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JM Financial Asset Reconstruction Company Pvt. Ltd. Versus The Board of Trustees of the Port of Mumbai and Others

2016 (9) TMI 765 - BOMBAY HIGH COURT

Termination of lease - override of provisions of the SARFAESI Act - Held that:- Unable to agree with the submission of Mr Kamdar that in the facts of the present case, the provisions of the SARFAESI Act override the provisions of the PP Act, and consequently the 4th Respondent (the Estate Officer) had no jurisdiction to issue impugned show cause notices. - No hesitation in holding that the provisions of the SARFAESI Act cannot destroy the rights of the 1st Respondent (landlord in the present .....

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ercise by terminating the lease granted in favour of Respondent No.2. Merely because Respondent No.2 has mortgaged its leasehold rights in favour of the Petitioner, cannot take away the right of the landlord (the 1st Respondent herein) to terminate the lease, if Respondent No.2 has breached the terms thereof. At the cost of repetition, we must state that whether this termination is valid or otherwise will be the subject matter of the proceedings under the PP Act. We have not opined one way or th .....

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Act overriding the provisions of the PP Act. We, therefore, have no hesitation in holding that Respondent No.4 (the Estate Officer) was well within his jurisdiction to issue the impugned SCNs. - A mere SCN does not give rise to any cause of action, because it does not amount to an adverse order which affects the right of any party, unless the same has been issued by a person having no jurisdiction to do so. It is quite possible that after considering the reply to the SCN or after holding an .....

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ent Petition is clearly premature as it merely challenges the SCNs issued by the 4th Respondent (the Estate Officer). - WRIT PETITION NO. 17 OF 2014 - Dated:- 24-8-2016 - S. C. DHARMADHIKARI AND B.P.COLABAWALLA, JJ. For The Petitioner : Mr. S.U. Kamdar, Sr. counsel along with Mr Sharan Jagtiani, Mr Chirag Kamdar, Ms Helina Desai i/b M/s Wadia Ghandy and Co. For The Respondent : Mr. E.P. Bharucha, Sr. counsel a/w Mr Ajay Fernandes, Mr Rony P. Joseph JUDGMENT: [ Per B. P. Colabawalla, J ] 1. Rule. .....

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ct, 1971 (for short the PP Act ). 3. The property in question is all that piece and parcel of land admeasuring approximately 1036.71 sq. mtrs. bearing plot No.26 (old RR No.1245) and cadestral Survey No. 10/384 of Colaba division together with the building standing thereon consisting of ground + four floors, two garages and a pump-house (hereinafter referred to as said property ). At the outset, we must mention here that it is not in dispute before us that the 1st Respondent is a statutory autho .....

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aving taken possession of the said property under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act ), could not be evicted under the provisions of the PP Act. To put it simply, it is the case of the Petitioner that the provisions of the SARFAESI Act override the provisions of the PP Act, and therefore, if the 1st Respondent wanted to evict and get possession of the said property from the Petition .....

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a securitisation and reconstruction company under Section 3 of the SARFAESI Act. The Petitioner claims that it is in exclusive possession of the said property since 6 August, 2012 pursuant to measures taken under Section 13(4) of the SARFAESI Act. Respondent No.1 is the Board of Trustees of the Port of Mumbai, a statutory corporation constituted under the provisions of Section 5 of the Major Port Trusts Act, 1963. Respondent No.1 is the successors-in-title to the Trustees of the Port of Bombay, .....

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he debts owed by Respondent No.2 to Respondent No.3 together with the underlying security interest, in favour of the Petitioner. Respondent No.4 is the Estate Officer, appointed by the Central Government in exercise of the powers conferred under Section 3 of the PP Act and is the authority that has issued the impugned SCNs against Respondent No.2, Respondent No.3 and the Petitioner respectively. (b) By and under a lease deed dated 29 October, 1935 ( the said Lease ) executed between the successo .....

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e. (c) Thereafter, pursuant to diverse assignments which were duly permitted by the predecessors of Respondent No.1, the leasehold rights in respect of the said property stood vested in favour of one Balwant Rai Shelley. Under a Deed of Variation dated 8 February, 1977, the said Balwant Rai Shelley was allowed to use the said garage in the said building for storage of non-hazardous material and the lease rentals were revised in the manner provided therein. (d) On 23 July, 1993, the said Balwant .....

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vour of Respondent No.2, which permission was granted by Respondent No.1 by its letter dated 4 September, 2006. Pursuant to the aforesaid permission, by and under a Deed of Assignment dated 22 December, 2006, executed between said Pramila Ramnikrai Wadhwan of the one part and Respondent No.2 of the other part, the said Pramila Ramnikrai Wadhwan assigned and transferred the leasehold rights in respect of the said property in favour of Respondent No.2. (f) In the interregnum, Respondent No.2 inten .....

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No.2 in favour of Respondent No.3. Accordingly, by and under a Term Loan Agreement dated 5 November 2006, Respondent No.2 availed of a loan of ₹ 43.50 Crores from Respondent No.3. For securing repayment of the said loan, Respondent No.2 created a mortgage by deposit of title-deeds in respect of the leasehold interest in the said property in favour of Respondent No.3. It is the case of the Petitioner that creation of this equitable mortgage was intimated to Respondent No.1 by Respondent No .....

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d that the creation of the said mortgage was without the prior sanction of Respondent No.1 and was inter alia in violation of the terms of said lease and called upon Respondent No.2 to clarify inter alia, why no prior consent was taken before creating said mortgage. (h) In reply thereto, Respondent No.3, by its letter dated 28 February, 2009 inter alia made a reference to the meeting held on 10 October, 2006 and stated that pursuant to the said meeting, Respondent No.3 was advised that a valid m .....

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at as it may, since Respondent No.2 was in arrears of the lease rentals, Respondent No.1 under their demand notice dated 23 March, 2009 called upon Respondent No.2 to make payment of the bills attached to the said letter failing which legal proceedings would be initiated against Respondent No.2. In reply thereto, Respondent No.2 informed Respondent No.1 that it shall shortly comply with the said demand notice and that they had already put a deposit of ₹ 2.05 Crores towards advance rent, wi .....

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debts (along with the security interest) owed by Respondent No.2, in favour of the Petitioner. (k) Be that as it may, by a letter dated 3 September, 2010, Respondent No.1 once again informed Respondent No.2 that it had committed breaches of the terms of said lease by creating a mortgage in favour of Respondent No.3 without the prior consent of Respondent No.1. In reply thereto, Respondent No.2 by its letter dated 29 September, 2010 informed Respondent No.1 that it was under a bonafide belief tha .....

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inst Respondent No.2. As mentioned earlier, Respondent No.2 had undertaken the work of re-plastering/ repairing the said property. In these circumstances, Respondent No.1, by their letter dated 12 June, 2012 informed Respondent No.2 that the said work was done without prior approval of Respondent No.1, which also amounted to a breach of the said lease. (m) Be that as it may, in the meanwhile, since Respondent No.2 had defaulted in servicing the loan availed of by it from Respondent No.3 (which w .....

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Respondent No.1 informed Respondent No.2 (with a copy marked to the Petitioner) that Respondent No.1 had sealed the said property. Thereafter, Respondent No.1 through their Advocates letter dated 27 September, 2012, terminated the said lease for the reasons more particularly set out therein. A copy of this termination letter was also forwarded to the Petitioner. (o) In reply to this termination letter, the Petitioner through their Advocates letter dated 10 October, 2012, inter alia contended tha .....

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ding of any auction by the Petitioner to sell the leasehold rights of Respondent No.2 would be illegal and highly objectionable to Respondent No.1. (p) Thereafter, further correspondence ensued between the parties and finally the Petitioner received the said two SCNs, both dated 18 February, 2013, issued by Respondent No.4 (Estate Officer) under the provisions of Sections 4 and 7 of the PP Act. It is in these circumstances that the termination letter dated 27 September, 2012 and these two SCNs a .....

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therein. The said Writ Petition was finally disposed of by an order dated 25 March, 2013. We are not referring to this order in further detail as it does not have a bearing in deciding the issues raised before us. 6. In this factual backdrop, Mr Kamdar, learned Sr. Counsel appearing on behalf of the Petitioner, submitted that admittedly the Petitioner was an ARC as contemplated under the provisions of the SARFAESI Act. It had, by virtue of the Deed of Assignment dated 18 August, 2009, taken over .....

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the SARFAESI Act. 7. Mr Kamdar submitted that the provisions of the SARFAESI Act are a code in itself. The entire mechanism of taking possession and thereafter selling the secured assets without the intervention of the Court have been provided for in the said Act. He submitted that the SARFAESI Act being a special Legislation, overrides the provisions of the PP Act. It was submitted by Mr Kamdar that if the 1st Respondent wanted to evict the Petitioner from the said property (the possession of w .....

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to mean the right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and included any mortgage, charge, hypothecation or assignment, other than those specified in Section 31 of the SARFAESI Act. He also placed reliance on Section 17 of the Act which inter alia gives a right to any person aggrieved by any of the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act, to approach the DRT. He submitted that Section 17(3) itsel .....

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accordance with the provisions of the SARFAESI Act, then notwithstanding anything contained in any other law for the time being in force, the secured creditor would be entitled to take recourse to one or more measures specified in sub-section (4) to Section 13 of the SARFAESI Act, to recover its debt. Thereafter, he also placed reliance on Section 34 to contend that that the Civil Court was barred from entertaining any suit or proceeding, in respect of any matter which the DRT or the DRAT, was e .....

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o put it simply, it was submission of Mr Kamdar that before the Estate Officer adjudicates the SCNs issued by him, he will have to inquire into whether the actions taken by the Petitioner under Section 13(4) of the SARFAESI Act are valid or otherwise. This adjudication, according to Mr Kamdar, can be done only by the DRT under Section 17 of the SARFAESI Act and not by the Estate Officer under the provisions of the PP Act. This being the position, according to Mr Kamdar, the Estate Officer had no .....

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Satyawati Tandon & Ors. (2010) 8 SCC 110 (iv) Transcore Vs. Union of India & Anr. (2008) 1 SCC 125 (v) Vishal N. Kalsaria Vs. Bank of India & Ors. (2016) 3 SCC 762 (vi) Madras Petrochem Ltd. & Anr. Vs. Board for Industrial and Financial Reconstruction & Ors. (2016) 1 SCC 1 8. Relying on the aforesaid decisions, Mr Kamdar submitted that the provisions of the SARFAESI Act would override the provisions of the PP Act and consequently the issuance of the SCNs by Respondent No.4 s .....

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Act shall prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force. He submitted that in the facts of the present case, there was no conflict or inconsistency between the provisions of the PP Act and the provisions of the SARFAESI Act for this Court to hold that the provisions of the SARFAESI Act would override the provisions of the PP Act. 10. Mr Bharucha submitted that admittedly the 1st Respondent is the owner of the said property and and .....

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what has been mortgaged with the Petitioner is only the leasehold interest in the said property. The 1st Respondent's ownership rights in the said property have not been mortgaged with the Petitioner. In these circumstances, he submitted that the provisions of the SARFAESI Act do not and cannot take away the rights of the owner in the said property. The right of the 1st Respondent, as the owner/ lessor of the said property, therefore, remain intact including the right to terminate the lease .....

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ficer) under the provisions of the PP Act. Mr. Bharucha submitted that the Petitioner cannot get any higher right than what Respondent No.2 had in the said property. If the 2nd Respondent breached the terms of the said lease, the 1st Respondent was well within its rights to terminate the lease notwithstanding the fact that the 2nd Respondent had mortgaged its leasehold rights in favour of the Petitioner. If the Petitioner cannot get a better right and/or title than the lessee (Respondent No.2) a .....

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014) 6 SCC 1 and Vishal N. Kalsaria. (2016) 3 SCC 762 He submitted that in these cases, the Supreme Court had clearly held that even though the landlord had created a mortgage of his property in favour of a bank or financial institution (as defined in the SARFAESI Act), the same cannot destroy the rights of the tenants in the said property, which tenancy was created prior to the mortgage. In other words, the rights of pre-exisisting tenants were unaffected by the provisions of the SARFAESI Act a .....

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nt No.2) had breached the terms of the lease. Relying upon Sections 2(g), 4, 7 and 15 of the PP Act, Mr Bharucha contended that the PP Act is a self contained code governing the relationship between public undertakings and the occupants of their buildings, to the extent that they provide for eviction of unauthorized occupants from public premises and matters incidental thereto. To put it simply, it was the submission of Mr Bharucha, that the 1st Respondent's right to terminate the lease and .....

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pugned herein. 12. Additionally and without prejudice to the aforesaid arguments, Mr Bharucha submitted that the present Writ Petition was also premature and not maintainable. He submitted that, in the present Petition what has inter alia been challenged are the two SCNs issued by the 4th Respondent. These SCNs do not per se decide any rights of the Petitioner, but merely call upon the noticees to show cause before the Estate Officer as to why they ought not to be evicted. He submitted that the .....

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ight of the party. The only the possible ground of challenge could be in a case where the SCN is issued by a person having no jurisdiction. In the facts of the present case, Mr Bharucha submitted that the Estate Officer clearly had jurisdiction to issue the impugned SCNs, and therefore, the challenge to the same was premature at this stage. For all the aforesaid reasons, Mr Bharucha submitted that there is no merit in this Writ Petition and the same ought to be dismissed with costs. 13. We have .....

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ping its economy, did not have a level playing field as compared to other participants in the financial markets of the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions, and unlike international banks, the banks and financial institutions in India did not have the power to take possession of securities and sell them. The Legislature felt that our existing legal framework had not kept pace with the changing commercial pract .....

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ion and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Accepting these recommendations, the SARFAESI Act was brought into force with w.r.e.f. 21-06-2002. 14. On the other hand, the PP Act was brought into force to provide for eviction of unauthorized occupants from public premises and for certain other incidental matters. Originally, the Public Premises (Eviction of Unauthorized Occupants) Act, 1958 was ena .....

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ere upheld. Since, these Court decisions had created serious difficulties for the Government and it had become impossible for the Government to take expeditious action, even in flagrant cases of unauthorized occupation of public premises, it was therefore considered imperative to restore a speedy machinery for eviction of persons who were in unauthorized occupation of public premises. Accordingly, it was proposed to re-enact the Public Premises Eviction (Unauthorized Occupants) Act, 1958, as ame .....

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provides a mechanism for a secured creditor to recover its secured debt by selling the securities without the intervention of the Court. It does not, in any way, destroy the rights that were created in favour of a third party prior to the security being created in favour of the secured creditor. On the other hand, the PP Act provides a mechanism for evicting unauthorized persons from public premises. If a statutory authority (as defined under the PP Act) finds that any of its public premises are .....

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itioner that the ownership rights of the 1st Respondent in the said property have been mortgaged with the Petitioner. These ownership rights, including the right to terminate the lease, cannot be affected by the provisions of the SARFAESI Act. In the facts of the present case, the 1st Respondent, as a lessor has a right to terminate the lease on the grounds more particularly set out in the said lease deed. Whether that termination is valid or otherwise, is the subject matter of the proceedings b .....

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his is also clear from Section 15 of the PP Act which stipulates that no Court shall have jurisdiction to entertain any suit or proceeding in respect of (a) the eviction of any person who is in unauthorized occupation of any public premises, or (b) the removal of any building, structure or fixture or goods, cattle or other animal from any public premises under Section 5-A, or (c) the demolition of any building or other structure made, or ordered to be made, under Section 5-B, or (d) the sealing .....

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nder sub-section (5) of section 9, or (iv) any portion of such rent, damages, costs or removal expenses of demolition or costs awarded to the Central Government or the statutory authority. This being the case, we are unable to agree with the submission of Mr Kamdar that in the facts of the present case, the provisions of the SARFAESI Act override the provisions of the PP Act, and consequently the 4th Respondent (the Estate Officer) had no jurisdiction to issue impugned show cause notices. 17. Th .....

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creditor. Paragraphs 26 to 30 in the case of Vishal N. Kalsaria(2016) 3 SCC 762 are very instructive in this regard and read as follows: 26. Providing a smooth and efficient recovery procedure to enable the banks to recover the non-performing assets is a laudable object indeed, which needs to be ensured for the development of the economy of the country. What has complicated the matters, however, is the clash of this laudable object with another laudable object, namely, to secure the rights of th .....

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s of the society viz. the tenants. Krishna Iyer, J. aptly observed in Santosh Mehta v. Om Prakash [Santosh Mehta v. Om Prakash, (1980) 3 SCC 610] : (SCC p. 611, para 2) 2. Rent control laws are basically designed to protect tenants because scarcity of accommodation is a nightmare for those who own none and, if evicted, will be helpless. 27. The Preamble of the Rent Control Act reads as under: An Act to unify, consolidate and amend the law relating to the control of rent and repairs of certain pr .....

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asonable evictions from the possession of the property. 28. The protection of the tenants against unjust evictions becomes even more pronounced when examined in the light of Section 15 of the Rent Control Act, which reads as under: 15.No ejectment ordinarily to be made if tenant pays or is ready and willing to pay standard rent and permitted increases.-(1) A landlord shall not be entitled to the recovery of possession of any premises so long as the tenant pays, or is ready and willing to pay, th .....

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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 be construed as such. A landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Control Act, more so when the two legislations, that is the SARFAESI Act and the Rent Control Act operate in completely different fields. While the SARFAESI Act is concerned with non-perfor .....

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ss 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 bank and subsequently default on it. Conversely, a landlord would simply have to give up the tenanted premises as a security interest to the creditor banks while he is still getting rent for the same. In case of default of the loan, the maximum brunt will be borne by the unsuspecting tenant, who would be ev .....

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ct, 1882 does provide for registration of leases which are created on a year-toyear basis, what needs to be remembered is the effect of nonregistration, or the creation of tenancy by way of an oral agreement. According to Section 106 of the Transfer of Property Act, 1882, a monthly tenancy shall be deemed to be a tenancy from month to month and must be registered if it is reduced into writing. The Transfer of Property Act, however, remains silent on the position of law in cases where the agreeme .....

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ore 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. In the light of the same, neither can the landlord nor the banks be permitted to exploit the fact of non-registration of the tenancy deed against the tenant. 18. While deciding the case of Vishal N. Kalsaria5, the Supreme Court was called upon to decide as to what would be the rights of the tenants that ex .....

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ect to such tenants. The Supreme Court, therefore, held that the provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act. Applying this ratio to the facts before us, we have no hesitation in holding that even the provisions of the SARFAESI Act and the PP Act operate in completely different fields. The SARFAESI Act is concerned with non-performing assets of banks whereas the PP Act governs the relationship between the statutory authority (as defined under .....

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ts of the 1st Respondent (landlord in the present case) who has admittedly not mortgaged its ownership rights in favour of the Petitioner (the secured creditor). In other words, if the 1st Respondent (landlord) has a right to terminate the lease, that right cannot be destroyed and remains unaffected by any action taken by the Petitioner (the secured creditor) for selling the leasehold interest in said property and which was mortgaged in its favour. In the facts of the present case, it is this ve .....

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nder the PP Act. We have not opined one way or the other, as to whether the said termination is valid or otherwise and consequently rendering the occupation of the said property unauthorized. That is an issue that will be inquired into by the Estate Officer after hearing all the parties concerned and after allowing the parties to lead their respective evidence. To our mind, in the facts of the present case, there being no conflict between the provisions of the SARFAESI Act and the PP Act, there .....

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e decide any rights of the Petitioner, but merely call upon noticees to show cause before the Estate Officer (4th Respondent) as to why they ought not to be evicted. The practice of challenging SCNs by way of a Writ Petition has been deprecated time and again as clearly spelt out by the Supreme Court in the case of Kunisetty Satyanarayana. (2006) 12 SCC 28 : AIR 2007 Supreme Court 906(1) Paragraphs 13 to 16 (SCC Report) of this decision read thus: 13. It is well settled by a series of decisions .....

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ion should not be entertained against a mere show-cause notice or charge-sheet is that at that stage the writ petition may be held to be premature. A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so. It is quite possible that after considering the reply to the show-cause notice or after holding an enquiry .....

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retion under Article 226 should not ordinarily be exercised by quashing a show-cause notice or charge-sheet. 16. No doubt, in some very rare and exceptional cases the High Court can quash a charge-sheet or show-cause notice if it is found to be wholly without jurisdiction or for some other reason if it is wholly illegal. However, ordinarily the High Court should not interfere in such a matter. (emphasis supplied) 20. As can be seen from the aforesaid decision, the Supreme Court has in clear term .....

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