TMI Blog2019 (9) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 inconsistency between Section 13(13) of the SARFAESI Act and Section 65A of the Transfer of Property Act. While Section 13(13) of SARFAESI prohibits a borrower from leasing out any of the secured assets after receipt of a notice under Section 13(2) without the prior written consent of the secured creditor, Section 65A of the T.P. Act enables the borrower/mortgagor to lease out the property. This inconsistency was resolved by holding that the SARFAESI Act will override the provisions of the T.P. Act. Considering the counterfactual pleaded by the Appellant-tenant himself, that he was a tenant who had entered into an oral agreement, such tenancy impliedly does not carry any covenant for renewal, as provided under Section 65A of T.P. Act. Therefore, in any case, Section 13 (13) SARFAESI Act bars entering into such tenancy beyond January, 2012. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et 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 Performing Asset (NPA) . Thereafter, on 30.04.2011 a statutory Demand Notice under Section 13 (2) of the SARFAESI Act was issued to respondent no. 2borrower/ landlord demanding payment of ₹ 10,72,10,106.73 (Rupees Ten Crores Seventy Two Lacs Ten Thousand One Hundred Six and Seventy Three Paisa Only) which was due as on 30.04.2011. 4. When the respondent no.2borrower, failed to repay the outstanding loan amount, the respondent no. 1bank made an application under Section 14 of the SARFAESI Act seeking directions to take physical possession of the secured asset. This application was allowed by the Chief Metropolitan Magistrate, Esplanade, Mumbai by his order dated 09.03.2012. In this order, the Magistrate directed the Assistant Registrar to take possession of the secured asset and handover the same to the respondent no. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Govardhan Case (supra), and Vishal N. Kalsaria v. Bank of India and Ors., (2016) 3 SCC 762 [hereinafter referred to as Vishal N. Kalsaria Case ]. 10. On the contrary, the counsel on behalf of respondent no.1bank submits that a. The appellant-tenant and the respondent no. 2borrower/ landlord have devised this litigation to commit a largescale fraud on the bank. The appellant is not a tenant and has been brought into the picture by the respondent no.2borrower/ landlord to misuse the process of law and is not entitled for any equitable relief. b. At the time of creation of the mortgage, the bank officers were given to understand that the family of the mortgager was residing in the secured asset. Even after multiple inquiries, and even after initiating proceedings under Section 14 of the SARFAE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, 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 borrower fails to discharge the liability, the secured creditor has four options including taking possession of the secured assets of the borrower (Section 13(4) of the SARFAESI Act). Critically for this case, once a notice is served on the borrower, he cannot further enter into any contract to create any encumbrance on the property (Section 13(13) of the SARFAESI Act). This extinguishes the right of the mortgagor to lease the property under Section 65A of the Transfer of Property Act [hereinafter referred to as the T.P. Act ]. 14. Section 14 of the SARFAESI Act provides for the procedural mechanism for taking possession of property and documents with respect to the secured assets, from the borrower. 15. Section 17 of the SARFAESI Act, dealing with the Right to Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under subsection (1). (6) .. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made thereunder. (emphasis supplied) 16. Section 17 provides for an invaluable right of appeal to any person including the borrower to approach the Debt Recovery Tribunal (hereinafter referred to as the DRT ). In Harshad Govardhan Case (supra) this Court held that the right of appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 creation of the mortgage satisfying the requirements of Section 65A of the T.P. Act or even though there is a valid lease the same stands determined in accordance with Section 111 of the T.P. Act, he can pass an order for delivery of possession of the secured asset to the secured creditor. 20. This Court also recognised the inconsistency between Section 13(13) of the SARFAESI Act and Section 65A of the Transfer of Property Act. While Section 13(13) of SARFAESI prohibits a borrower from leasing out any of the secured assets after receipt of a notice under Section 13(2) without the prior written consent of the secured creditor, Section 65A of the T.P. Act enables the borrower/mortgagor to lease out the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Magistrate under Section 14 of the SARFAESI Act. c) The nonregistration of the tenancy deed cannot be used against the tenant. For leasehold rights being created after the property has been mortgaged to the bank, the consent of the creditor needs to be taken. d) Even though Section 35 of the SARFAESI Act has a non obstante clause, it will not override the statutory rights of the tenants under the Rent Control Act. The non obstante clause under Section 35 of the SARFAESI Act only applies to laws operating in the same field. 24. While we agree with the principle laid out in Vishal N. Kalsaria Case (supra) that the tenancy rights under the Rent Act need to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to be noted that the appellant-tenant, while seeking protection before the Small Causes Court, stated that the premises were let out to him in January, 2000, but the Court noted that the appellant-tenant produced photocopies of rent receipts for the period of 2001 to 2011. Contrarily, the appellant-tenant, in this appeal before us, has stated that he entered into the tenancy in October, 2005. 28. The claim of tenancy made by the appellant-tenant is not supported by a registered instrument. We recognise the legal position, as laid out in the Vishal N. Kalsaria Case (supra), that in the absence of a written lease deed the tenant may p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompletely 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 secured asset. In such a situation, the appellant-tenant cannot claim protection under the garb of the interim protection granted to him, ex parte, by solely relying upon the xerox of the rent receipts. 32. In such an event, wherein the claim of the appellant-tenant is not supported by any conclusive evidence, the rejection of the stay application by the Chief Metropolitan Magistrate cannot be held to be erroneous. Although the counsel of the appellant-tenant has placed ample reliance upon the Vishal N. Kalsaria Case (supra), but the same would not help the cause of the appellant-tenant herein, as the earlier case procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
