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SUPREME COURT OF INDIA
A.K. PATNAIK & V. GOPALA GOWDA, JJ.
Harshad Govardhan Sondagar – Appellant
Versus
International Assets Reconstruction Co. Ltd. & Ors. – Respondents
CRIMINAL APPEAL No. 736 OF 2014 (Arising out of S.L.P. (Crl.) No.1666 of 2012) WITH CRIMINAL APPEAL No. 737 OF 2014 (Arising out of S.L.P. (Crl.) No.4058 of 2012), CRIMINAL APPEAL No. 738 OF 2014 (Arising out of S.L.P. (Crl.) No.4052 of 2012), CRIMINAL APPEAL No. 739 OF 2014 (Arising out of S.L.P. (Crl.) No.4061 of 2012), CRIMINAL APPEAL No. 740 OF 2014 (Arising out of S.L.P. (Crl.) No.4057 of 2012), CRIMINAL APPEAL No. 741 OF 2014 (Arising out of S.L.P. (Crl.) No.4066 of 2012), CRIMINAL APPEAL No. 742 OF 2014 (Arising out of S.L.P. (Crl.) No.4062 of 2012), CRIMINAL APPEAL No. 743 OF 2014 (Arising out of S.L.P. (Crl.) No.4063 of 2012), CRIMINAL APPEAL No. 744 OF 2014 (Arising out of S.L.P. (Crl.) No.4053 of 2012), CRIMINAL APPEAL No. 745 OF 2014 (Arising out of S.L.P. (Crl.) No.4064 of 2012), CRIMINAL APPEAL No. 746 OF 2014 (Arising out of S.L.P. (Crl.) No.4068 of 2012), CRIMINAL APPEAL No. 747 OF 2014 (Arising out of S.L.P. (Crl.) No.4111 of 2012), CRIMINAL APPEAL No. 748 OF 2014 (Arising out of S.L.P. (Crl.) No.4123 of 2012), CRIMINAL APPEAL No. 749 OF 2014 (Arising out of S.L.P. (Crl.) No.4117 of 2012), CRIMINAL APPEAL No. 750 OF 2014 (Arising out of S.L.P. (Crl.) No.4115 of 2012), CRIMINAL APPEAL No. 751 OF 2014 (Arising out of S.L.P. (Crl.) No.4114 of 2012), CRIMINAL APPEAL No. 752 OF 2014 (Arising out of S.L.P. (Crl.) No.4124 of 2012), CRIMINAL APPEAL No. 753 OF 2014 (Arising out of S.L.P. (Crl.) No.4119 of 2012), CRIMINAL APPEAL No. 754 OF 2014 (Arising out of S.L.P. (Crl.) No.4129 of 2012), CRIMINAL APPEAL No. 755 OF 2014 (Arising out of S.L.P. (Crl.) No.4118 of 2012), CRIMINAL APPEAL No. 756 OF 2014 (Arising out of S.L.P. (Crl.) No.4130 of 2012), CRIMINAL APPEAL No. 757 OF 2014 (Arising out of S.L.P. (Crl.) No.4127 of 2012), CRIMINAL APPEAL No. 758 OF 2014 (Arising out of S.L.P. (Crl.) No.4125 of 2012), CRIMINAL APPEAL No. 759 OF 2014 (Arising out of S.L.P. (Crl.) No.4120 of 2012), CRIMINAL APPEAL No. 760 OF 2014 (Arising out of S.L.P. (Crl.) No.4618 of 2012), CRIMINAL APPEAL No. 761 OF 2014 (Arising out of S.L.P. (Crl.) No.4619 of 2012), CRIMINAL APPEAL No. 762 OF 2014 (Arising out of S.L.P. (Crl.) No.4620 of 2012), CRIMINAL APPEAL No. 763 OF 2014 (Arising out of S.L.P. (Crl.) No.6587 of 2012), CRIMINAL APPEAL No. 764 OF 2014 (Arising out of S.L.P. (Crl.) No.6598 of 2012), CRIMINAL APPEAL No. 765 OF 2014 (Arising out of S.L.P. (Crl.) No.6522 of 2012), CRIMINAL APPEAL No. 766 OF 2014 (Arising out of S.L.P. (Crl.) No.6639 of 2012), CRIMINAL APPEAL No. 767 OF 2014 (Arising out of S.L.P. (Crl.) No.6523 of 2012), CRIMINAL APPEAL No. 768 OF 2014 (Arising out of S.L.P. (Crl.) No.6612 of 2012), CRIMINAL APPEAL No. 769 OF 2014 (Arising out of S.L.P. (Crl.) No.6622 of 2012), CRIMINAL APPEAL No. 770 OF 2014 (Arising out of S.L.P. (Crl.) No.7731 of 2012), CRIMINAL APPEAL No. 771 OF 2014 (Arising out of S.L.P. (Crl.) No.7733 of 2012), CRIMINAL APPEAL No. 772 OF 2014 (Arising out of S.L.P. (Crl.) No.7743 of 2012), CRIMINAL APPEAL No. 773 OF 2014 (Arising out of S.L.P. (Crl.) No.7744 of 2012), CRIMINAL APPEAL No. 774 OF 2014 (Arising out of S.L.P. (Crl.) No.7745 of 2012), CRIMINAL APPEAL No. 775 OF 2014 (Arising out of S.L.P. (Crl.) No.7746 of 2012), CRIMINAL APPEAL No. 776 OF 2014 (Arising out of S.L.P. (Crl.) No.7747 of 2012), CRIMINAL APPEAL No. 777 OF 2014 (Arising out of S.L.P. (Crl.) No.7749 of 2012), CRIMINAL APPEAL No. 778 OF 2014 (Arising out of S.L.P. (Crl.) No.9426 of 2012), CRIMINAL APPEAL No. 779 OF 2014 (Arising out of S.L.P. (Crl.) No.9170 of 2012), CRIMINAL APPEAL No. 780 OF 2014 (Arising out of S.L.P. (Crl.) No.9163 of 2012), CRIMINAL APPEAL No. 781 OF 2014 (Arising out of S.L.P. (Crl.) No.9253 of 2012), CRIMINAL APPEAL No. 782 OF 2014 (Arising out of S.L.P. (Crl.) No.9164 of 2012), CRIMINAL APPEAL No. 783 OF 2014 (Arising out of S.L.P. (Crl.) No.9160 of 2012), CRIMINAL APPEAL No. 784 OF 2014 (Arising out of S.L.P. (Crl.) No.614 of 2013), CRIMINAL APPEAL No. 785 OF 2014 (Arising out of S.L.P. (Crl.) No.379 of 2013), CRIMINAL APPEAL No. 786 OF 2014 (Arising out of S.L.P. (Crl.) No.1467 of 2013), CRIMINAL APPEAL No. 787 OF 2014 (Arising out of S.L.P. (Crl.) No.1782 of 2013), CRIMINAL APPEAL No. 788 OF 2014 (Arising out of S.L.P. (Crl.) No.3575 of 2013), CRIMINAL APPEAL No. 789 OF 2014 (Arising out of S.L.P. (Crl.) No.3579 of 2013), CRIMINAL APPEAL No. 790 OF 2014 (Arising out of S.L.P. (Crl.) No.3580 of 2013), CRIMINAL APPEAL No. 791 OF 2014 (Arising out of S.L.P. (Crl.) No.3581 of 2013), CRIMINAL APPEAL No. 792 OF 2014 (Arising out of S.L.P. (Crl.) No.4024 of 2013), CRIMINAL APPEAL No. 793 OF 2014 (Arising out of S.L.P. (Crl.) No.4032 of 2013), CRIMINAL APPEAL No. 794 OF 2014 (Arising out of S.L.P. (Crl.) No.4030 of 2013), CRIMINAL APPEAL No. 795 OF 2014 (Arising out of S.L.P. (Crl.) No.4025 of 2013), CRIMINAL APPEAL No. 796 OF 2014 (Arising out of S.L.P. (Crl.) No.4031 of 2013), CRIMINAL APPEAL No. 797 OF 2014 (Arising out of S.L.P. (Crl.) No.3715 of 2013), CRIMINAL APPEAL No. 798 OF 2014 (Arising out of S.L.P. (Crl.) No.3563 of 2013), CRIMINAL APPEAL Nos. 799-800 OF 2014 (Arising out of S.L.P. (Crl.) Nos.5533-5534 of 2013), CRIMINAL APPEAL No. 801 OF 2014 (Arising out of S.L.P. (Crl.) No. 2914 of 2013) (Crl. M. P. No.15167 of 2013), CRIMINAL APPEAL No. 802 OF 2014 (Arising out of S.L.P. (Crl.) No. 2915 of 2013) (Crl. M. P. No.16083 of 2013), CRIMINAL APPEAL No. 803 OF 2014 (Arising out of S.L.P. (Crl.) No.7835 of 2013), CRIMINAL APPEAL No. 804 OF 2014 (Arising out of S.L.P. (Crl.) No.8365 of 2013), CRIMINAL APPEAL No. 805 OF 2014 (Arising out of S.L.P. (Crl.) No.9217 of 2013), CRIMINAL APPEAL No. 806 OF 2014 (Arising out of S.L.P. (Crl.) No.10346 of 2013), AND CRIMINAL APPEAL No. 807 OF 2014 (Arising out of S.L.P. (Crl.) No.10502 of 2013)
Decided On : 03-04-2014
(b) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 – Section 35 – Act has overriding effect – Therefore Section 13(13) of the Act will override section 65A of the Transfer of Property Act, 1882 – Thus a mortgagor cannot lease out the property after he receives notice u/s 13(2). (Para 13, 15)
(c) Transfer of Property Act, 1882 – Section 111 r/w section 13, SARFAESI Act, 2002 – No provision in Section 13 that a lease in respect of a secured asset shall stand determined by the secured creditor taking measures thereunder – Therefore unless a lease is validly determined in terms of section 111, possession of the lessee would be lawful. (Para 17)
(d) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 – Section 14 – Secured creditor moving the Chief Metropolitan Magistrate or the District Magistrate for assistance to take possession of the secured asset – Only if possession of the secured asset is required to be taken – Section 13 not determining lease on secured creditor taking measures u/s 13 – Hence possession of such asset is not required to be taken u/s 14 – Chief Metropolitan Magistrate or the District Magistrate has no power to take possession of the secured asset from such a lessee and hand over the same to the secured creditor – Secured creditor must therefore state in the affidavit that the secured asset is not in possession of a lessee under a valid lease made prior to creation of the mortgage by the borrower or made prior to receipt of a notice u/s 13(2) of the Act by the borrower – In such cases the secured creditor will be entitled to receive any money due or which may become due, including rent, from the lessee to the borrower. (Para 18)
(e) Security Interest (Enforcement) Rules, 2002 – Rule 8 – Options to lessee on receipt of notice from secured creditor – He may surrenders possession lease gets determined – He may resist and produce proof of induction prior to the creation of the mortgage or before receipt of notice u/s 13(2). (Para 21)
(f) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 – Section 14 – Attaching finality to orders of Chief Metropolitan Magistrate or the District Magistrate – Not a bar for High Court or Supreme Court to exercise Constitutional jurisdiction – No statutory provision can take away a power vested by the Constitution – Orders of Chief Metropolitan Magistrate or the District Magistrate can be challenged before High Court under Article 226 and 227 of the Constitution. (Para 22)
(2012) 11 SCC 224 – Relied upon
(g) Section 17(1) – Words "any person (including borrower)" – Also include a lessee – Lessee may apply to Debts Recovery Tribunal – Tribunal has power to restore possession, but to the borrower – Not to the lessee – Lessee has no remedy u/s 17. (Para 24)
(2008) 1 SCC 125 – Referred
2007 CRI. L.J. 2544 – Distinguished
(h) Transfer of Property Act, 1882 – Section 107 – In absence of documentary proof of lease, the possession cannot be taken to be more than one year. (Para 27)
Facts of the case:
The appellants claim to be tenants of different premises in Mumbai which were mortgaged to different banks as securities for loans advanced by the banks to. As the borrowers have defaulted in repayment of their secured debts or instalments thereof and their accounts in respect of such debts have been classified by the secured creditors as non-performing assets, the secured creditors have exercised their right under sub- section (4) of Section 13 of the SARFAESI Act to take possession of the secured assets of the borrowers.
The secured creditors have made a request to the Chief Metropolitan Magistrate, Mumbai, to take possession of the premises and handover the possession of the premises to the secured creditors.
Threatened by dispossession of the premises under their possession by the Chief Metropolitan Magistrate, Mumbai, under Section 14 of the SARFAESI Act, the appellants have moved the Supreme Court in this batch of cases.
Finding of the Court:
Impugned judgment cannot be sustained.
Result:
Appeals allowed.
Based on the provided legal document, if there is a valid tenant on the property with a registered lease created prior to the mortgage, the District Magistrate (DM) would need to examine the validity of that lease before proceeding with any action to take possession of the property. The DM must consider whether the lease was made in accordance with the provisions of the Transfer of Property Act, specifically Section 107, which requires that leases exceeding one year or for terms beyond one year must be registered, or whether the lease was made through an oral agreement with delivery of possession, which is permissible for shorter terms (!) .
Furthermore, the DM must verify whether the lease was created before the mortgage or in accordance with the requirements of Section 65A of the Transfer of Property Act, which regulates the rights of mortgagors to lease mortgaged properties. If the lease is established as valid and not determined under the appropriate legal provisions, the DM is obligated to recognize that lawful possession of the lessee remains protected, and the lease cannot be deemed terminated solely because of the mortgage enforcement proceedings (!) (!) .
Therefore, the DM's role includes a thorough review of the lease documentation and circumstances to determine the lease's validity and timing relative to the mortgage, ensuring that the rights of the lawful lessee are upheld unless the lease has been properly determined or invalidated under the applicable laws.
Judgment :
A.K. PATNAIK, J.
Leave granted.
Facts:
2. The appellants claim to be tenants of different premises in Mumbai. These premises were mortgaged to different banks as securities for loans advanced by the banks (hereinafter referred to as `the secured creditors'). As the borrowers have defaulted in repayment of their secured debts or instalments thereof and their accounts in respect of such debts have been classified by the secured creditors as non-performing assets, the secured creditors have issued notices of 60 days period under sub- section (2) of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short `SARFAESI Act') to the borrowers saying that they intend to enforce the secured assets in the event of non- payment of the secured debts. As the borrowers have failed to discharge their liability in full within the period of sixty days from the date of notice, the secured creditors have exercised their right under sub- section (4) of Section 13 of the SARFAESI Act to take possession of the secured assets of the borrowers. The secured assets, however, consist of the premises under possession of the appellants. The secured creditors have, therefore, made a request under Section 14(1) of the SARFAESI Act to the Chief Metropolitan Magistrate, Mumbai, to take possession of the premises and handover the possession of the premises to the secured creditors in accordance with the provisions of Section 14 of the SARFAESI Act. Threatened by dispossession of the premises under their possession by the Chief Metropolitan Magistrate, Mumbai, under Section 14 of the SARFAESI Act, the appellants have moved this Court in this batch of cases. Their case is that they are not borrowers, but they are lessees of the borrowers and are entitled to remain in possession of the secured assets. A Division Bench of the Bombay High Court in M/s Trade Well, a Proprietorship Firm, Mumbai & Anr. v. Indian Bank & Anr . [2007 CRI. L.J. 2544] has, however, held that when a secured creditor takes measures under sub- section (4) of Section 13 of the SARFAESI Act on account of failure of the borrower to repay his liability and approaches the Chief Metropolitan Magistrate for assistance to take possession of the secured assets, the liability of the borrower having been crystallized, there can be no adjudication by the Chief Metropolitan Magistrate and possession has to be taken by a non- adjudicatory process and there is no question of pointing out to the Chief Metropolitan Magistrate at that stage that the person who is to be dispossessed is a tenant. The Division Bench of the Bombay High Court has further held in M/s Trade Well (supra) that the remedy of the borrower as well as a third- party is to file an application under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal and in case the borrower or a third- party succeeds, the Debts Recovery Tribunal can restore possession of the secured assets to the borrower or a third- party. This view taken by the Bombay High Court in M/s Trade Well (supra) has been followed in the impugned judgment dated 20.08.2011 of the High Court passed in the case of International Assets Reconstruction Company Limited v. Union of India & Ors . The grievance of the appellants is that if the impugned judgment of the High Court is implemented, the appellants have no option but to surrender possession to the Chief Metropolitan Magistrate, Mumbai, and move the Debts Recovery Tribunal under Section 17 of the SARFAESI Act. Such a remedy, according to the appellants, is not actually available under Section 17 of the SARFAESI Act and if the remedy is available, it is meaningless as they have to move out from the tenanted premises and only in the event the Debts Recovery Tribunal decides in favour of the appellants, they may come back to the tenanted premises. Aggrieved by the impugned judgment, they have, therefore, filed these appeals by way of special l
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