HEMRAJ RATNAKAR SALIAN versus HDFC BANK LTD. & ORS. on 17 August 2021

1. Leave granted.

2. These appeals are directed against the Orders dated 30.12.2015and 06.01.2016 in Case C.C. No.381/SA/2014 passed by the ChiefMetropolitan Magistrate, Esplanade, Mumbai, rejecting the Application(Exh.-8) filed by the appellant herein for restraining HDFC Bank, thefirst respondent herein, from taking possession of the property in theappellant’s possession.

3. HDFC Bank had granted financial facility to respondent nos.2and 3 (for short, ‘the Borrowers’) of Rs.5,50,00,000/- (Rupees Five CroreFifty Lakhs). On 03.04.2013, the Borrowers had mortgaged a propertybearing Flat No.501, 5[th] Floor, Solitaire, Village Kopari, AdiShankaracharya Road, MHADA Layout, Powai, Andheri (E), Mumbai(for short, “the Secured Asset”) in favour of the Bank with an intentionto secure the said credit facility.

4. The accounts of the Borrowers were declared as non-performing assets (NPA) on 31.10.2013. On 25.01.2014, the Bank issueda notice under Section 13(2) of the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002 (forshort, “SARFAESI Act”) to the Borrowers. It is the case of the appellantthat he is a tenant of the Secured Asset on a monthly rent of Rs.20,000/- since 12.06.2012 with an increase of 5% every year. He has beenpaying rent regularly to his landlord since inception of his tenancy.

5. The appellant filed Exh.8 application before the Magistrateseeking protection of his possession of the Secured Asset as theMagistrate was ceased with the petition under Section 14 of SARFAESIAct filed by the respondent no.1-Bank. Vide Order dated 30.12.2015,the intervention application of the appellant was dismissed by theMagistrate holding that there was no registered tenancy placed on recordby the appellant.

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A6. We have heard learned counsel for the parties. Learned counselfor the appellant would contend that the appellant is a protected tenantunder the provisions of the Maharashtra Rent Control Act 1999. He hasbeen paying rent regularly to the landlord. He has also paid advance renttill 17.12.2018. There are continuous rent receipts with him from thedate of his induction as a tenant. The tenant was residing in the saidBpremises on the basis of an oral tenancy from 12.06.2012. Therefore, hecannot be evicted from the Secured Asset without due process of law.

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7. On the other hand, learned counsel for the respondent-Banksubmits that the rent receipt said to have been issued by the landlord forthe period from 12.06.2012 to 12.05.2013 is of 12.05.2013 which is afterCthe date of creation of mortgage in favour of the Bank. There is absolutelyno material to show that the tenancy was created earlier to the date ofmortgage. The tenancy pleaded by the appellant is an oral tenancy. Atthe time of grant of facility, third-party valuers had confirmed that theBorrowers were staying at the Secured Asset. The Borrowers, whileDmaking representation to the Bank, have not claimed that any tenant isstaying at the Secured Asset. The tenancy claimed by the appellant is anafter-thought which cannot be believed in the facts and circumstancesof the case. He prays for dismissal of the appeal.

8. We have carefully considered the submissions made at the BarEand perused the materials placed on the record.

9. As noticed above, it is the case of the appellant that he is atenant of the Secured Asset since 12.06.2012 and has paid advance rentupto 17.12.2018. The documents produced by the appellant are xeroxcopies of the rent receipts. However, in response to the notice issuedFunder Section 13(2) of the SARFAESI Act, the Borrowers have sent avery detailed representation wherein they have not claimed that anytenant is staying at the Secured Asset. The appellant has pleaded tenancyfrom 12.06.2012 to 17.12.2018. The rent receipt claiming tenancy from12.06.2012 is a xerox copy of 12.05.2013, which is after the date ofcreation of mortgage.G

10. Procedural mechanism for taking possession of the SecuredAsset is provided under Section 14 of the SARFAESI Act. Section 17 ofthe SARFAESI Act provides for the right of appeal to any person includingthe borrower to approach Debt Recovery Tribunal (DRT). Section 17has been amended by Act No. 44 of 2016 providing for challenging theH

measures to recover secured debts (for short, “the Amendment”). Underthe Amendment, possession can be restored to the borrower or suchother aggrieved person. This Amendment has come into force w.e.f. 1[st]September, 2016. This Court in Harshad Govardhan Sondagar v.International Asset Reconstruction Co. Ltd. & Ors.[1] has held thatright of appeal is available to the tenant claiming under the borrower. InKanaiyalal Lalchand Sachdev v. State of Maharashtra[2 ]this Courthas held that DRT can not only set aside the action of the secured creditorbut even restore the status quo ante. Therefore, an alternative remedywas available to the appellant to challenge the impugned order underSection 17 of the SARFAESI Act even before the amendment to Section17 of the SARFAESI Act. However, given that the instant appeal hasbeen pending consideration before this Court from the year 2016, wepropose to examine the case on merits without directing the appellant toavail the alternative remedy.

11. In Harshad Govardhan Sondagar (supra) this Court hascategorically held that if the tenancy claim is for any term exceedingone year, the tenancy can be made only by a registered instrument. Itwas held thus :

“36. We may now consider the contention of the respondentsthat some of the appellants have not produced any document toprove that they are bona fide lessees of the secured assets. Wefind that in the cases before us, the appellants have relied on thewritten instruments or rent receipts issued by the landlord to thetenant. Section 107 of the Transfer of Property Act provides thata lease of immovable property from year to year, or for any termexceeding one year or reserving a yearly rent, can be made “onlyby a registered instrument” and all other leases of immovableproperty may be made either by a registered instrument or by oralagreement accompanied by delivery of possession. Hence, if anyof the appellants claim that they are entitled to possession of asecured asset for any term exceeding one year from the date ofthe lease made in his favour, he has to produce proof of executionof a registered instrument in his favour by the lessor. Where hedoes not produce proof of execution of a registered instrument inhis favour and instead relies on an unregistered instrument or oral 1 (2014) 6 SCC 1

2 (2011) 2 SCC 782

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SUPREME COURT REPORTS

agreement accompanied by delivery of possession, the ChiefMetropolitan Magistrate or the District Magistrate, as the casemay be, will have to come to the conclusion that he is not entitledto the possession of the secured asset for more than a year fromthe date of the instrument or from the date of delivery of possessionin his favour by the landlord.”

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12. A Three-Judge Bench of this Court in Bajarang Shyamsunder

Agarwal v. Central Bank of India & Anr.[3], after considering almostall decisions of this Court, in relation to the right of a tenant in possessionof the secured asset, has held that if a valid tenancy under law is inexistence even prior to the creation of the mortgage, such tenant’sCpossession cannot be disturbed by the secured creditor by takingpossession of the property. If a tenancy under law comes into existenceafter the creation of a mortgage but prior to issuance of a notice underSection 13(2) of the SARFAESI Act, it has to satisfy the conditions ofSection 65-A of the Transfer of Property Act, 1882. If a tenant claimsDthat he is entitled to possession of a Secured Asset for a term of more than a year, it has to be supported by the execution of a registeredinstrument. In the said decision of this Court, it was clarified that in theabsence of a registered instrument, if the tenant only relies upon anunregistered instrument or an oral agreement accompanied by deliveryof possession, the tenant is not entitled to possession of the securedEasset for more than the period prescribed under the provisions of theTransfer of Property Act. It was held thus:

“24.1. If a valid tenancy under law is in existence even prior tothe creation of the mortgage, the tenant’s possession cannot bedisturbed by the secured creditor by taking possession of theFproperty. The lease has to be determined in accordance withSection 111 of the TP Act for determination of leases. As theexistence of a prior existing lease inevitably affects the riskundertaken by the bank while providing the loan, it is expected ofbanks/creditors to have conducted a standard due diligence in thisGregard. Where the bank has proceeded to accept such a propertyas mortgage, it will be presumed that it has consented to the riskthat comes as a consequence of the existing tenancy. In such asituation, the rights of a rightful tenant cannot be compromisedunder the SARFAESI Act proceedings.

H3 (2019) 9 SCC 94

24.2. If a tenancy under law comes into existence after the creationof a mortgage, but prior to the issuance of notice under Section13(2) of the SARFAESI Act, it has to satisfy the conditions ofSection 65-A of the TP Act.

24.3. In any case, if any of the tenants claim that he is entitled topossession of a secured asset for a term of more than a year, ithas to be supported by the execution of a registered instrument.In the absence of a registered instrument, if the tenant relies onan unregistered instrument or an oral agreement accompanied bydelivery of possession, the tenant is not entitled to possession ofthe secured asset for more than the period prescribed under Section107 of the TP Act.”

13. It was further held that the Rent Act would not come to theaid of a “tenant-in-sufferance” vis-à-vis SARFAESI Act due to theoperation of Section 13(2) read with Section 13(13) of the SARFAESIAct. It was held as follows:

“35. The operation of the Rent Act cannot be extended to a “tenant-in-sufferance” vis-à-vis the SARFAESI Act, due to the operationof Section 13(2) read with Section 13(13) of the SARFAESI Act.A contrary interpretation would violate the intention of thelegislature to provide for Section 13(13), which has a valuablerole in making the SARFAESI Act a self-executory instrumentfor debts recovery. Moreover, such an interpretation would alsoviolate the mandate of Section 35, SARFAESI Act which iscouched in broad terms.”

14. In the present case, first of all there is a serious doubt as tothe bona fide of the tenant, as there is no good or sufficient evidence toestablish the tenancy of the appellant. According to the appellant, he is atenant of the Secured Asset from 12.06.2012. However, the documentsproduced in support of his claim are xerox copies of the rent receiptsand the first xerox copy of the rent receipt is of 12.05.2013 which isafter the date of creation of the mortgage. It is pertinent to note herethat the Borrowers have not claimed that any tenant is staying at theSecured Asset. At the time of grant of facility, third-party valuers hadalso confirmed that the Borrowers were staying at the Secured Asset.Be that as it may. The appellant has pleaded tenancy from 12.06.2012 to17.12.2018. This is not supported by any registered instrument. Further, A

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Aeven according to the appellant, he is a “tenant-in-sufferance”,therefore, he is not entitled to any protection of the Rent Act. Secondly,even if the tenancy has been claimed to be renewed in terms of Section13(13) of the SARFAESI Act, the Borrower would be required to seekconsent of the secured creditor for transfer of the Secured Asset byway of sale, lease or otherwise, after issuance of the notice under SectionB13(2) of the SARFAESI Act and, admittedly, no such consent has beensought by the Borrower in the present case.

15. In view of above, we do not find any merit in these appealswhich are accordingly dismissed.

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Nidhi Jain

Appeals dismissed.

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