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VISHAL N. KALSARIA Versus BANK OF INDIA AND ORS.

2016 (1) TMI 904 - SUPREME COURT OF INDIA

Eviction of tenant from mortgaged property - validity of lease - Whether a ‘protected tenant’ under The Maharashtra Rent Control Act, 1999 can be treated as a lessee, and whether the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) will override the provisions of the Rent Control Act. How can the right of the ‘protected tenant’ be preserved in cases where the debtor-landlord secures a loan by offering the very s .....

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isions of the Registration Act and the Stamp Act. - It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant. A non obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulld .....

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tantamount to violation of rule of law, but would also render a valid Rent Control statute enacted by the State Legislature in exercise of its legislative power under Article 246 (2) of the Constitution of India useless and nugatory. The Constitution of India envisages a federal feature, which has been held to be a basic feature of the Constitution. - In view of the above legal position, if we accept the legal submissions made on behalf of the Banks to hold that the provisions of SARFAESI A .....

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Surely, such a situation was not contemplated by the Parliament while enacting the SARFAESI Act and therefore the interpretation sought to be made by the learned counsel appearing on behalf of the Banks cannot be accepted by this Court as the same is wholly untenable in law. - Appeals allowed - Decided against the Banks. - CRIMINAL APPEAL NO. 52, 53, 54, 55, 56, 57, 58, 59, 62, 63, 64 OF 2016, CRIMINAL APPEAL NO. 753, 754 OF 2014, CIVIL APPEAL NOS. 414-415, 417, 419, 420, 421, 422, 469 OF 2 .....

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. Rajeev M.Roy,Adv., Mr. Sanjay Kapur,Adv., Mr. Anmol Chandan,Adv., Ms. Priyanka Das,Adv., Mr. Sonal Jain, Adv., Mr. Kunal Chatterji, Adv., Mr. M.T. George, Adv., Mr. O.P. Gaggar, Adv., Mr. Rajeev Maheshwaranand Roy, Adv. JUDGMENT V. GOPALA GOWDA, J. The applications for impleadment are allowed. 2. Leave granted in all the special leave petitions. 3. In the present batch of appeals, the broad point which requires our attention and consideration is whether a protected tenant under The Maharashtra .....

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itutions, is also the essential legal question to be decided by us. 4. In all the appeals, the same question of law would arise for consideration. For the sake of convenience and brevity, we would refer to the relevant facts from the appeal arising out of S.L.P.(Crl.) No.8060 of 2015, which has been filed against the impugned judgment and order dated 29.11.2014 in M.A.No. 123 of 2011 in Case No.237 of 2010 passed by the learned Chief Metropolitan Magistrate, Esplanade, Mumbai, wherein the applic .....

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os. 4 and 5 failed to pay the dues within the stipulated time and thus, in terms of the SARFAESI Act, their account became a non-performing asset. On 12.03.2010, the respondent-Bank served on them notice under Section 13(2) of SARFAESI Act. On failure of the respondents to clear the dues from the loan amount borrowed by the above respondent nos. 4 and 5 within the stipulated statutory period of 60 days, the respondent-Bank filed an application before the Chief Metropolitan Magistrate, Mumbai und .....

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days from the receipt of the notice. The appellant fearing eviction, filed a Rent Suit R.A.D. Suit No. 913 of 2011 before the Court of Small Causes, Bombay. Vide order dated 08.06.2011, the Small Causes Court allowed the application and passed an ad interim order of injunction in favour of the appellant, restraining respondent no.4 from obstructing the possession of the appellant over the suit premises during the pendency of the suit. In view of the order dated 08.06.2011, the appellant then fi .....

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ble Supreme Court has held that the alleged tenant 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 .....

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reditor takes action under Section 13 or 14 of the SARFAESI Act to recover the possession of the secured interest and recover the loan amount by selling the same in public auction, then it is not open for the Court to grant an injunction under Section 33 of the Rent Control Act. The learned Chief Metropolitan Magistrate further held that the order dated 08.06.2011 passed by the Small Causes Court, Mumbai cannot be said to be binding upon the respondent-Bank, especially in the light of the fact t .....

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enth Schedule of the Constitution of India to consolidate and unify the different provisions and legislations in the State which existed pertaining to rent and the landlord-tenant relationship. The Statement of objects and reasons of the Rent Control Act reads, inter alia, as under: 1……At present, there are three different rent control laws, which are in operation in this State……All these three laws have different provisions and the courts or authorities which have th .....

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meantime, the Central Government announced the national housing policy which recommends, inter alia, to carry out suitable amendments to the existing rent control laws for creating and enabling involvement in housing activity and for guaranteeing access to shelter for the poor. The National Housing Policy further recognized the important role of rental housing in urban areas in different income groups and low-income households in particular who cannot afford ownership house. The existing rent c .....

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e loan amount due to the Banks and Financial Institutions. The statement of objects and reasons of the SARFAESI Act reads as under: "The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as comp .....

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d in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas." (emphasis laid by this Court) 10. The SARFAESI Act enacted under List I of the Constitution of India thus, seeks to regulate asset rec .....

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rdhan Sondagar (supra). The fact situation facing the court in that case was similar to the one in the instant case. The premises which the appellants therein claimed to be the tenants of had been mortgaged to different banks as collateral security to such borrowed amount by the landlord/debtor. On default of payment of the borrowed amount by the landlords/debtors, the banks made application under Section 14(1) of the SARFAESI Act to the Chief Metropolitan Magistrate, praying that the possession .....

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operty 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 lesse .....

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ugned judgment of the High Court insofar it takes this view is set aside. (emphasis laid by this Court) 12. Mr. Pallav Shishodia, the learned senior counsel appearing on behalf of the appellant in the appeal @ out of S.L.P. (C) No. 8060 of 2015 places reliance on the decision of this Court in Harshad Govardhan Sondagar (supra), to contend that prior tenancy in respect of the mortgaged property to the Bank is protected in terms of the Rent Control Act. The relevant paragraphs of the decision are .....

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et is in possession of a lessee but the lease under which the lessee claims to be in possession of the secured asset stands determined in accordance with 4 Section 111 of the Transfer of Property Act, the Chief Metropolitan Magistrate or the District Magistrate may pass an order for delivery of possession of secured asset in favour of the secured creditor to enable the secured creditor to sell and transfer the same under the provisions of the SARFAESI Act. Sub-section (6) of Section 13 of the SA .....

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over possession of the secured asset. Thus, for the purpose of transferring the secured asset and for realizing the secured debt, the secured creditor will require the assistance of the Chief Metropolitan Magistrate or the District Magistrate for taking possession of a secured asset from the lessee where the 4 lease stands determined by any of the modes mentioned in Section 111 of the Transfer of Property Act. 32. When we read sub-section (1) of Section 17 of the SARFAESI Act, we find that under .....

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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 subsection (3) of Section 17 of the SARFAESI Act, we find that the Debts Recovery Tribunal has powers to restore 5 possessi .....

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n favour of the lessee was made prior to the creation of mortgage or the lease though made after the creation of mortgage is in accordance with the requirements of Section 65A of the Transfer of Property Act and the lease was valid and binding on the mortgagee and the lease is yet to be determined, the Debts Recovery Tribunal will not have the power to restore possession of the secured asset to the lessee. In our considered opinion, therefore, there is no remedy available under Section 17 of the .....

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ct of such property. The learned senior counsel further places reliance on a three Judge Bench decision of this Court in Anthony v. K.C. Ittoop & Sons & Ors. (2000) 6 SCC 394, wherein it was held as under: ....so far as the instrument of lease is concerned there is no scope for holding that appellant is a lessee by virtue of the said instrument. The court is disabled from using the instrument as evidence... But this above finding does not exhaust the scope of the issue whether appellant .....

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part of Section 107 of the TP Act are only the different modes of how leases are created.... Thus, de hors the instrument parties can create a lease as envisaged in the second paragraph of Section 107 which reads thus: All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. When lease is a transfer of a right to enjoy the property and such transfer can be made expressly or by implication, the mere fact that .....

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he tenant comes into existence and in such cases, the tenant must be deemed to be a tenant from month to month and the same would amount to a tenancy from month to month. Thus, in the instant case, the tenancy of the appellants in respect of the property in question which is the secured asset of the Bank being from month to month would also be protected under the provisions of the Rent Control Act. 15. The learned senior counsel further contends that according to the decision of this Court in th .....

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other law that may be relevant after giving an opportunity of hearing to the persons who claim tenancy in respect of such property. The term any other law that may be relevant clearly indicates a reference to the State Rent Protection laws, which in the case at hand is the Rent Control Act. Thus, the protection of the State Rent Control legislation is also to be considered by the learned magistrate while deciding an application filed by the Bank under Section 14 of the SARFAESI Act. 16. On the o .....

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Khetan Sugar Mills Pvt. Ltd. & Ors. v. State of Uttar Pradesh & Ors. (1980) 4 SCC 136, wherein it was held as under: 13. If in pith and substance a legislation falls within one entry or the other but some portion of the subject-matter of the legislation incidentally trenches upon and might enter a field under another List, the Act as a whole would be valid notwithstanding such incidental trenching. This is well established by a catena of decisions [see Union of India v. H.S. Dhillon and .....

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islation on the subject of interstate trade and commerce. Repelling this contention the Court unanimously held that in pith and substance the impugned legislation was for acquisition of contract carriages and not an Act which deals with inter-State trade and commerce. 17. The learned senior counsel further contends that the SARFAESI Act was enacted by the Parliament under Entry 45 of List I of the Constitution of India. It is a special Act with a special purpose and procedure laid down for the r .....

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hands of the present appellants, who have no registered instrument of lease. 19. The learned senior counsel further contends that in light of the decision of this Court in the case of Harshad Govardhan Sondagar (supra), the present case is barred by res judicata. He places reliance on the three Judge Bench decision of this Court in the case of Bhanu Kumar Jain v. Archana Kumar & Anr. (2005) 1 SCC 787, wherein it was held as under: It is now well-settled that principles of res judicata applie .....

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dar reopened the very question which finally stood concluded, viz., whether Respondent 1 was or was not the tenant of the suit land. He further erroneously entered into a new premise of reopening the question of validity of the compromise which could have been in issue if at all in appeal or revision by holding that compromise was arrived at under pressure and allurement. How can this question be up for determination when this became final under this very same statute?..." 21. Yet again in .....

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ge, the learned counsel appearing on behalf of the Bank in the appeal arising out of S.L.P. (C) No. 12772 of 2015 contends that the tenancy has not been determined conclusively, as the documents produced on record to prove the relationship of tenancy are not registered and do not hold much water. Mr. Rajeev Kumar Pandey, the learned counsel appearing on behalf of the respondent Bank in the appeal arising out of S.L.P. (C) No. 31080 of 2015 submits that the property in question was mortgaged befo .....

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y are tenants in respect of the properties in question in the proceedings under Section 14 of the SARFAESI Act and hence, they have no locus standi to prefer the above appeals questioning the correctness of the Order passed by the learned Magistrate. We have carefully considered the above rival legal submissions made on behalf of the parties and answer the same as hereunder: 22. The SARFAESI Act, which came into force from 21.06.2002, was enacted to provide procedures to the Banks to recover the .....

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blems of liquidity, asset-liability mismatch and to improve recovery of debts by exercising powers to take possession of securities, sell them and thereby reduce non-performing assets by adopting measures for recovery and reconstruction. The NPA Act further provides for setting up of asset reconstruction companies which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease; assignment or sale. The said Act also empowers the said asset .....

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is an asset in the hands of the bank or FI. It represents an amount receivable and realizable by the banks or FIs. In that sense, it is an asset in the hands of the secured creditor. Therefore, the NPA Act, 2002 was primarily enacted to reduce the non-performing assets by adopting measures not only for recovery but also for reconstruction. Therefore, the Act provides for setting up of asset reconstruction companies, special purpose vehicles, asset management companies, etc. which are empowered .....

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4) of the Act, which read as under: 13. Enforcement of Security interest.- (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 da .....

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r realising the secured asset.... Further, the provision under Section 35 of the SARFAESI Act provides that it shall override all other laws, which is quoted as hereunder: 35. The provisions of this Act to override other laws.- The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." Providing a smooth and efficient recovery procedure to ena .....

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commodities, not only had the cost of living risen exponentially, the tenants were also often left to the mercy of the landlords as far as evictions or prices of rent were concerned. Rent Control Acts have been enacted by the different state legislatures to secure the rights of the weaker sections of the society, viz., the tenants. Justice Krishna Iyer aptly observed in the case of Miss Santosh Mehta v. Om Prakash & Ors. (1980) 3 SCC 610: 2. Rent Control laws are basically designed to protec .....

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mes clear from a perusal of the preamble of the Act that the ultimate object behind the enactment of this legislation is to control and regulate the rate of 6 (1980) 3 SCC 610 rent so that unnecessary hardship is not caused to the tenant, and also to provide protection to the tenants against arbitrary and unreasonable evictions from the possession of the property. The protection of the tenants against unjust evictions becomes even more pronounced when examined in the light of Section 15 of the R .....

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Section 15, thus, restricts the right of a landlord to recover possession of the tenanted premises from a tenant. 24. When we understand the factual matrix in the backdrop of the objectives of the above two legislations, the controversy in the instant case assumes immense significance. There is an interest of the bank in recovering the Non Performing Asset on the one hand, and protecting the right of the blameless tenant on the other. The Rent Control Act being a social welfare legislation, must .....

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respect to such tenants. The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act. If the contentions of the learned counsel for the respondent Banks are to be accepted, it would render the entire scheme of all Rent Control Acts operating in the country as useless and nugatory. Tenants would be left wholly to the mercy of their landlords and in the fear that the landlord may use the tenanted premises as a security interest while taking a loan from a ba .....

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s to the tenants under the Rent Control Act and also in respect of contractual tenants along with the possession of their properties which shall be obtained with due process of law. 25. The issue of determination of tenancy is also one which is well settled. While Section 106 of the Transfer of Property Act, 1882 does provide for registration of leases which are created on a year to year basis, what needs to be remembered is the effect of non-registration, or the creation of tenancy by way of an .....

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en the mere factum of non-registration of deed will not make the lease itself nugatory. If no written lease deed exists, then such tenants are required to prove that they have been in occupation of the premises as tenants by producing such evidence in the proceedings under Section 14 of the SARFAESI Act before the learned Magistrate. Further, in terms of Section 55(2) of the special law in the instant case, which is the Rent Control Act, the onus to get such a deed registered is on the landlord. .....

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s defined in Section 105 of the TP Act. A transfer of a right to enjoy a property in consideration of a price paid or promised to be rendered periodically or on specified occasions is the basic fabric for a valid lease. The provision says that such a transfer can be made expressly or by implication. Once there is such a transfer of right to enjoy the property a lease stands created. What is mentioned in the three paragraphs of the first part of Section 107 of the TP Act are only the different mo .....

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as envisaged in the second paragraph of Section 107 which reads thus: All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. 26. It further saddens us to see the manner in which the decision in the case of Harshad Govardhan Sondagar (supra) has been misinterpreted to create this confusion. Random sentences have been picked up from the judgment and used, without any attempt to understand the true purport of .....

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1 SCC 85 held as under: It is difficult to regard a word, a clause or a sentence occurring in a judgment of this Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment. The same view was reiterated by a Division Bench of this Court in the case of Commissioner of Income Tax v. Sun Engineering Works (P.) Ltd. (1992) 4 SCC 363 Further, a three Judge Bench of this Court in the case of Union of Ind .....

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inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in .....

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nd not every observation found therein. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. The concrete decision alone is binding between the parties to it, but it is the abstract ratio decidendi, ascertained on a consideration of the judgment in relation to the subject matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding. It is only the principle laid down in the .....

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and appreciate the binding force of a decision it is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of law. Law cannot afford to be static and therefore, Judges are to employ an intelligent technique in the use of precedents…… (emphasis laid by this Court) 28. .....

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ged to the bank, the consent of the creditor needs to be taken. We have already taken this view in the case of Harshad Govardhan Sondagar (supra). We have not stated anything to the effect that the tenancy created after mortgaging the property must necessarily be registered under the provisions of the Registration Act and the Stamp Act. 30. It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the pr .....

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every law enacted by the Central and State legislatures. It can only extend to the laws operating in the same field. Interpreting the non obstante clause of the SARFAESI Act, a three Judge Bench of this Court in the case of Central Bank of India v. State of Kerala & Ors. (2009) 4 SCC 94 has held as under: 18. The DRT Act and Securitisation Act were enacted by Parliament in the backdrop of recommendations made by the Expert Committees appointed by the Central Government for examining the caus .....

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s etc. to take possession of the securities and sell them without intervention of the Court. XXX XXX XXX 110. The DRT Act facilitated establishment of two-tier system of Tribunals. The Tribunals established at the first level have been vested with the jurisdiction, powers and authority to summarily adjudicate the claims of banks and financial institutions in the matter of recovery of their dues without being bogged down by the technicalities of the Code of civil Procedure. The Securitisation Act .....

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these enactments by which first charge has been created in favour of banks, financial institutions or secured creditors qua the property of the borrower. 112. Under Section 13(1) of the Securitisation Act, limited primacy has been given to the right of a secured creditor to enforce security interest vis-à-vis Section 69 or Section 69A of the Transfer of Property Act. In terms of that sub-Section, a secured creditor can enforce security interest without intervention of the Court or Tribuna .....

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ages under the Transfer of Property Act. 113. In an apparent bid to overcome the likely difficulty faced by the secured creditor which may include a bank or a financial institution, Parliament incorporated the non obstante clause in Section 13 and gave primacy to the right of secured creditor vis a vis other mortgagees who could exercise rights under Sections 69 or 69A of the Transfer of Property Act. However, this primacy has not been extended to other provisions like Section 38C of the Bombay .....

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y virtue of any other law. In other words, if there is no provision in the other enactments which are inconsistent with the DRT Act or Securitisation Act, the provisions contained in those Acts cannot override other legislations. (emphasis laid by this Court) 31. If the interpretation of the provisions of SARFAESI Act as submitted by the learned senior counsel appearing on behalf of the Banks is accepted, it would not only tantamount to violation of rule of law, but would also render a valid Ren .....

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visaged in the Constitution of India is a basic feature in which the Union of India is permanent within the territorial limits set in Article 1 of the Constitution and is indestructible. The State is the creature of the Constitution and the law made by Articles 2 to 4 with no territorial integrity, but a permanent entity with its boundaries alterable by a law made by Parliament. Neither the relative importance of the legislative entries in Schedule VII, Lists I and II of the Constitution, nor th .....

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exercise their respective powers with adjustment, understanding and accommodation to render socio-economic and political justice to the people, to preserve and elongate the constitutional goals including secularism. 248. The preamble of the Constitution is an integral part of the Constitution. Democratic form of Government, federal structure, unity and integrity of the nation, secularism, socialism, social justice and judicial review are basic features of the Constitution. (emphasis laid by thi .....

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