TMI Blog2011 (9) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrol) Act of a premise which is the subject matter of securitisation proceedings can be summarily evicted under Sections 13 (4) and 14 of the Securitisation Act irrespective of the protection available to him under the Rent Control Act ? 2. According to the petitioners, they are tenants in a line building consisting of six rooms in Ward No.13 of Cherthala Municipality. The building belonged to the predecessor in interest of respondents 2 to 4. The second respondent availed a loan from the first respondent Bank in the year 2004. It is stated that respondents 2 to 4 have created security interest over the property as collateral security for the loan availed from the Bank. The loan was classified as non-performing assets (NPA) and the first respondent Bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the Securitisation Act ). The Bank filed a petition under Section 14 of the Securitisation Act before the Court of the Chief Judicial Magistrate, Alappuzha, who passed an order to take possession of the property. A Commissioner was appointed for that purpose. The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey were tenants at the time of creation of the mortgage, their tenancy right would not be affected by any of the measures taken under Section 13 (4) of the Securitisation Act. The leasehold right of the petitioners was not terminated in accordance with law and it could be terminated only by an order of eviction under the provisions of the Rent Control Act. The prayer in the Writ Petition is to quash Ext.P1 notice by the issue of a writ of certiorari and to declare that the secured creditor having not obtained the leasehold right, the petitioners are not liable to be evicted by the secured creditor without recourse to the due process of law. 5. In the counter affidavit, the first respondent contended as follows: The writ petitioners are set up by respondents 2 to 4 to delay the proceedings under the Securitisation Act. Respondents 2 to 4 filed W.P.(C) No.31273 of 2006 challenging the notice issued for taking possession and the notice issued for sale under Section 13(4) of the Securitisation Act. The writ petitioners therein undertook to settle the liability to the bank. An interim order of stay was passed on 24.11.2006. The interim order was later extended by six months on co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. The Securitisation Act defines the terms secured asset , secured debt and secured interest in Sections 2(zc), 2(ze) and 2(zf) as follows: 2. Definitions : (1) In this Act, unless the context otherwise requires,-- ...... ..... (zc) secured asset means the property on which security interest is created; (zd) ..... ..... (ze) secured debt means a debt which is secured by any security interest; (zf) security interest means right, title and interest of any kind whatsoever upon property, created in favour or any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31; Section 31 states that the provisions of the Act shall not apply to the categories of cases mentioned in clauses (a) to (j) therein. 9. It is apposite to extract the relevant portions of Sections 13 and 14 of the Securitisation Act. They are: 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antial part of the business of the borrower is held as security for the debt; Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt; (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured 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. (5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (6) Any transfer of secured asset after taking possession thereof or take over of management under subsection (4), by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or District Magistrate to assist secured creditor in taking possession of secured asset. (1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him -- (a) take possession of such asset and documents relating thereto; and (b) forward such assets and documents to the secured creditor. (2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. (3) No act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds of eviction, namely, arrears of rent, bona fide need of the landlord for own occupation or for the occupation of any member of his family dependent on him, sub-letting by the tenant, user of the building by the tenant in such a manner so as to destroy or reduce its value or utility materially and permanently, the tenant acquiring possession of another building or putting up another building, bona fide need of the landlord to reconstruct the building, renovation of the building, etc. There are provisions in the Rent Control Act for protection of the tenants even when the bona fide need of the landlord is established. In a reconstructed building, the tenant has the first option to occupy. The Rent Control Act contains various provisions which protect the interests of the tenant as well as the landlord. The Rent Control Act being a special statute, the provisions of Sections 106 of the Transfer of Property Act would not apply. 13. In Central Bank of India v. State of Kerala and others ((2009) 4 SCC 94), the question which arose for consideration was whether the provisions of Section 38C of the Bombay Sales Tax Act, 1959, Section 26B of the Kerala General Sales Tax Act, 1963 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the secured creditor. It does not create first charge in favour of the secured creditor. ...... ...... 116. The non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act give overriding effect to the provisions of those Acts only if there is anything inconsistent contained in any other law or instrument having effect by 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 the Securitisation Act, the provisions contained in those Acts cannot override other legislations. Section 38-C of the Bombay Act and Section 26-B of the Kerala Act also contain non obstante clauses and give statutory recognition to the priority of the State's charge over other debts, which was recognised by Indian High Courts even before 1950. In other words, these sections and similar provisions contained in other State legislations not only create first charge on the property of the dealer or any other person liable to pay sales tax, etc. but also give them overriding effect over other laws. .......... ............ 126. While enacting the DRT Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the above discussion, we hold that the DRT Act and the Securitisation Act do not create first charge in favour of banks, financial institutions and other secured creditors and the provisions contained in Section 38-C of the Bombay Act and Section 26-B of the Kerala Act are not inconsistent with the provisions of the DRT Act and the Securitisation Act so as to attract non obstante clauses contained in Section 34(1) of the DRT Act or Section 35 of the Securitisation Act. (emphasis supplied) 14. While considering the overriding effect of the Securitisation Act over other laws, as provided in Section 35 of the Securitisation Act, it is necessary to consider the effect of sub-section (1) of Section 13 of the Securitisation Act and Sections 69 and 69A of the Transfer of Property Act. For the sake of convenience, relevant parts of Sections 69 and 69A of the Transfer of Property Act are quoted below: 69. (1) Power of sale when valid A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section have power to sell or concur in selling the mortgaged property or any part thereof, in default of payment of the mortgage-mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or class of buildings from all or any of the provisions of the Rent Control Act. In respect of the buildings covered by the Rent Control Act, the provisions of the Transfer of Property Act which are inconsistent with the provisions of the Rent Control Act, would have no application. The provisions of the Transfer of Property Act, to the extent it applies, would apply to those buildings which are not covered by the Rent Control Act. We are of the view that the specific mention of Sections 69 and 69A of the Transfer of Property Act in the non obstante clause in Section 13(1) of the Securitisation Act is an indication of the exclusion of the other provisions in the Transfer of Property Act from the purview of the non obstante clause. Clause (a) of sub-section (4) of Section 13 of the Securitisation Act authorises the secured creditor to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured assets. If the building is already let out to a tenant how could the secured creditor create a lease without terminating the lease created by the landlord? A lease is the transfer of a right to enjoy immov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c possession. Even after taking symbolic possession, clause (a) of sub-section (4) of Section 13 of the Securitisation Act empowers the secured creditor to exercise his right to require the tenant to pay the rent to the secured creditor, exercising the power under clause (d) of sub-section (4) of Section 13 of the Securitisation Act. 18. Section 13 (6) of the Securitisation Act provides that 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 creditors shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. (emphasis supplied). When the owner of the land transfers immovable property, the rights of the tenants would not be affected by such transfer. The transferee would be entitled to receive rent from the tenants. If the transferee so chooses, he may file a Rent Control Petition to evict the tenants from the building under the provisions of the Kerala Buildings (Lease and Rent Control) Act. In such a case, the tenants would get the protection o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose. This provision is a clear indication that transfer by way of lease created by the owner of the property is not affected by the creation of a security interest subsequently by the owner in favour of the secured creditor. The lessee s right would not be affected by the creation of such security interest. By creation of a mortgage, the lease hold right in favour of the stranger would not be extinguished. Notice under sub section (2) of Section 13 of the Securitisation Act need be issued only to the borrower. The borrower is expected to discharge the liability. If he fails to do so, his existing rights in the property would be dealt with under the provisions of the Securitisation Act. By taking recourse to the provisions of the Securitisation Act, the pre- existing rights of strangers in the property could not be affected, annihilated, dealt with or denied. 20. Section 109 of the Transfer of Property Act provides that if the lessor transfers the property leased, or any part thereof, or any part of his interest therein, the transferee, in the absence of a contract to the contrary, shall possess all the rights, and, if the lessee so elects, be subject to all the liabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Act are taken. The Securitisation Act is not intended to destroy the statutory rights vested in persons. The object and purpose of the Securitisation Act is only speedy recovery of the debt due to the secured creditor. In that process, the Securitisation Act does not contemplate extinguishment of the vested rights of third parties. The Securitisation Act is not a piece of legislation which destroys the substantive laws relating to property and the procedural laws in respect of suits and other proceedings concerning thereto. However when such laws, whether substantive or procedural, are inconsistent with the provisions of the Securitisation Act, the former should give way to the latter. That is all what is intended by Section 35 of the Securitisation Act. Section 35 of the Securitisation Act does not deny the legitimate rights of strangers available to them under the Transfer of Property Act and the Kerala Buildings (Lease and Rent Control) Act, so long as those rights are not inconsistent with the provisions of the Securitisation Act. 22. An owner of a building may wish to get his tenant evicted. A particular owner may have so many tenants under him. In view of the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of India: 2007 (2) KLT 237 require re-consideration. 24. In Antony V. Kerala Financial Corporation: 1999 (2) KLT 457, towards security for repayment of loan, the owner of a hotel building created equitable mortgage in favour of the Kerala Financial Corporation. The agreement between the parties stipulated that the borrower shall not sell, mortgage, lease, transfer etc. of the hotel building or any part thereof. Contrary to the agreement, lease was granted in respect of three rooms to the writ petitioner. The Kerala Financial Corporation initiated proceedings under Section 29 of the State Financial Corporations Act and took possession of the building including the tenanted premises. The tenant challenged the said proceedings in the Writ Petition. The Division Bench held that lease was contrary to the agreement between the borrower and the Corporation and therefore the tenant was not entitled to any protection and relief. It was also held that Section 46 B of the State Financial Corporations Act, 1951 has overriding effect over the Kerala Buildings (Lease and Rent Control) Act. However, in view of the agreement between the parties, the writ petitioner was allowed to continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovides for publication of notice of sale if the sale of the secured asset is being effected by either inviting tenders from the public or by holding public auction. Clause (a) to the proviso stipulates for setting out in the notice the description of the immovable property to be sold, including details of the encumbrances known to the secured creditor. Sub-rules (6), (7), (8), (9) and (10) of Rule 9 read as follows: (6) On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authroised officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix V to these rules. (7) Where the immovable property sold is subject to any encumbrances, the authorized officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him: Provided that if after meeting the cost of removing encumbrances and contingenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not inclined to accept the contrary view taken by the Division Bench in Business India Builders Developers Ltd. V. Union Bank of India: 2007 (2) KLT 237. 29. To consider the question whether the Securitisation Act has overriding effect over the Kerala Buildings (Lease and Rent Control) Act, it is apposite to extract Article 254 of the Constitution of India: 254. Inconsistency between laws made by Parliament and laws made by the Legislatures of States. (1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. (2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1983) 4 SCC 45; State of West Bengal V. Kesoram Industries Ltd.: (2004) 10 SCC 201; Central Bank of India V. State of Kerala and others: (2009) 4 SCC 94.] 31. In Central Bank of India V. State of Kerala and others: (2009) 4 SCC 94, it was held thus: 35. The ratio of the abovenoted judgments is that Article 254 gets attracted only when both Central and State legislations have been enacted on any of the matters enumerated in List III in the Seventh Schedule and there is conflict between two legislations. Though in State of W.B. V. Kesoram Industries Ltd., some observations appear to have been made suggesting that Article 254 gets attracted even though legislations may have been enacted in different entries in Lists I and II, but the same have to be read in consonance with the plain language of the said article and other judgments including the three-Judge Bench judgment in Hoechst Pharmaceuticals Ltd. V. State of Bihar, which has been expressly approved by the Constitution Bench. 36. Undisputedly, the DRT Act and the Securitisation Act have been enacted by Parliament under Entry 45 in List I in the Seventh Schedule whereas the Bombay and Kerala Acts have been enac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the Recovery Officer. There is no doubt that the appellants are the lawful tenants of the defaulter to the bank even before the initiation of the proceedings by the bank against the defaulter. Therefore, when the property was in the occupation of tenants at the time when it was sold, the auction purchaser would be entitled to symbolical possession of such property, but he would not be entitled to claim that the tenants should be directed to hand over actual possession of the respective portions of the property in their possession. In our view, it is impermissible for the auction purchaser to get actual possession of the property by throwing the tenants out of the property. The auction purchaser, in our view, will be entitled to possession in accordance with rule 40 of the ITCP Rules and the delivery contemplated in the rule is not actual delivery, but symbolical delivery of the property to the auction purchaser. 34. In Hutchison Essar South Ltd. V. Union Bank of India: AIR 2008 Karnataka 14, it was held that if the secured asset is in the possession of a bonafide lessee or tenant, he cannot be thrown out by invoking Sections 13 and 14 of the Securitisation Act and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xisting leasehold right and whether they are entitled to protection under the Kerala Buildings (Lease and Rent Control) Act. 39. In Mardia Chemicals Ltd. and others V. Union of India and others: (2004) 4 SCC 311 , the Supreme Court considered the scope and ambit of Section 17. It was held: 59. We may like to observe that proceedings under Section 17 of the Act, in fact, are not appellate proceedings. It seems to be a misnomer. In fact it is the initial action which is brought before a forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. It is the stage of initial proceeding like filing a suit in civil court. As a matter of fact proceedings under Section 17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the bar under Section 34 of the Act in the present case. 62. As indicated earlier, the position of the appeal under Section 17 of the Act is like that of a suit in the court of the first instance under the Code of Civil Procedure. No doubt, in suits also it is permissible, in given facts and circumstances and under the provisions of the law to attach the prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invalid, and if it is found that the appellant who is not a borrower was dispossessed by such recourse under Section 13 (4), it would only be proper for the Tribunal to pass an order putting the appellant in possession of the property or to pass any other appropriate order in the facts and circumstances of the case. The expressions after examining the facts and circumstances of the case and evidence produced by the parties and pass such order as it may consider appropriate and necessary in sub-section (3) of Section 17 clearly indicate that the Debts Recovery Tribunal has ample powers to deal with any situation where a recourse was taken by the secured creditor under Section 13 (4) and when the Tribunal finds that such recourse was not in accordance with the provisions of the Act and Rules. Section 17 (3) does not prevent restoration of possession in favour of a person other than the borrower. It cannot be said when a right is conferred on any person aggrieved, to file an appeal to the Debts Recovery Tribunal, the Tribunal would have no power to redress his grievance. Restoration of possession to the borrower mentioned in subsection (3) of Section 17 would not in any way fette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. 37. The consequences of the authority vested in the DRT under sub-section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13 (4) of the Act. The legislature by including subsection (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr. Gopalan and Mr. Atlaf Ahmed that the DRT has no jurisdiction to deal with a post-Section 13 (4) situation, cannot be accepted. 39. We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13 (4) of the Act. On the other hand, the law is otherw ..... X X X X Extracts X X X X X X X X Extracts X X X X
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