TMI Blog2015 (11) TMI 1315X X X X Extracts X X X X X X X X Extracts X X X X ..... ohibit 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 bn the secured creditor as a mortgagee. 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. - Decided in favor of petitioners. - CRL.A. 736 OF 2014 - - - Dated:- 3-4-2014 - PATNAIK, A.K. AND GOPALA GOWDA, V., JJ. JUDGEMENT ( 1. ) LEAVE granted. Facts: ( 2. ) THE appellants claim to be tenants of different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Jo the amount of apparent consideration and sub - section (1) of Section 269 - US' provided that in case an order for compulsory purchase is made under subsection (1) of Section 269 - UD, the property in respect of which the order is made shall vest in the Central Government free from 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 lesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will not have any opportunity to move either the Debt Recovery Tribunal under Section 1 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 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 Metropolitan Magistrate or the District Magistrate. 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 respo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Shri Sanjeev Bansal v. Oman International Bank SAOG and 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. and Ors. [JT 2013 (11) SC 460 : 2013 (10) SCC 258] in which this Court has held that the rule of this 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, transfers the possession of the secured asset by way of lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. ( 7. ) 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 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 [JT 2007 (1) SC 542 : 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 sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 reentry 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 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 subsection. 12.1. 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 -sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of section 529Aof 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: 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 subsection, - (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 prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take any of the measures mentioned in Section 13 of the said Act. Subsection (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 subsection (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 from the secured creditor intending to enforce that secured asset will not be a valid lease. ( 11. ) 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 reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer 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. ( 12. ) 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pite of the above notice and the Authorised Officer is, therefore, entitled to 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.] [1 A) The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him, - (1) to take possession of such assets and documents relating thereto; and (ii) to forward such assets and documents to the secured creditor. (2) For the purpose of securing compliance with the provisions of subsection (1), the Chie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld 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 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. ( 13. ) 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 Chief Metropolitan Magistrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x 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 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 Int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a lessee under the mortgagor in accordance with the provisions of Section 65A of the Transfer of 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 mortg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner 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. 22.1. In our view, therefore, the decision of the Chief Metropolitan Magistrate or the District Magistrate can be challenged 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. ( 16. ) 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 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 subsection (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 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 mortg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 disputes between the secured creditor and the tenant under landlord who is a borrower of the secured assets. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured creditors. (ii) In Criminal Appeals arising out of Special Leave Petition (Criminal) Nos.4064 of 2012. 4117 of 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 SARFAESI Act, the orders so passed will stand quashed and the Chief Metropolitan Magistrate or the District Magistrate will pass fres ..... X X X X Extracts X X X X X X X X Extracts X X X X
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