BAJARANG SHYAMSUNDER AGARWAL versus CENTRAL BANK OF INDIA & ANR. on 11 September 2019

352

SUPREME COURT REPORTS

[2019] 12 S.C.R.

ABAJARANG SHYAMSUNDER AGARWAL

v.

CENTRAL BANK OF INDIA & ANR.

(Criminal Appeal No. 1371 of 2019)

BSEPTEMBER 11, 2019

[N. V. RAMANA, MOHAN M. SHANTANAGOUDAR ANDINDIRA BANERJEE, JJ.]

Securitization and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002: ss. 13, 14, 17 and 35 –CTenancy rights over secured interest – Tenant, if protected fromejectment proceedings under the SARFAESI Act – On facts, securedasset mortgaged by borrower/landlord with the bank in equitablemortgage, to secure the credit facility – Failure of borrower/landlordto make the due repayment of the said credit facilities – Notice u/s.D13(2) to borrower/landlord demanding the payment due –Application u/s. 14 by the Bank seeking directions to take physicalpossession of the secured asset – Allowed by the Magistrate –Thereafter, application by the tenant seeking stay of the order passedfor taking possession of the property – Rejected by the Magistrateholding that tenant being a tenant without any registered instrumentEis not entitled for the possession of the secured asset for more thanone year from the date of execution of unregistered tenancyagreement – On appeal, held: Claim of bona fide tenancy of thetenant cannot be accepted, as there is no good or sufficient evidenceto establish the tenancy – Records do not demonstrate that the tenantFhas been able to prove his status as a valid leaseholder to merit theprotection sought for – Furthermore, when the SARFAESI Actproceedings were pending, the factum of tenancy was never revealedby the parties – Tenant himself pleaded that he was a tenant whohad entered into an oral agreement, such tenancy impliedly doesnot carry any covenant for renewal – Such person occupying theGpremises, when the tenancy has been determined, can only be treatedas a ‘tenant in sufferance’ – They do not have any legal rights andare akin to trespassers – Operation of the Rent Act cannot beextended to a ‘tenant–in–sufferance’ vis–a–vis the SARFAESI Act,due to the operation of s.13(2) read with s. 13(13) – Thus, tenant toH

hand over the possession of the secured asset within the stipulatedtime which would be delivered to the bank – Maharashtra RentControl Act, 1999.

Objective of SARFAESI Act, coupled with the Transfer ofProperty Act and the Rent Act – Requirement of reconciliation –Explained.

s. 13 – Enforcement of security interest – Self–executorymechanism for the banks – Explained.

Dismissing the appeal, the Court

HELD : 1.1 The Securitization and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002was enacted in response to a scenario where slow–paced recoveryand staggering amounts of non–performing assets were loomingover the banks. The SARFAESI Act is intended to enable thebank to resolve the issue of liquidity and aim for the reduction inthe number of non–performing assets. The Preamble to the Actemphasises upon the efficient and expeditious recovery of baddebts. This is also evident from the scheme of the Act. [Para 12][361-G-H; 362-A-B]

1.2 Section 13 of the SARFAESI Act provides for theenforcement of security interest. This is a self–executorymechanism for the banks. Once the process of realizing thesecured interest takes place, the secured creditor acts as trusteehaving de–jure/symbolic possession of the property and isrequired by law to realize it strictly in accordance with theprovisions of Section 13, 14 and 15 of the SARFAESI Act.Crucially, sub–Section (2) of Section 13 of the SARFAESI Actenvisages a notice, which acts as the trigger point for initiation ofthe recovery process under the SARFAESI Act. In the said notice,the secured creditor is required to disclose information on theamount payable by the borrower and the secured interest intendedto be enforced by the secured creditor in the event of non–payment of the secured debt. If the borrower fails to dischargethe liability, the secured creditor has four options including takingpossession of the secured assets of the borrower (Section 13(4)of the SARFAESI Act). Critically for this case, once a notice isserved on the borrower, he cannot further enter into any contract A

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Ato create any encumbrance on the property (Section 13(13) ofthe SARFAESI Act). This extinguishes the right of the mortgagorto lease the property under Section 65–A of the Transfer ofProperty Act. Section 14 of the SARFAESI Act provides for theprocedural mechanism for taking possession of property anddocuments with respect to the secured assets, from the borrower.B[Para 13, 14] [362-B-F]

1.3 The objective of SARFAESI Act, coupled with theTransfer of Property Act and the Rent Act are required to bereconciled in the following manner:

C(a) 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 theproperty. 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 riskDundertaken by the bank while providing the loan, it is expectedof Banks/Creditors to have conducted a standard due diligencein this regard. Where the bank has proceeded to accept such aproperty as mortgage, it will be presumed that it has consentedto the risk that comes as a consequence of the existing tenancy.EIn such a situation, the rights of a rightful tenant cannot becompromised under the SARFAESI Act proceedings.

(b) If a tenancy under law comes into existence after thecreation of a mortgage, but prior to the issuance of notice underSection 13(2) of the SARFAESI Act, it has to satisfy the conditionsof Section 65–A of the T.P. Act.F

(c) In any case, if any of the tenants claim that he is entitledto possession 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 onGan unregistered instrument or an oral agreement accompaniedby delivery of possession, the tenant is not entitled to possessionof the secured asset for more than the period prescribed underSection 107 T.P. Act. [Para 25] [367-H; 368-A-E]

1.4 In the instant case, the bona fides of the tenant is highlydoubtful, as there is no good or sufficient evidence to establishthe tenancy in the first place. The case involves a tenant whoallegedly entered into an oral agreement of tenancy before themortgage deed was entered into between the borrower and Bank/Creditor. Additionally, it must be noted that tenancy created undersuch an oral agreement, results in a fresh tenancy after the expiryof statutory period fixed under the T.P Act. [Para 26] [368-F-G]

1.5 The records also do not demonstrate that the appellant–tenant has been able to prove his status as a valid leaseholder tomerit the protection sought for. Admittedly, an equitablemortgage on the secured asset was created by the respondentno. 2–borrower/landlord by depositing title deeds with respondentno. 1–bank on 20.05.2000. However, the date of creation of thetenancy is not established in the instant case. The appellant–tenant, while seeking protection before the Small Causes Court,stated that the premises were let out to him in January, 2000, butthe Court noted that the appellant–tenant produced photocopiesof rent receipts for the period of 2001 to 2011. Contrarily, thetenant, has stated that he entered into the tenancy in October,2005. [Para 27] [368-G-H; 369-A-B]

1.6 The claim of tenancy made by the appellant–tenant isnot supported by a registered instrument. In the absence of awritten lease deed the tenant may prove his existing rights byproducing other relevant evidence before the Magistrate. Theappellant–tenant has to produce evidence of payment of rent,property taxes, etc. Furthermore, if the rent and permittedincreases were payable, then the quantum ought to have beenmentioned. In addition to the above, the claim of tenancy couldhave been substantiated by relying upon other tax receipts suchas BMC tax, water tax, electricity charges consumed by thetenant, etc. However, the appellant–tenant has only submittedxerox copies of rent receipts. Although the Small Causes Courtheld that the appellant–tenant seems to have, prima facie, arightover the secured asset, the order was passed ex parte, againstthe respondent no. 2–borrower/landlord, who did not oppose theapplication. The prima facie case was decided in favour of the A

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Aappellant–tenant solely on the basis of the xerox copies of rentreceipts produced by him. [Para 28–29] [369-C-E]

1.7 When the SARFAESI Act proceedings were pending,the factum of tenancy was never revealed by the parties. Theearlier order dated 09.03.2012, passed by the CMM directingBthe Assistant Registrar to take over the possession of the securedasset, is silent about any existing encumbrance over the securedasset. It was only after passing of the said order of the ChiefMetropolitan Magistrate, that the appellant–tenant startedagitating his rights before the Small Causes Court based on acompletely different fact scenario, without a whisper of the allegedCtenancy under the concluded Section 14, SARFAESI Actproceedings. The respondent no.2–borrower/landlord did not evenrespond to the claims of the appellant–tenant. The respondentno.1–bank has produced multiple records to substantiate theirclaim that the tenant was nowhere to be seen earlier and that thisDtenancy was created just to defeat the proceedings initiated underthe SARFAESI Act. On the contrary, the appellant–tenant hasfailed to produce any evidence to substantiate his claim over thesecured asset. In such a situation, the appellant–tenant cannotclaim protection under the garb of the interim protection grantedto him, ex parte, by solely relying upon the xerox of the rentEreceipts. [Para 31] [370-B-E]

1.8 In such an event, wherein the claim of the appellant–tenant is not supported by any conclusive evidence, the rejectionof the stay application by the Chief Metropolitan Magistratecannot be held to be erroneous. In the instant case, the stayFapplication of the appellant–tenant seems to be an afterthought.It is clear that the respondent no. 2–borrower/landlord neverintimated the respondent no. 1–bank about the alleged tenancy.The claim of bona fide tenancy of the appellant–tenant cannot beaccepted. [Para 32] [370-E-G]

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1.9 In any case, considering the counterfactual pleaded bythe appellant–tenant himself, that he was a tenant who had enteredinto an oral agreement, such tenancy impliedly does not carryany covenant for renewal, as provided under Section 65–A of T.P.

Act. Therefore, in any case, Section 13 (13) SARFAESI Act barsentering into such tenancy beyond January, 2012. As the noticeunder Section 13 (2) was issued on 30.04.2011, subsequentreckoning of the tenancy is barred. Such person occupying thepremises, when the tenancy has been determined, can only betreated as a ‘tenant in sufferance’. Such tenants do not have anylegal rights and are akin to trespassers. Thus, the operation ofthe Rent Act cannot be extended to a ‘tenant–in–sufferance’ vis–a–vis the SARFAESI Act, due to the operation of Section 13(2)read with Section 13(13) of the SARFAESI Act. A contraryinterpretation would violate the intention of the legislature toprovide for Section 13(13), which has a valuable role in makingthe SARFAESI Act a self–executory instrument for debt recovery.Moreover, such an interpretation would also violate the mandateof Section 35, SARFAESI Act which is couched in broad terms.[Para 33, 36] [370-H; 371-A-B, F]

1.10 The instant case, does not mandate the additionalprotection to be provided under the Rent Act, to the appellant–tenant. The lower courts were correct in ordering delivery ofpossession to the respondent no. 1–bank as the tenancy standsdetermined. [Para 37] [371-G]

1.11 Since 7 years have lapsed from the deadline date, theappellant–tenant is directed to hand over the possession of thesecured asset within the stipulated time to the Assistant Registrar,Mumbai Courts, who in turn would deliver the same to therespondent no.1–bank. Such devious practices by the borrowerto obstruct the rights of the bank to legitimately realize its duescannot be appreciated by this Court. [Para 38] [372-A-B]

Harshad Govardhan Sondagar v. International AssetsReconstruction Co. Ltd. and Ors. (2014) 6 SCC 1 :[2014] 11 SCR 605 ;Kanaiyalal Lalchand Sachdev andOrs. v. State of Maharashtra and Ors.(2011) 2 SCC782 : [2011] 2 SCR 602 ;R.V. Bhupal Prasad v. Stateof A.P. and Ors. AIR 1996 SC 140 : [1995] 2 Suppl.SCR 658 ;Smt. Shanti Devi v. Amal Kumar Banerjee,AIR 1981 SC 1550 : [1981] 2 SCC 199 ;Vishal N.

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AKalsaria v. Bank of India and Ors. (2016) 3 SCC762 : [2016] 1 SCR 419 ;Murlidhar Jalan (sincedeceased) through his Lrs. v. State of Meghalaya andOrs.AIR 1997 SC 2690 : [1997] 1 Suppl. SCR 255 ;D.H. Maniar and Ors. v. Waman Laxman Kudav,[1977]1 SCR 403 – referred to.B

Case Law Reference

From the Judgment and Order dated 31.12.2014 of the ChiefMetropolitan Magistrate, Esplanade, Mumbai in Exhibit No. 7 in CaseENo. 42/SA/2012.

H. A. Ahmadi, Sr. Adv., Nikhil Goel, Ms. Naveen Goel, AshutoshGhade, Advs. for the Appellant.

O. P. Gaggar, Aditya Gaggar, Advs. for the Respondents.

FThe Judgment of the Court was delivered by

N. V. RAMANA, J. 1.Leave granted.

2. The present appeal arises out of the impugned order dated31.12.2014 in Case No. 42/SA/2012 of the Chief Metropolitan Magistrate,Esplanade, Mumbai rejecting the application of the intervenor who is theGappellant-tenant herein seeking to stay the execution of order passedunder Section 14 of The Securitization and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002 [hereinafterreferred to as the ‘SARFAESI Act’] for taking possession of theproperty in question.

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3. The property in question is a residential flat admeasuring about1020 sq. ft., situated in Andheri (West), Mumbai (hereinafter referred toas the “secured asset”). The secured asset was mortgaged byrespondent no. 2-borrower/landlord with the respondent no. 1-bank inequitable mortgage, by depositing title deeds on 20.05.2000, with anintention to secure the credit facility. When the respondent no. 2-borrower/landlord failed to make the due repayment of the said creditfacilities, the respondent no.1-bank classified the debt as a “Non-Performing Asset (NPA)”. Thereafter, on 30.04.2011 a statutory DemandNotice under Section 13 (2) of the SARFAESI Act was issued torespondent no. 2-borrower/landlord demanding payment ofRs.10,72,10,106.73 (Rupees Ten Crores Seventy-Two Lacs TenThousand One Hundred Six and Seventy Three Paisa Only) which wasdue as on 30.04.2011.

4. When the respondent no.2-borrower, failed to repay theoutstanding loan amount, the respondent no. 1-bank made an applicationunder Section 14 of the SARFAESI Act seeking directions to take physicalpossession of the secured asset. This application was allowed by theChief Metropolitan Magistrate, Esplanade, Mumbai by hisorder dated09.03.2012. In this order, the Magistrate directed the Assistant Registrarto take possession of the secured asset and handover the same to therespondent no. 1-bank.

5. For the brevity of discussion, it may be pointed out that theappellant, who claims to be the tenant, asserts that the secured assetwas let out to him by respondent no. 2-borrower/landlord in January,2000 and he has been paying rent since then. Admittedly, the tenancywas based on an oral agreement. The appellant-tenant received a legalnotice dated 25.07.2012, from respondent no. 2-borrower/landlorddirecting the appellant-tenant to vacate the premises within 15 days.The appellant-tenant preferred a suit being R.A.D Suit No. 652 of 2012before the Court of Small Causes at Mumbai against the respondent no.2-borrower/landlord. On 18.09.2012, the Small Causes Court allowedthe application for interim injunction of the appellant-tenant filed in theabove suit and respondent no. 2-borrower/landlord was restrained fromdisturbing the possession of the appellant-tenant.

6. Meanwhile, the High Court of Bombay, in Criminal PublicInterest Litigation No. 24 of 2011, held that a Magistrate has the power A

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Ato pass an order of eviction without giving an opportunity of hearing tothe tenant under SARFAESI proceedings. An appeal against the aforesaidorder along with a batch of other appeals was heard by this Court inHarshad Govardhan Sondagar v. International AssetsReconstruction Co. Ltd. and Ors, (2014) 6 SCC 1 [hereinafter referredto as ‘Harshad Govardhan Case’]. This Court directed the MagistrateBto 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 appellanttenant, rejected the applicationCholding that the appellant-tenant being a tenant without any registeredinstrument is not entitled for the possession of the secured asset formore than one year from the date of execution of unregistered tenancyagreement in accordance with the law laid down in Harshad GovardhanCase (supra).D8.Aggrieved by the same, appellant-tenant filed this appeal byway of Special Leave.

9. The learned senior counsel on behalf of the appellant-tenantsubmitted that-

9. The learned senior counsel on behalf of the appellant-tenantsubmitted that- Ea.The Appellant was a protected tenant under the MaharashtraRent Control Act, 1999 [hereinafter referred to as the“Rent Act”], and was in occupation of the tenanted premisessince October, 2005.

b.Even though there was no registered lease deed, the factumFof tenancy can be demonstrated by multiple rent receipts.

c.The Small Causes Court made a prima facie determinationof rights in his favour (refer to order in R.A.D. Suit No. 652of 2012).

d.the appellant-tenant’s case is covered by the ruling of thisGCourt in Harshad Govardhan Case (supra), and VishalN. Kalsaria v. Bank of India and Ors., (2016) 3 SCC 762[hereinafter referred to as ‘Vishal N. Kalsaria Case’].

10. On the contrary, the counsel on behalf of respondent no.1-bank submits that H

a.The appellant-tenant and the respondent no. 2-borrowerlandlord have devised this litigation to commit a large-scalefraud on the bank. The appellant is not a tenant and hasbeen brought into the picture by the respondent no.2-borrower/landlord to misuse the process of law and is notentitled for any equitable relief.

b.At the time of creation of the mortgage, the bank officerswere given to understand that the family of the mortgagerwas residing in the secured asset. Even after multipleinquiries, and even after initiating proceedings under Section14 of the SARFAESI Act, the bank officers were neverintimated about the existing tenancy.

c.The respondent no. 2-borrower/landlord, had given a non-encumbrance certificate to the bank at the time of creationof the mortgage.

d.In 2016, the respondent no. 1-bank made enquiries regardingthe status of the secured asset from the Housing Societywhich had built the property and is still maintaining the same.The Society, vide letter dated 12.07.2016, had confirmedthat the secured asset is occupied by the respondent no. 2borrower/landlord and there were no third-party rightscreated over the same.

11. Since the learned senior counsel on behalf of the appellant hasextensively relied on the judgment of this Court passed in HarshadGovardhan Case (supra) and Vishal N. Kalsaria Case(supra) insupport of the proposition that a tenant is protected from any ejectmentproceedings under the SARFAESI Act, we have to examine if the lawdeclared by these rulings accurately reflects the legal position and ifthese rulings applies to the facts of the present case.

12. Before we proceed further, the circumstances which led tothe enactment of the SARFAESI Act deserve close scrutiny. TheSARFAESI Act was enacted in response to a scenario where slow-paced recovery and staggering amounts of non-performing assets werelooming over the banks. In order to overcome the practical reality, andkeep in pace with the changing commercial world, NarasimhamCommittee I and II and the Andhyarujina Committee were constitutedby the Central Government to provide solutions for the issues plaguing A

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Athe banking system of the country. The present Act is a culmination ofthe suggestions made by the aforesaid committees intended to enablethe bank to resolve the issue of liquidity and aim for the reduction in thenumber of non-performing assets. The Preamble to the Act emphasisesupon the efficient and expeditious recovery of bad debts. This is alsoevident from the scheme of the Act.B

13. Section 13 of the SARFAESI Act provides for the enforcementof security interest. This is a self-executory mechanism for the banks.Once the process of realizing the secured interest takes place, the securedcreditor acts as trustee having de-jure/symbolic possession of the propertyand is required by law to realize it strictly in accordance with the provisionsCof Section 13, 14 and 15 of the SARFAESI Act. Crucially, sub-Section(2) of Section 13 of the SARFAESI Act envisages a notice, which actsas the trigger point for initiation of the recovery process under theSARFAESI Act. In the aforesaid notice, the secured creditor is requiredto disclose information on the amount payable by the borrower and theDsecured interest intended to be enforced by the secured creditor in theevent of non-payment of the secured debt. If the borrower fails todischarge the liability, the secured creditor has four options includingtaking possession of the secured assets of the borrower (Section 13(4)of the SARFAESI Act). Critically for this case, once a notice is servedon the borrower, he cannot further enter into any contract to create anyEencumbrance on the property (Section 13(13) of the SARFAESI Act).This extinguishes the right of the mortgagor to lease the property underSection 65-A of the Transfer of Property Act [hereinafter referred toasthe ‘T.P. Act’].

14. Section 14 of the SARFAESI Act provides for the proceduralFmechanism for taking possession of property and documents with respectto the secured assets, from the borrower.

15. Section 17 of the SARFAESI Act, dealing with the Right toAppeal has been amended in the year 2016[1]. However, we are onlyconcerned with the earlier law which reads as under -G

17. Right to appeal.— (1) Any person (including borrower)aggrieved by any of the measures referred to in sub-section (4)of Section 13 taken by the secured creditor or his authorised officer 1 The Enforcement of Security Interest and Recovery of Debts Laws and MiscellaneousHProvisions (Amendment) Act, 2016 (44 of 2016).

under this Chapter, may make an application along with such fee,as may be prescribed, to the Debts Recovery Tribunal havingjurisdiction in the matter within forty-five days from the date onwhich such measures had been taken:

Provided that different fees may be prescribed for makingthe application by the borrower and the person other than theborrower.

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(2) The Debts Recovery Tribunal shall consider whether any ofthe measures referred to in sub-section (4) of Section 13 taken bythe secured creditor for enforcement of security are inaccordance with the provisions of this Act and the Rules madethereunder.

(3) If, the Debts Recovery Tribunal, after examining the factsand circumstances of the case and evidence produced by theparties, comes to the conclusion that any of the measures referredto in sub-section (4) of Section 13, taken by the secured creditorare not in accordance with the provisions of this Act andthe Rules made thereunder, and require restoration of themanagement of the business to the borrower or restoration ofpossession of the secured assets to the borrower, it may by order,declare the recourse to any one or more measures referred toin sub-section (4) of Section 13 taken by the secured creditorsas invalid and restore the possession of the secured assets tothe borrower or restore the management of the business tothe borrower, as the case may be, and pass such order as it mayconsider appropriate and necessary in relation to any of therecourse taken by the secured creditor under sub-section (4) ofSection 13.

(4) If, the Debts Recovery Tribunal declares the recourse takenby a secured creditor under sub-section (4) of section 13, is inaccordance with the provisions of this Act and the rules madethereunder, then, notwithstanding anything contained in any otherlaw for the time being in force, the secured creditor shall be entitledto take recourse to one or more of the measures specified undersub-section (4) of section 13 to recover his secured debt.

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(5) Any application made under sub-section (1) shall be dealt withby the Debts Recovery Tribunal as expeditiously as possible anddisposed of within sixty days from the date of such application:

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Provided that the Debts Recovery Tribunal may,from time to time, extend the said period for reasons to be recordedBin writing, so, however, that the total period of pendency of theapplication with the Debts Recovery Tribunal, shall not exceedfour months from the date of making of such application madeunder sub-section (1).

(6) ………..

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(7) Save as otherwise provided in this Act, the Debts RecoveryTribunal shall, as far as may be, dispose of the application inaccordance with the provisions of the Recovery of Debts Due toBanks and Financial Institutions Act, 1993 (51 of 1993) and therules made thereunder.

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(emphasis supplied)

16. Section 17 provides for an invaluable right of appeal to anyperson including the borrower to approach the Debt Recovery Tribunal(hereinafter referred to as the “DRT”). In Harshad Govardhan Case(supra) this Court held that the right of appeal is available to the tenantEclaiming under a borrower, however the right of re-possession does notexist with the tenant. However, in Kanaiyalal Lalchand Sachdevand Ors. vs. State of Maharashtra and Ors., (2011) 2 SCC 782, thisCourt held that the DRT can, not only set aside the action of the securedcreditor, but even restore the status quo ante. We do not intend toFexpress any view on this issue since it is not relevant for the disposal ofthis appeal. We also note that Parliament has stepped in and amendedSection 17 by the Enforcement of Security Interest and Recovery ofDebts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (44of 2016). Under the amendment, possession can be restored to the“borrower or such other aggrieved person”.

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17. Section 35 of the SARFAESI Act provides an overriding effectover “anything inconsistent contained in any other law”, in the followingmanner- “35. The provisions of this Act to override other laws.- Theprovisions of this Act shall have effect, notwithstanding anything H

inconsistent therewith contained in any other law for the timebeing in force or any instrument having effect by virtue of anysuch law.”

Section 35 is critical to this case and we will examine the conflictingviews on Section 35.

18. The interplay between the SARFAESI Act and the right ofthe tenant was first examined by this Court in Harshad GovardhanCase (supra). It may be noted that the present appellant was a party tothe aforesaid proceedings. This Court was confronted with the questionas to whether the provisions of the SARFAESI Act affect the right of alessee to remain in possession of the secured asset during the period ofthe lease. After noticing the scheme of the Act, this Court held that ifthe lawful possession of the secured asset is not with the borrower, butwith a lessee under a valid lease, the secured creditor cannot takepossession of the secured asset until the lawful possession of the lesseegets determined and the lease will not get determined if the securedcreditor chooses to take any of the measures specified in Section 13 ofthe SARFAESI Act. Accordingly, this Court concluded that the ChiefMetropolitan Magistrate /District Magistrate can pass an order for deliveryof possession of secured asset in favour of secured creditor only whenhe finds that the lease has been determined in accordance with Section111 of the T.P. Act.

19. The Court further held that if the Chief Metropolitan Magistrate/ District Magistrate is satisfied that a valid lease is created before themortgage and the lease has not been determined in accordance withSection 111 of the T.P. Act, then he cannot pass an order for delivery ofpossession of the secured asset to the secured creditor. In case, hecomes to the conclusion that there is no valid lease either before thecreation of mortgage or after the creation of the mortgage satisfying therequirements of Section 65-A of the T.P. Act or even though there is avalid lease the same stands determined in accordance with Section 111of the T.P. Act, he can pass an order for delivery of possession of thesecured asset to the secured creditor.

20. This Court also recognised the inconsistency between Section13(13) of the SARFAESI Act and Section 65-A of the Transfer ofProperty Act. While Section 13(13) of SARFAESI prohibits a borrowerfrom leasing out any of the secured assets after receipt of a notice A

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Aunder Section 13(2) without the prior written consent of the securedcreditor, Section 65-A of the T.P. Act enables the borrower/mortgagorto lease out the property. This inconsistency was resolved by holdingthat the SARFAESI Act will override the provisions of the T.P. Act.

21. Before concluding, the Court in Harshad Govardhan CaseB(supra), distinguished the implications of a registered and an unregisteredinstrument/oral agreement, in the following manner:

36. We may now consider the contention of the respondents thatsome of the appellants have not produced any document to provethat they are bona fide lessees of the secured assets. We find thatCin the cases before us, the appellants have relied on the writteninstruments or rent receipts issued by the landlord to the tenant.Section 107 of the Transfer of Property Act provides that a leaseof 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 immovableDproperty 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 possessionof a secured asset for any term exceeding one year fromthe date of the lease made in his favour, he has to produceEproof of execution of a registered instrument in his favourby the lessor. Where he does not produce proof of executionof a registered instrument in his favour and instead relieson an unregistered instrument or oral agreementaccompanied by delivery of possession, the ChiefMetropolitan Magistrate or the District Magistrate, as theFcase may be, will have to come to the conclusion that he isnot entitled to the possession of the secured asset for morethan a year from the date of the instrument or from thedate of delivery of possession in his favour by the landlord.

(emphasis supplied)

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22. The second case which dealt with the issue of tenants’ rightsunder the SARFAESI Act is Vishal N. Kalsaria Case (supra). ThisCourt was concerned with the question - Whether a “protected tenant”under the Maharashtra Rent Control Act, 1999 can be treated as a lessee and whether the provisions of the SARFEASI Act, will override theprovisions of the Rent Act?

23. After examining the legal and constitutional position, the Courtheld that while the SARFAESI Act has a laudable objective of providinga smooth and efficient recovery procedure, it cannot override theobjective of Rent Acts to control the rate of rent and provide protectionto tenants against arbitrary and unreasonable evictions. To resolve thisconflict, this Court held that- a)The provisions of the SARFAESI Act cannot be used to overridethe provisions of the Rent Act. The landlord cannot be permittedto do indirectly what he has been barred from doing under theRent Act.

b)While a yearly tenancy requires to be registered, oral tenancycan still be proved by showing that the tenant has been inoccupation of the premises before the Magistrate under Section14 of the SARFAESI Act.

c)The non-registration of the tenancy deed cannot be used againstthe tenant. For leasehold rights being created after the propertyhas been mortgaged to the bank, the consent of the creditorneeds to be taken.

d)Even though Section 35 of the SARFAESI Act has a nonobstante clause, it will not override the statutory rights of thetenants under the Rent Control Act. The non obstante clauseunder Section 35 of the SARFAESI Act only applies to lawsoperating in the same field.

24. While we agree with the principle laid out in Vishal N. KalsariaCase (supra) that the tenancy rights under the Rent Act need to berespected in appropriate cases, however, we believe that the holdingwith respect to the restricted application of the non obstante clauseunder section 35 of SARFAESI Act, to only apply to the laws operatingin the same field is too narrow and such a proposition does not followfrom the ruling of this Court in Harshad GovardhanCase (supra).

25. In our view, the objective of SARFAESI Act, coupled withthe T.P. Act and the Rent Act are required to be reconciled herein in thefollowing manner:

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Aa)If a valid tenancy under law is in existence even prior to thecreation of the mortgage, the tenant’s possession cannot bedisturbed by the secured creditor by taking possession of theproperty. 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 riskBundertaken by the bank while providing the loan, it is expectedof Banks/Creditors to have conducted a standard due diligencein this regard. Where the bank has proceeded to accept such aproperty as mortgage, it will be presumed that it has consentedto the risk that comes as a consequence of the existing tenancy.CIn such a situation, the rights of a rightful tenant cannot becompromised under the SARFAESI Act proceedings.

b)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 ofDSection 65-A of the T.P. Act.

c)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 onEan unregistered instrument or an oral agreement accompaniedby delivery of possession, the tenant is not entitled to possessionof the secured asset for more than the period prescribed underSection 107 of the T.P. Act.

26. In the present case, the bona fides of the tenant is highlyFdoubtful, as there is no good or sufficient evidence to establish the tenancyin the first place. The present case involves a tenant who allegedly enteredinto an oral agreement of tenancy before the mortgage deed was enteredinto between the borrower and Bank/Creditor. Additionally, it must benoted that tenancy created under such an oral agreement, results in afresh tenancy after the expiry of statutory period fixed under the T.PGAct.

27. The records also do not demonstrate that the appellant-tenanthas been able to prove his status as a valid leaseholder to merit theprotection sought for. Admittedly, an equitable mortgage on the securedasset was created by the respondent no. 2-borrower/landlord byH

depositing title deeds with respondent no. 1-bank on 20.05.2000.However, the date of creation of the tenancy is not established in thepresent case. It is to be noted that the appellant-tenant, while seekingprotection before the Small Causes Court, stated that the premises werelet out to him in January, 2000, but the Court noted that the appellant-tenant produced photocopies of rent receipts for the period of 2001 to2011. Contrarily, the appellant-tenant, in this appeal before us, has statedthat he entered into the tenancy in October, 2005.

28. The claim of tenancy made by the appellant-tenant is notsupported by a registered instrument. We recognise the legal position, aslaid out in the Vishal N. KalsariaCase (supra), that in the absence ofa written lease deed the tenant may prove his existing rights by producingother relevant evidence before the Magistrate. The appellant-tenanthas to produce evidence of payment of rent, property taxes, etc.Furthermore, if the rent and permitted increases were payable, then thequantum ought to have been mentioned. In addition to the above, theclaim of tenancy could have been substantiated by relying upon othertax receipts such as BMC tax, water tax, electricity charges consumedby the tenant, etc. However, the appellant-tenant has only submittedxerox copies of rent receipts.

29. Although the Small Causes Court held that the appellant-tenantseems to have, prima facie, aright over the secured asset, the orderwas passed ex parte, against the respondent no. 2-borrower/landlord,who did not oppose the application. It is to be noted that the prima faciecase was decided in favour of the appellant-tenant solely on the basis ofthe xerox copies of rent receipts produced by him.

30. The respondent no. 1-bank has vehemently contested thebona fides of the appellant-tenant and has argued that the claim oftenancy has been raised just to defeat the legal process of realisation ofdues as per the SARFAESI Act. To substantiate this claim, therespondent no. 1-bank has placed on record a legal scrutiny report dated08.05.2000, wherein the property is indicated to be self-occupied by therespondent no. 2-borrower/landlord for residential usage. Additionally,the aforesaid fact is corroborated by the non-encumbrance certificatesubmitted by the respondent no. 2-borrower/landlord at the time ofcreation of the mortgage. Furthermore, the respondent no. 1-bank hasalso placed a letter dated 12.07.2016 from the Housing Society that AB

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Amaintains the secured asset, which confirmed that no tenancy had beencreated on the secured asset.

31. It is pertinent to note that at the time when the SARFAESIAct proceedings were pending, the factum of tenancy was never revealedby the parties. The earlier order dated 09.03.2012, passed by the ChiefBMetropolitan Magistrate, Esplanade, Mumbai directing the AssistantRegistrar to take over the possession of the secured asset, is silent aboutany existing encumbrance over the secured asset. It was only afterpassing of the aforesaid order of the Chief Metropolitan Magistrate, thatthe appellant-tenant started agitating his rights before the Small CausesCourt based on a completely different fact scenario, without a whisperCof the alleged tenancy under the concluded Section 14, SARFAESI Actproceedings. The respondent no.2-borrower/landlord did not evenrespond to the claims of the appellant-tenant. The respondent no.1-bank has produced multiple records to substantiate their claim that thetenant was nowhere to be seen earlier and that this tenancy was createdDjust to defeat the proceedings initiated under the SARFAESI Act. Onthe contrary, the appellant-tenant has failed to produce any evidence tosubstantiate his claim over the secured asset. In such a situation, theappellant-tenant cannot claim protection under the garb of the interimprotection granted to him, ex parte, by solely relying upon the xerox ofthe rent receipts.E

32. In such an event, wherein the claim of the appellant-tenant isnot supported by any conclusive evidence, the rejection of the stayapplication by the Chief Metropolitan Magistrate cannot be held to beerroneous. Although the counsel of the appellant-tenant has placed amplereliance upon the Vishal N. KalsariaCase(supra), but the same wouldFnot help the cause of the appellant-tenant herein, as the earlier caseproceeded with the assumption of a valid and bona fide tenancy. But inthe present case, the stay application of the appellant-tenant seems tobe an afterthought. It is clear that the respondent no. 2-borrower/landlord never intimated the respondent no. 1-bank about the allegedGtenancy. In light of the above, we are unable to accept the claim ofbona fide tenancy of the appellant-tenant.

33. In any case, considering the counterfactual pleaded by theappellant-tenant himself, that he was a tenant who had entered into anoral agreement, such tenancy impliedly does not carry any covenant forHrenewal, as provided under Section 65-A of T.P. Act. Therefore, in any case, Section 13 (13) SARFAESI Act bars entering into such tenancybeyond January, 2012. As the notice under Section 13 (2) SARFAESIAct was issued on 30.04.2011, subsequent reckoning of the tenancy isbarred. Such person occupying the premises, when the tenancy has beendetermined, can only be treated as a ‘tenant in sufferance’. We shouldnote that such tenants do not have any legal rights and are akin totrespassers.

34. In this context we may refer to R.V. Bhupal Prasad v. Stateof A.P. and Ors., AIR 1996 SC 140, wherein a two Judge Bench of thisCourt, speaking through Ramaswamy, J., made the following pertinentobservations in paragraph 8 of the Report:

“8. Tenant at sufferance is one who comes into possession ofland by lawful title, but who holds it, by wrong after the terminationof the term or expiry of the lease by efflux of time. The tenant atsufferance is, therefore, one who wrongfully continues inpossession after the extinction of a lawful title. There is littledifference between him and a trespasser. “

35. On the same lines are the decisions of this Court in Smt.Shanti Devi v. Amal Kumar Banerjee, AIR 1981 SC 1550, MurlidharJalan (since deceased) through his Lrs. v. State of Meghalaya andOrs., AIR 1997 SC 2690 and D.H. Maniar and Ors. v. Waman LaxmanKudav, [1977] 1 SCR 403.

36. The operation of the Rent Act cannot be extended to a ‘tenant-in-sufferance’ vis-a-vis the SARFAESI Act, due to the operation ofSection 13(2) read with Section 13(13) of the SARFAESI Act. A contraryinterpretation would violate the intention of the legislature to provide forSection 13(13), which has a valuable role in making the SARFAESI Acta self-executory instrument for debt recovery. Moreover, such aninterpretation would also violate the mandate of Section 35, SARFAESIAct which is couched in broad terms.

37. As noted above, this case, does not mandate the additionalprotection to be provided under the Rent Act, to the appellant-tenantherein. The lower Courts are correct in ordering delivery of possessionto the respondent no. 1-bank as the tenancy stands determined. Beforewe part, we must note that we have not interpreted the new amendmentper se or the law with respect to other categories of tenants, which maybe taken up in appropriate cases.

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372SUPREME COURT REPORTS

A38. In the present case, as we are in the year 2019, which is 7years beyond the deadline of 2012, it is ordered that the appellant-tenantshall hand over the possession of the secured asset within 12 weeks ofthis order to the Assistant Registrar at Bandra Centre of Courts, Mumbai,who in turn shall deliver the same to the respondent no.1-bank. ThisCourt is further of the opinion that such devious practices by the borrowerBto obstruct the rights of the bank to legitimately realize its dues cannotbe appreciated by this Court. Accordingly, we dismiss this appeal.

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Nidhi Jain

Appeal dismissed.

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