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SUPREME COURT OF INDIA
N.V. RAMANA, INDIRA BANERJEE, MOHAN M. SHANTANAGOUDAR, JJ.
Bajarang Shyamsunder Agarwal – Appellant
Versus
Central Bank of India and Another – Respondents
Criminal Appeal No. 1371 of 2019, SLP (Crl.) No. 9590 of 2015
Decided On : 11-09-2019
(a) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(4) and 13(13) r/w Section 65A, Transfer of Property Act, 1882 - Notice issued u/s 13(4) - Extinguishes, u/s 13(13), right of the mortgagor to lease the property under Section 65A, TP Act. (Para 13, 20)
(b) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 17 - Right to appeal - Borrower or the tenant acting through the borrower can appeal to DRT against notice u/s 13(4) - However, tenant does not have right to repossession - Magistrate can order status quo ante. (Para 16)
(c) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 35 r/w Section 111 and 107, Transfer of Property Act, 1882 - Tenant’s possession cannot be disturbed in case of valid lease prior to mortgage unless determined in accordance with Section 111 - Lease created after mortgage but prior to notice u/s 13(4) - Section 65A, Act 1882 will apply - In case of unregistered or oral lease, tenant is not entitled to possession for more than the period prescribed under Section 107, Act 1882. (Para 25)
(d) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(4) r/w Section 65A, Transfer of Property Act, 1882 - Oral tenancy - Created after mortgage - Only Xerox copies of rent receipts and no other documents produced - No mention of tenancy in order dated 09.03.2012, passed by Chief Metropolitan Magistrate - Respondent no. 2- borrower/landlord never intimating the respondent no. 1bank about the alleged tenancy - Hit by section 13(4). (Para 32)
(e) Transfer of Property Act, 1882 - Section 65A - Oral tenancy - No covenant for renewal - Instantly tenant claiming to enter into tenancy in October 2000 - Could not continue beyond the period prescribed in section 107 of the Act - Tenancy determined in law after that period - Such tenant a ‘tenant in sufferance’ - Akin to trespassers - Notice under section 13(4) issued on 30.04.2011 and subsequent tenancy barred - No protection under Rent Act. (Para 33, 36, 37)
Facts of the case:
A residential flat admeasuring about 1020 sq. ft., the secured asset, was REPORTABLE mortgaged by respondent no. 2-borrower/landlord with the respondent no. 1-bank in equitable mortgage, by depositing title deeds on 20.05.2000, to secure the credit facility. When the respondent no. 2-borrower/landlord failed to make the due repayment of the said credit facilities, the respondent no. 1-bank 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. 2-borrower/landlord demanding payment of Rs. 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.
The Magistrate, u/s 14, directed the Assistant Registrar to take possession of the secured asset and handover the same to the respondent no. 1-bank.
The appellant-tenant preferred an application before the Chief Metropolitan Magistrate which was rejected.
Finding of the Court:
Appellant has no protection under Rent Act.
Result: Appeal dismissed.
Key Points: - The SARFAESI Act overrides conflicting provisions with Rent Act and Transfer of Property Act in certain contexts, affecting tenancy rights post notice under Section 13(2). (!) (!) - If a valid lease existed before mortgage and is properly determined under Section 111 TP Act, the secured creditor cannot be granted possession until lease termination; otherwise, possession may be granted to the bank. (!) (!) - Tenants claiming protection under Rent Act may be limited; entitlement depends on whether tenancy is registered, proven by evidence beyond xerox receipts, and the timing relative to mortgage and notice under SARFAESI. (!) (!) (!) (!) - Section 17 (rights to appeal) prior to amendment allowed borrower/parties to appeal to DRT; current case discusses applicability and scope of appeal rights. (!) (!) - The Court concludes the appellant-tenant is not entitled to stay/possession protection; possession to bank ordered; tenancy deemed as exhausted or ‘tenant in sufferance’ due to post-notice occupancy. (!) (!) (!)
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 REPORTABLE mortgaged by respondent no. 2-borrower/landlord with the respondent no. 1-bank in equitable mortgage, by depositing title deeds on 20.05.2000, with an intention to secure the credit facility. When the respondent no. 2-borrower/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. 2-borrower/landlord demanding payment of Rs. 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. 2-borrower, failed to repay the outstanding loan amount, the respondent no. 1-bank 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-bank.
5. For the brevity of discussion, it may be pointed out that the appellant, who claims to be the tenant, asserts that the secured asset was let out to him by respondent no. 2-borrower/ landlord in January, 2000 and he has been paying rent since then. Admittedly, the tenancy was based on an oral agreement. The appellant-tenant received a legal notice dated 25.07.2012, from respondent no. 2-borrower/landlord directing the appellant-tenant to vacate the premises within 15 days. The appellant-tenant preferred a suit being R.A.D. Suit No. 652 of 2012 before the Court of Small Causes at Mumbai against the respondent no. 2- borrower/landlord. On 18.09.2012, the Small Causes Court allowed the application for interim injunction of the appellant-tenant filed in the above suit and respondent no. 2- borrower/landlord was restrained from disturbing the possession of the appellant-tenant.
6. Meanwhile, the High Court of Bombay, in Criminal Public Interest Litigation No. 24 of 2011, held that a Magistrate has the power to pass an order of eviction without giving an opportunity of hearing to the tenant under SARFAESI proceedings. An appeal against the aforesaid order along with a batch of other appeals was heard by this Court in Harshad Govardhan Sondagar vs. International Assets Reconstruction Co. Ltd. and Others, (2014) 6 SCC 1 [hereinafter referred to as Harshad Govardhan Case]. This Court directed the Magistrate to decide the applications after giving the tenants an opportunity of hearing.
7. The appellant-tenant preferred an application in Case No. 42/SA/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.
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