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2019 (9) TMI 569

..... nterplay between the SARFAESI Act and the right of the tenant was first examined by this Court in Harshad Govardhan Case [ 2015 (11) TMI 1315 - SUPREME COURT ]. It may be noted that the present appellant was a party to the aforesaid proceedings. This Court was confronted with the question as to whether the provisions of the SARFAESI Act affect the right of a lessee to remain in possession of the secured asset during the period of the lease. After noticing the scheme of the Act, this Court held that if the lawful possession of the secured asset is not with the borrower, but with a lessee under a valid lease, the secured creditor cannot take possession of the secured asset until the lawful possession of the lessee gets determined and the lease will not get determined if the secured creditor chooses to take any of the measures specified in Section 13 of the SARFAESI Act - Accordingly, this Court concluded that the Chief Metropolitan Magistrate /District Magistrate can pass an order for delivery of possession of secured asset in favour of secured creditor only when he finds that the lease has been determined in accordance with Section 111 of the T.P. Act. This Court also recognised the .....

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..... NO. 9590/2015) - 11-9-2019 - JUSTICE N. V. RAMANA, JUSTICE MOHAN M. SHANTANAGOUDAR And JUSTICE INDIRA BANERJEE JUDGMENT N. V. Ramana, J. 1. Leave granted. 2. The present appeal arises out of the impugned order dated 31.12.2014 in Case No. 42/SA/2012 of the Chief Metropolitan Magistrate, Esplanade, Mumbai rejecting the application of the intervenor who is the appellant-tenant herein seeking to stay the execution of order passed under Section 14 of The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [hereinafter referred to as the SARFAESI Act ] for taking possession of the property in question. 3. The property in question is a residential flat admeasuring about 1020 sq. ft., situated in Andheri (West), Mumbai (hereinafter referred to as the secured asset ). The secured asset was mortgaged by respondent no. 2borrower/ landlord with the respondent no. 1bank in equitable mortgage, by depositing title deeds on 20.05.2000, with an intention to secure the credit facility. When the respondent no. 2borrower/ landlord failed to make the due repayment of the said credit facilities, the respondent no.1bank classified the debt as a Non Perfo .....

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..... /2012 before the Chief Metropolitan Magistrate, Esplanade, Mumbai. By the impugned order dated 31.12.2014, the Chief Metropolitan Magistrate after hearing the appellant-tenant, rejected the application holding that the appellant-tenant being a tenant without any registered instrument is not entitled for the possession of the secured asset for more than one year from the date of execution of unregistered tenancy agreement in accordance with the law laid down in Harshad Govardhan Case (supra). 8. Aggrieved by the same, appellant-tenant filed this appeal by way of Special Leave. 9. The learned senior counsel on behalf of the appellant-tenant submitted that a. The Appellant was a protected tenant under the Maharashtra Rent Control Act, 1999 [hereinafter referred to as the Rent Act ], and was in occupation of the tenanted premises since October, 2005. b. Even though there was no registered lease deed, the factum of tenancy can be demonstrated by multiple rent receipts. c. The Small Causes Court made a prima facie determination of rights in his favour (refer to order in R.A.D. Suit No. 652 of 2012). d. the appellant-tenant s case is covered by the ruling of this Court in Harshad Govardha .....

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..... . The present Act is a culmination of the suggestions made by the aforesaid committees intended to enable the bank to resolve the issue of liquidity and aim for the reduction in the number of nonperforming assets. The Preamble to the Act emphasises upon the efficient and expeditious recovery of bad debts. This is also evident from the scheme of the Act. 13. Section 13 of the SARFAESI Act provides for the enforcement of security interest. This is a self-executory mechanism for the banks. Once the process of realizing the secured interest takes place, the secured creditor acts as trustee having dejure/ symbolic possession of the property and is required by law to realize it strictly in accordance with the provisions of Section 13, 14 and 15 of the SARFAESI Act. Crucially, subSection (2) of Section 13 of the SARFAESI Act envisages a notice, which acts as the trigger point for initiation of the recovery process under the SARFAESI Act. In the aforesaid notice, the secured creditor is required to disclose information on the amount payable by the borrower and the secured interest intended to be enforced by the secured creditor in the event of non-payment of the secured debt. If the borrow .....

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..... n subsection (4) of Section 13 taken by the secured creditors as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under subsection (4) of Section 13. (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under subsection (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under subsection (4) of section 13 to recover his secured debt. (5) Any application made under subsection (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application: Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of penden .....

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..... the lease. After noticing the scheme of the Act, this Court held that if the lawful possession of the secured asset is not with the borrower, but with a lessee under a valid lease, the secured creditor cannot take possession of the secured asset until the lawful possession of the lessee gets determined and the lease will not get determined if the secured creditor chooses to take any of the measures specified in Section 13 of the SARFAESI Act. Accordingly, this Court concluded that the Chief Metropolitan Magistrate /District Magistrate can pass an order for delivery of possession of secured asset in favour of secured creditor only when he finds that the lease has been determined in accordance with Section 111 of the T.P. Act. 19. The Court further held that if the Chief Metropolitan Magistrate / District Magistrate is satisfied that a valid lease is created before the mortgage and the lease has not been determined in accordance with Section 111 of the T.P. Act, then he cannot pass an order for delivery of possession of the secured asset to the secured creditor. In case, he comes to the conclusion that there is no valid lease either before the creation of mortgage or after the creati .....

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..... m the date of delivery of possession in his favour by the landlord. (emphasis supplied) 22. The second case which dealt with the issue of tenants rights under the SARFAESI Act is Vishal N. Kalsaria Case (supra). This Court was concerned with the question Whether protected tenant under the Maharashtra Rent Control Act, 1999 can be treated as a lessee and whether the provisions of the SARFEASI Act, will override the provisions of the Rent Act? 23. After examining the legal and constitutional position, the Court held that while the SARFAESI Act has a laudable objective of providing a smooth and efficient recovery procedure, it cannot override the objective of Rent Acts to control the rate of rent and provide protection to tenants against arbitrary and unreasonable evictions. To resolve this conflict, this Court held that- a) The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Act. The landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Act. b) While a yearly tenancy requires to be registered, oral tenancy can still be proved by showing that the tenant has been in occupation of the premises before the Magi .....

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..... registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under Section 107 of the T.P. Act. 26. In the present case, the bona fides of the tenant is highly doubtful, as there is no good or sufficient evidence to establish the tenancy in the first place. The present case involves a tenant who allegedly entered into an oral agreement of tenancy before the mortgage deed was entered into between the borrower and Bank/Creditor. Additionally, it must be noted that tenancy created under such an oral agreement, results in a fresh tenancy after the expiry of statutory period fixed under the T.P Act. 27. The records also do not demonstrate that the appellant-tenant has been able to prove his status as a valid leaseholder to merit the protection sought for. Admittedly, an equitable mortgage on the secured asset was created by the respondent no. 2borrower/ landlord by depositing title deeds with respondent no. 1-bank on 20.05.2000. However, the date of creation of the tenancy is not established in the present case. It is .....

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..... no tenancy had been created on the secured asset. 31. It is pertinent to note that at the time when the SARFAESI Act proceedings were pending, the factum of tenancy was never revealed by the parties. The earlier order dated 09.03.2012, passed by the Chief Metropolitan Magistrate, Esplanade, Mumbai directing the Assistant Registrar to take over the possession of the secured asset, is silent about any existing encumbrance over the secured asset. It was only after passing of the aforesaid order of the Chief Metropolitan Magistrate, that the appellant-tenant started agitating his rights before the Small Causes Court based on a completely different fact scenario, without a whisper of the alleged tenancy under the concluded Section 14, SARFAESI Act proceedings. The respondent no.2borrower/ landlord did not even respond to the claims of the appellant-tenant. The respondent no.1 bank has produced multiple records to substantiate their claim that the tenant was nowhere to be seen earlier and that this tenancy was created just to defeat the proceedings initiated under the SARFAESI Act. On the contrary, the appellant-tenant has failed to produce any evidence to substantiate his claim over the .....

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..... i Devi v. Amal Kumar Banerjee, AIR 1981 SC 1550, Murlidhar Jalan (since deceased) through his Lrs. v. State of Meghalaya and Ors., AIR 1997 SC 2690 and D.H. Maniar and Ors. v. Waman Laxman Kudav, [1977] 1 SCR 403. 36. The operation of the Rent Act cannot be extended to a tenant in sufferance visavis the SARFAESI Act, due to the operation of Section 13(2) read with Section 13(13) of the SARFAESI Act. A contrary interpretation would violate the intention of the legislature to provide for Section 13(13), which has a valuable role in making the SARFAESI Act a self executory instrument for debt recovery. Moreover, such an interpretation would also violate the mandate of Section 35, SARFAESI Act which is couched in broad terms. 37. As noted above, this case, does not mandate the additional protection to be provided under the Rent Act, to the appellant-tenant herein. The lower Courts are correct in ordering delivery of possession to the respondent no. 1bank as the tenancy stands determined. Before we part, we must note that we have not interpreted the new amendment per se or the law with respect to other categories of tenants, which may be taken up in appropriate cases. 38. In the present .....

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