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2015 (10) TMI 2445 - BOMBAY HIGH COURT

2015 (10) TMI 2445 - BOMBAY HIGH COURT - TMI - Challenging order under Section 14 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Petitioner contends that Respondent defaulted in payment of instalments of loan and same was classified as NPA - Notice issued under section 13(2) of SARFAESI Act but neither borrowers nor guarantors replied to same nor repaid the amount - Affidavit filed made a false statement that neither is there any third p .....

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re than one year which is unregistered, is void.

Respondent contends that petition is not a bonafide proceeding, is a collusive action, inasmuch as deed of mortgage executed would indicate as to how registered mortgage was created and by same signatories and same parties dealing with Petitioners Petitioners have been put up by them in order to defeat rights of Bank and particularly order and protection under Section 14 After promulgation of Maharashtra Rent Control Act by virtue o .....

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person in possession claims to be a lessee does not mean that he should be protected - Section 107 clearly states that a lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered instrument - It is undisputed that agreement which is relied upon is unregistered, but rent is claimed to be payable yearly, then, this Act would clearly fall within the mischief - Omission in given facts and circumstances was not fatal .....

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ondent : Mr. Rajeev K. Pandey and Mr. Balraj Kulkarni i/b. PRS Legal JUDGMENT Per S.C.Dharmadhikari, J. Rule. Respondents waive service. By consent, Rule mad returnable forthwith. 2) By this Petition under Article 226 of the Constitution of India, the Petitioners are challenging an order under section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act ) dated 18th June, 2015, copy of which is at Annexure ' .....

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strict of Mumbai and subdistrict of Mumbai suburban district bearing S. No. 63/1(P); CTS No. 569 admeasuring about 2299 sq. yards and the said property with structure standing thereon and being constructed and 2) shop No. 1 admeasuring about 39.50 sq. mtrs. Situated on the ground floor of the building known as Abhishek standing on piece of land bearing plot No. S. No. 254 of village Vile Parle, TPS II Vile Parle, CTS No. 1257/2 to 6 of Vile Parle within the registration district and subdistrict .....

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l report compliance within one month from the receipt of the writ of commission. Issue writ of commission accordingly on payment of P.F. And ₹ 5,000/towards the Court Commissioner's fees, which, if deposited be credited to DLSA, Mumbai. 4) The present Petition is concerning the premises Survey No. 63, Hissa No. 1(Part), City Survey No. 569 and admeasuring 2299 square yards, situate at Village Mohili, Taluka Kurla in the registration District and SubDistrict of Mumbai Suburban. Petition .....

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Limited, which is registered as a Multi State Cooperative Society under the Multi State Cooperative Societies Act, 2002 functioning from the address mentioned in the cause title. 6) The Petitioners state that the second Respondent is the owner of the said property/premises. After referring to a conveyance in favour of the second Respondent and its registration, what is relied upon is a document, copy of which is at Annexure 'B' to the Writ Petition. It is stated to be an agreement of te .....

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ayable annually was ₹ 60,000/It was increased after expiry of the initial period of 18 months to ₹ 1,20,000/. It is stated in para 3.3 of the Petition that one of the Directors of the second Respondent was admitted as a partner of Petitioner No. 1 firm. Thereafter, reliance is placed on para 3.4 of the Petition and the subparagraphs thereof to submit that the second Respondent has been issuing the rent receipts and there are also registrations and licences obtained under the Bombay S .....

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cts since the month of September, 2000. The said premises are the only place where the Petitioners store their stock of plywood and other wood products. They do not have any other premises and for use as godown or warehouse of adequate size. The Petitioners also place heavy reliance on the fact that Respondent No. 4 Cosmos Bank is the banker of Petitioner No. 1 as well. They have availed of various loans or financial facilities from Respondent No. 4. They are against hypothecation of goods and s .....

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e goods/stock. After the requisite investigation, the assignee of the insurance policy, namely, Respondent No. 4 Bank was awarded compensation by the New India Insurance Company Limited and even documents in that regard are referred to. This would demonstrate as to how the possession of the Petitioners in respect of the said premises is to the knowledge of the Respondent No.4. The challenge in the Petition proceeds on the footing that even if there is any transaction between the owner of the pro .....

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arch, 2013 certain third parties visited the property along with Representative of Respondent No. 2 and finding that there is an attempt made to dispose of the said property, which would seriously jeopardise the Petitioners rights as a tenant that a Suit being RAD Suit No. 416 of 2014 was filed in the Court of Small Causes at Mumbai, inter alia seeking a declaration that Petitioner No. 1 is a tenant of Respondent No. 2 in respect of the said property and thereby seeking a restraint by way of an .....

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on. However, the officers of Respondent No. 4 Bank attended the premises on or about 8th September, 2015 with a view to take possession thereof. It is for the first time that the Petitioners were informed that the said premises were mortgaged in favour of Respondent No. 4 and that they having failed to discharge the debt, the mortgage security can be proceeded against under the SERFAESI Act. That is how the Bank has proceeded and after taking the requisite measures in terms of section 13 has sou .....

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tioners. 11) Mr. Samdani, learned Senior Counsel appearing for the Petitioners submits that Respondent No. 4 has approached the Court of learned Chief Metropolitan Magistrate, Esplanade, Mumbai pointing out that the said premises constitute a security interest created in its favour. It filed an affidavit, based on which the impugned order was passed. That affidavit states that on 28th November, 2005 the Bank sanctioned various credit facilities and to the tune of ₹ 600 lacs and these facil .....

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sum of ₹ 21,92,40,383.85, by issuing them notice under section 13(2) of the SARFAESI Act. This notice was duly served on 2nd February, 2013. However, neither the borrowers nor the guarantors replied to the said notice nor they repaid the amount within the stipulated time. The debt amounted to ₹ 30 crores and odd and that is how the learned Chief Metropolitan Magistrate was requested to render assistance so as to enable Respondent No. 4 Bank to take possession of the secured assets. M .....

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ion of the secured assets by ignoring a valid and lawful tenancy. Mr. Samdani would submit that even if the rent is paid annually, this is not a lease covered by the first part of section 107 of the Transfer of Property Act, 1882. Once an unregistered document is placed and relied upon, it is evident that the second part of section 107 of the Transfer of Property Act, 1882 would come into play, meaning thereby if there is a tenancy created and pursuant to which the lessee is put in possession it .....

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erride such lawful tenancy, then, that would mean the protection granted by another State legislation for the benefit of tenants would be rendered nugatory. Such is never the intent of the legal provisions and which are relied upon by the Bank. Thus, Mr. Samdani would submit that the settled law is that the lease of more than one year under the indenture, which is unregistered, is void. However, equally well settled position in law and that is if a lessee is put in possession and is paying rent .....

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n Sondagar vs. International Assets Reconstruction Company Limited and Ors. reported in (2014) 6 SCC 1 would apply. However, that judgment itself clarifies that the overriding effect of the SARFAESI Act will not encompass the claim of the nature raised by the Petitioners. Mr. Samdani, therefore, was at pains to point out that this judgment cannot render any assistance to the Bank in this case. 13) We have summarised the contentions of Mr. Samdani and which are to the effect that Respondent No. 4 .....

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mortgage executed on 6th March, 2009, copy of which has been placed on record in a compilation of documents, would indicate as to how the registered mortgage was created and by the same signatories and same parties, who are dealing with the Petitioners. He would submit that Respondent No. 1 M/s. Euro Merchandise (India) Private Limited is a company and one Mr. Nitesh P. Shah is the signatory or party to the mortgage. The second Respondent is known as Subhnen Ply Private Limited. Previously, Resp .....

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dated 22nd June, 1998 by Respondent No.2 and states that the signatories thereto are Mr. Nensi L. Shah and branch manager of Respondent No. 4. It is this Nensi Shah who is the signatory to the tenancy agreement dated 1st September, 2000. Thus, the Petitioners, who were one time associates of Respondent Nos. 1 and 2, namely the borrowers and guarantors, have been put up by them in order to defeat the rights of the Bank and particularly the order and protection under section 14 of the SARFAESI Ac .....

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owledge of the Respondent No. 4 Bank, the action and proceedings under the SARFAESI Act cannot be frustrated. That would mean a parliamentary statute enacted for expeditious recovery of loans, which are outstanding and without taking recourse of the normal legal process, is wholly defeated. Mr. Pandey would submit that in the instant case, no false statement on oath was made by Respondent No. 4 Bank. Respondent No. 4 Bank may be dealing with the Petitioners as a clientconstituent, but it does no .....

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thony vs. K. C. Ittoop and Sons and Ors. (2000) 6 SCC 394. (iv) Burmah Sheel Oil Distributing now known as Bharat Petroleum Corporation Ltd. vs. Khaja Midhat Noor and Ors. (1988) 3 SCC 44. (v) Biswabani Pvt. Ltd. vs. Santosh Kumar Dutta and Ors. (1980) 1 SCC 185. (vi) Budh Ram vs. Ralla Ram (1987) 4 SCC 75. 16) For properly appreciating the rival contentions, brief reference will have to be made to the SARFAESI Act. The Statement of Objects and Reasons itself clarifies as to how several Committe .....

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ures for recovery or reconstruction. If the Banks are not empowered to take possession of securities created to secure the financial assistance and sell or lease the same or take over management in the event of default after classification of the borrower's account as nonperforming asset, then, before enactment of the said Act, the problems and difficulties faced by the Banks and financial institutions would continue. It is with this object and purpose that the Act has been enacted. We need .....

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cured creditor may be enforced, without the intervention of the Court or Tribunal, by such creditor in accordance with the provisions of this Act. By subsection (4) it is provided that in case the borrower fails to discharge his liability in full within the period specified in subsection (2), the secured creditor may take recourse to one or more of the measures to recover his secured debts. One of the measures to recover the debt is to take possession of the secured assets of the borrower includ .....

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affidavit duly affirmed by the authorised officer of the secured creditor declaring certain declarations. 17) Section 14 as is now enacted, reads as under: 14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset. 1) 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 by the secured creditor under the provisions of this Act, t .....

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ating 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 authorised 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; (ii) the borrower has created security interest over various properties and that the Bank or Financial Institution .....

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account of the borrower has been classified as a nonperforming asset; (vi) affirming that the period of sixty days notice as required by the provisions of subsection (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 nonacceptance of such objection or representation had been communicated to th .....

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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) This District Magistrate or the Chief Metropolitan Mag .....

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strate or the District Magistrate any officer authorised by the Chief Metropolitan Magistrate or District Magistrate done in pursuance of this section shall be called in question in any court of before any authority. 18) Before us, it is undisputed that the said premises constitute the secured assets and that an interest in favour of the Bank has been created in respect thereof. Therefore, after the loan or credit facilities were not discharged in full and there was a default that the loan accou .....

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proceeding is pending in any Court of law. 20) Mr. Samdani has placed heavy reliance on the judgment in the case of Harshad G. Sandagar (supra). However, the Hon'ble Supreme Court did not deal with the situation of the present nature and rather clarified that in the event a registered tenancy or lease is relied upon and duly protected by the rent control legislation, then, it would not be permissible for the Chief Metropolitan Magistrate to render assistance. It would require a brief determi .....

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nsfer of Property Act, which are relevant in this regard, are quoted hereinbelow: 105. Lease defined - A lease of immovable property is 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, less .....

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ty 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 becomes 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 ca .....

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(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 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 wh .....

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ntioned 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. ….. 25. The opening words of subsection (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 assets is required to be sold or transferred by the secured creditor u .....

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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 possession under a valid lease is not required to be taken under the provisions of the SARFAESI Act and the .....

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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 subsection (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 of 60 days of the notice to the borrower of the intention of the secured creditor to e .....

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r 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. 26. The opening words of subsection (1) of Section 14 of the SARFAESI Act also provides that if any of the secured assets 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 Chief Metropolitan Magistrate or the District Magistrate. Where, theref .....

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o enable the secured creditor to sell and transfer the same under the provisions of the SARFAESI act. Subsection (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 i .....

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ed in Section 111 of the Transfer of Property Act. 27. 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. Subrules (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. Subrules (1), (2) and (3) of Rule 8 of the Security Interest (Enforcement) Rules, 2002 as well as A .....

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as referred to in subrule (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 newspapers, one in vernacular language having sufficient circulation in that locality, by the authorized officer. (3) In the event of possession of immovable property is actually taken by the authorized officer, such property shall be kept in his own custody or in the custody of any person authorized or appointed by him, who shall .....

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on 13(12) read with Rule 9 of the Security Interest (Enforcement) Rules, 2002 issued a 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 i .....

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hellip;. (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. …../ Khasra No. ….. within the registration subdistrict ….. and District …. .....

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authority. The SARFAESI Act, therefore, attached 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. 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 Consti .....

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g the decision of the tribunal final or conclusive, we hold that subsection (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 rul .....

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essee. ….. 35. A further question of law raised in these appeals is whether the tenants have remedies under the tenancy law concerned. 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 to the Act as well as houses let out in areas to which the Bombay Rents, Hotel and Lodging House rates Control Act, 1947 applied bef .....

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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 h .....

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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 M .....

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available to an aggrieved party like the Petitioner and to approach the Tribunal under the SARFAESI Act to protect his lawful possession under a valid 22) Mr. Samdani has submitted that in para 35 as reproduced above, the Hon ble Supreme Court has clarified that if there is a tenancy of the premises in the State of Maharashtra including Mumbai, then, whether parties to it could take recourse to the remedies provided by the Maharashtra Rent Control Act and obtain the relief of injunction against .....

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borrower of the secured creditor. The second limb of section 34 restraining it from granting an injunction would come into play. 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 under section 14 thereof, the Court or the authority mentioned in section 33 of the Maharashtra Rent Control Act cannot grant the injunction to prevent such action. Mr. Samdani, therefore, relied upon heavily on paras 36 and 37.1 .....

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fere with the proceedings or the order of the Magistrate. Everything depends upon the facts in each case. If the lease is not valid, the possession is not lawful, then, there is no justification for interference in the extra ordinary, discretionary and equitable jurisdiction of this Court. Merely because the person in possession claims to be a lessee does not mean that he should be protected. Else, grant of the injunction/stay/interim relef will be the rule and denial an exception. Such is not t .....

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ument or rent receipts issued by the landlord to the tenant. After referring to section 107 of the Transfer of Property Act, what is held by the Hon ble Supreme Court is that 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/borrower and prior to the mortgage or subject to the mortgage. Wher .....

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g the conclusion that we propose to reach. The Hon ble Supreme Court was considering a case where parties like the Appellants before it claim that they are lawful tenants/lessees. Therefore, the Hon ble Supreme Court clarified that if the lease is an annual one, then, in terms of the law, it can only be evidenced by a registered instrument. Absent such registered instrument that lease cannot be said to be affecting any of the measures under the SARFAESI Act. Meaning thereby, the Chief Metropolit .....

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ed subsequently. Admittedly, this tenancy agreement is unregistered. It is therefore that Mr. Samdani would rely upon the second limb of section 107 and to urge that so long as the Petitioner is put in possession, then, the lease is created and which is month to month. First of all section 107 of the Transfer of Property Act in clearest terms states that a lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registere .....

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he competent Court/Tribunal under the Maharashtra Rent Control Act, 1999. That is what they have done and therefore, the Chief Metropolitan Magistrate should have put the Petitioners to notice and only then passed the impugned order. 26) We are unable to accept these contentions as well. Once it is undisputed that the agreement which is relied upon and copy of which is at Annexure B is unregistered, but the rent is claimed to be payable yearly, then, this Act would clearly fall within the mischi .....

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ly registered. The said provision reads as under: 55. Tenancy agreement to be compulsorily registered. ( 1) Notwithstanding anything contained in this Act or any other law for the time being in force, any agreement for leave and licence or letting of any premises, entered into between the landlord and the tenant or the licence, as the case may be, after the commencement of this act, shall be in writing and shall be registered under the Registration act, 1908, (XVI of 1908). (2) The responsibilit .....

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xceeding rupees five thousand or with both. 28) In such circumstances, Mr. Samdani would rely upon the fact that even if there is no registration, still, for approaching the Courts and Tribunals under the Rent Control Act, that is not an impediment. He relies upon subsection (2) of section 55 as reproduced above. We are not concerned with a case of a statute governing the landlord tenant relationship. No provision thereof falls for our interpretation. We are concerned with the situation where no .....

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ts and circumstances was not fatal. Apart therefrom, the claim of tenancy in this case is prima facie doubtful. The parties to the written agreement of tenancy and at least one of them is a signatory to the prior registered mortgage deed. Yet, he is bold enough to create a tenancy in respect of one of the mortgaged properties. 29) The reliance placed by Mr. Samdani on other judgments of the Supreme Court is of no assistance. The other judgment which has been relied upon particularly in the case .....

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parties would be regulated by law in the same manner as if no agreement exists at all but it is quite another thing to substitute new agreement for the purpose which is contradicted by the admitted facts of the case. It is in that context the Hon ble Supreme Court held that there is no merit in the case placed before it on behalf of the Plaintiff that one year s rent was paid and therefore the tenancy of one year or yearly tenancy was brought into existence. That was never the case of the Defen .....

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gislation intervening that the Court found that the Civil Court will have no jurisdiction. The Trial Court, in that case found that the Appellant before the Hon ble Supreme Court is not a tenant as the lease was void on account of non registration of the lease deed. In the First Appeal, the District Judge held that in spite of nonregistration of the instrument, there was a valid tenancy of the building and hence the appellant could not be evicted except in accordance with the provisions of the R .....

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elied upon by Mr.Samdani. We do not think that reliance placed on this decision and the further decisions of the Hon ble Supreme Court would advance the case of the Petitioners any further. If a claim of contractual tenancy and statutory tenancy, which has been dealt with in the other judgments of the Hon ble Supreme Court. Those are on the footing that the provisions of the rent control legislation will enable the tenant holding over to assert and protect his claim. Even if the contractual tena .....

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