Post-mortgage leases lacking compliance with statutory provisions are invalid, negating tenant protections during recovery actions under the SARFAESI Act, irrespective of prior agreements.

JUDGMENT

As the issue involved in all these writ petitions is the same, they are taken up together for consideration and disposed by this common judgment. For the sake of convenience, the reference to facts and exhibits is from W.P.(C).No.30016/2015.

2. The petitioners in these writ petitions are tenants in buildings owned by the 1st respondent. The 1st respondent constructed the said building, which is a four storeyed building, after demolishing a two storeyed building that originally stood on the site. For the purposes of constructing the said building, the 1st respondent had availed a term loan of Rs.400 Lakhs from the 2nd respondent bank. The security offered by the 1st respondent, for the loan amounts advanced to it by the 2nd respondent, was in the form of a mortgage by deposit of title deeds. Ext.P2 dated 31.12.2004 is the memorandum of deposit of title deeds. The 1st respondent also entered into Ext.P3 loan agreement dated 27.12.2004, whereby it agreed to repay the 2nd respondent the said loan amount in installments in the manner specified in the schedule to the said agreement. Annexure 3 of the schedule to the said agreement states that towards the term loan of Rs.4 Crores, a sum of Rs.150 Lakhs has to be paid on receipt of advance from prospective shop tenants within the time stipulated therein, and the balance amount has to be paid in 120 equal monthly installments starting from 6 months from the date of disbursement.

3. The 1st respondent began to lease out various premises within the building in question to third parties even while the building was under construction. As a result, there were registered lease deeds executed by the 1st respondent in favour of various persons, both prior to and subsequent to, the creation of the mortgage by deposit of title deeds. There were also certain unregistered lease deeds that were executed by the 1st respondent, subsequent to the creation of the mortgage. The 1st respondent, thereafter, occasioned a default in effecting repayment of the loan amounts to the 2nd respondent and, asa consequence, the 2nd respondent initiated steps under the SARFAESI Act , against the secured asset viz. the four storeyed building, for recovery of the defaulted loan amounts. The said proceedings culminated in a private sale of the building in question to one Ahammed Koya.

4. It is relevant to note that the petitioners had, in the meanwhile, and on coming to know of the proposed sale to Ahammed Koya, got themselves impleaded in a writ petition that had been filed by the 1st respondent seeking to interdict the proceedings initiated by the 2nd respondent bank under the SARFAESI Act . The petitioners basically wanted an opportunity to redeem the mortgage executed by the 1st respondent by paying the amounts payable to the 2nd respondent bank. The writ petition was subsequently dismissed as infructuous when the private sale took place. The petitioners, therefore, filed S.A.No.18/2010 before the Debts Recovery Tribunal challenging the private sale. This S.A. was dismissed by Ext.P18 order on the ground that the Tribunal did not have the jurisdiction to decide the claim for redemption of mortgage and subrogation put forward by the petitioners.

5. The 2nd respondent thereafter, issued a sale certificate of sale of the property in question and registered the same as Document No 630/1/2013 of the Sub Registrar, Kozhikode on 10.09.2013. Immediately thereafter, it took steps in terms of Section 14 of the SARFAESI Act , to obtain vacant possession of the building in question. The petitioners, therefore, submitted objections before the Chief Judicial Magistrate, inter alia, pointing out that their tenancy rights in the building could not be determined without recourse to the provisions of Section 111 of the Transfer of Property Act . The litigation that ensued resulted in Exts.P20A and P21 judgments, of a single bench and Division bench respectively, of this court whereby this court directed the Chief Judicial Mag