgment, it is further held that the reasons so communicated shall only be for the purposes of information/knowledge of the borrower and such reasons will not give him any right to approach the Tribunal under section 17 of the Act. 5. In Transcore's case (supra), the Supreme Court upon critical examination of the provisions of the SARFAESI Act and the DRT Act, 1993 observed as follows : "Para 20 : Reading the scheme of section 13(2) with section 13(4), it is clear that the notice under section 13(2) is not a mere show-cause notice and it constitutes an action taken by the bank/financial institution for the purposes of the NPA Act. Section 13(6), inter alia, provides that any transfer of secured asset afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry is required to be made by the DRT. In such cases, the DRT has only to see that all the secured creditors in the consortium are represented under the agreement. The point to be noted is that the scheme of the NPA Act does not deal with disputes between the secured creditors and the borrower. On the contrary, the NPA Act deals with the rights of the secured creditors inter se. The reason is that the NPA Act proceeds on the basis that the liability of the borrower has crystallized and that his account is classified as non-performing asset in the hands of the bank/financial institution. Section 13(9) also deals with pari passu charge of the workers under section 529A of the Companies Act, 1956, apart from banks and financial institutions, who are secured creditors. Section 13(10) inter alia states that where the dues of the secured creditor are not fully satisfied by the sale proceeds of the secured assets, the secured creditor may file an application to DRT under section 17 of the NPA Act for recovery of balance amount from the borrower. Section 13(10), therefore, shows that the bank/financial institution is not only free to move under NPA Act with or without leave of DRT but havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes that the provisions of NPA Act shall override all other laws which are inconsistent with the NPA Act. Section 35 is also important from another angle. As stated above, the NPA Act is not inherently or impliedly inconsistent with the DRT Act in terms of remedies for enforcement of securities. Section 35 gives an overriding effect to the NPA Act with all other laws if such other laws are inconsistent with the NPA Act. As far as the present case is concerned, the remedies are complimentary to each other and, therefore, the doctrine of election has no application to the present case." (p. 28) 6. In Transcore's case (supra) one of the questions which fell for the consideration of the Supreme Court was whether recourse to take possession of the secured assets of the borrower in terms of section 13(4) of the SARFAESI Act comprehends the power to take actual possession of the immovable property. The argument on behalf of the borrower was that if physical possession is taken on expiry of 60 days, the remedy of application under section 17 of the Act by the borrower would become illusory and meaningless as the borrower or the person in possession would be dispossessed even before adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8 deals with sale of immovable secured assets. Appendix IV prescribes the form of possession notice. It inter alia states that notice is given to the borrower who has failed to repay the amount informing him and the public that the bank/financial institution has taken possession of the property under section 13(4) with rule 9 of the 2002 Rules. Rule 9 relates to time of sale, issue of sale certificate and delivery of possession. Rule 9(6) states that on confirmation of sale, if the terms of payment are complied with, the authorised officer shall issue a sale certificate in favour of the purchaser in the form given in Appendix V to the 2002 Rules. Rule 9(9) states that the authorised officer shall deliver the property to the buyer free from all encumbrances known to the secured creditor or not known to the secured creditor. Section 14 of the NPA Act states that where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred, the secured creditor may, for the purpose of taking possession, request in writing to the District Magistrate to take possession thereof. Section 17(1) of NPA Act re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght, he can take actual possession even prior to the decree. The authorised officer under rule 8 has greater powers than even a Court receiver as security interest in the property is already created in favour of the banks/FIs. That interest needs to be protected. Therefore, rule 8 provides that till issuance of the sale certificate under rule 9, the authorised officer shall take such steps as he deems fit to preserve the secured asset. It is well-settled that third party interests are created overnight and in very many cases those third parties take up the defence of being a bona fide purchaser for value without notice. It is these types of disputes which are sought to be avoided by rule 8 read with rule 9 of the 2002 Rules. In the circumstances, the drawing of dichotomy between symbolic and actual possession does not find place the scheme of the NPA Act read with the 2002 Rules." [Emphasis supplied] (p. 49) 7. In S. Shameem's case (supra) a Division Bench of Kerala High Court has held that in respect of the transactions governed by SARFAESI Act, the overriding provisions effectively nullify the rights normally admissible even to a tenant as available under the Rent Control laws. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein that he being a tenant and in physical possession of the mortgaged property is protected under the provisions of the Delhi Rent Control Act and cannot be dispossessed without taking recourse to the provisions of the Delhi Rent Control Act. Repelling this contention the Court held that the protection afforded by the Rent Control Act to a tenant is from the landlord of the premises and the landlord of the premises cannot recover possession from the tenant unless he takes recourse to any of the grounds as available to him under Rent Control Act and the right of the tenant is fully protected notwithstanding anything contrary contained in any other law or contract. This protection is however not available against the mortgagee who seeks to enforce his right under the SARFAESI Act against the principal borrower who had mortgaged the property in question by duly and validly executing the memorandum of mortgage in favour of the mortgagee. The Court further held that section 65A of the Transfer of Property Act clearly mandates that the duration of lease to be executed by the mortgager cannot exceed 3 years. The Court therefore concluded in paragraph-6 as follows : "Manifestly the ..... 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