A secured creditor must acknowledge existing tenancy rights when seeking possession of mortgaged property under the SARFAESI Act.

JUDGMENT :

DHIRAJ SINGH THAKUR, CJ.

1. The petitioner claims that he was in possession of the property in question, by virtue of a registered Rent Deed, dated 22.02.2016, wherein he Was conducting his business. It is stated that after tenancy rigtlts were created in favour of the petitioner, by the owner of the property, a loan was obtained by the owner, who subsequently mortgaged the property in question with the financial institution - respondent No.2 herein.

2. The petitioner claims that while he was in possession, the secured creditor approached the Chief Judicial Magistrate-Cum-Principal Civil Judge, (Senior Division), Chittoor, in terms of the provisions of section 14 of the SARFAESI Act, 2002 for Obtaining Physical possession of the Property in question. It is stated that the learned chief Judicial Magjstrate ordered the appointment of an Advocate commissioner authorising him to take physical possession of the property in question.

3. The case of the petitioner is that respondent No.2 did not in the application reflect that the petitioner was in possession and running business from the premises in question, based upon a validly created tenancy in favour of the petitioner, and hiding that fact proceeded to obtain an order, resulting in the appointment of an Advocate commissioner, who took possession, based upon Which the petitioner came to be dispossessed.

4. This Court, by virtue of its order dated 08.05.2025, observed that respondent No.2 had not reflected in the application that there was a tenant operating from the premises in question and considering the fact that the tenancy was created on account of a registered Rent Agreement, the Advocate commissioner was directed to remove the locks which have been fixed on the outer door of the premises, with further direction to handover the Possession back to the petitioner.

5. While issuing the said directions this court had relied upon the judgment of the Apex Court, rendered in the case of Harshad Govardhan sondagar vs. International Assets Reconstruction company Limited , 20146 SCC 1 which reads as under:

'We have already held that section 13 of the SARFAESI Act does not provide that the lease in respect of a secured asset will getdetermined when the secured creditor decides to take the measures in the said section. Hence, possession of the secured asset from a lessee in lawful possession under a valid lease is not required to be taken under the provisions of the SARFAESI Act and the Chief Metropolitan Magistrate or the District Magistratet therefore, does not have any power under Section 14 of the SARFAESI Act to take possession of the secured asset from such a lessee and hand over the same to the secured creditor. When, therefore, a secured creditor moves the Chief Metropolitan Magistrate or the District Magistrate for assistance to take possession of the secured asset, he must state in the affidavit acccompanying the application that the secured asset is not in possession of a lessee under the valid lease made prior to creation of the mortgage by the borrower or made in accordance with Section 65A of the Transfer of Property Act prior to receipt of a notice under sub-section (2) of Section 13 of the SARFAESI Act by the borrower. . . "

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6. Pursuant to the directions so issued, the possession was handed over back to the petitioner.

7. ln the case of Sondagar, itwas held that when attempts are made by the secured creditor to dispossess the lessee, he has two options. One that he may either surrender the possession, or he may resist the secured creditor to take possession, by producing before the authorised officer, proof that he was inducted as a lessee prior t