REPORTABLE
IN THE SUPREME COURT OF INDIA CRIMINAL/CIVIL
APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 52 OF 2016
(Arising out of SLP (Crl.) No.8060 of 2015)
VISHAL N. KALSARIA ………APPELLANT
Vs.
BANK OF INDIA & ORS. ………RESPONDENTS
with
CRIMINAL APPEAL NO. 53 OF 2016
(Arising out of SLP(Crl) No. 8064 of 2015)
CRIMINAL APPEAL NO. 54 OF 2016
(Arising out of SLP(Crl) No. 8063 of 2015)
CRIMINAL APPEAL NO. 55 OF 2016
(Arising out of SLP(Crl) No. 8062 of 2015)
CRIMINAL APPEAL NO. 56 OF 2016
(Arising out of SLP(Crl) No. 8066 of 2015)
CRIMINAL APPEAL NO. 57 OF 2016
(Arising out of SLP(Crl) No. 8067 of 2015)
CRIMINAL APPEAL NO. 58 OF 2016 (Arising out of SLP(Crl) No. 8068
of 2015)
CRIMINAL APPEAL NO. 59 OF 2016
(Arising out of SLP(Crl) No. 8069 of 2015)
CIVIL APPEAL NOS. 414-415 OF 2016
(Arising out of SLP(C) Nos.13295-13296 of 2015)
CRIMINAL APPEAL NO. 753 OF 2014
CRIMINAL APPEAL NO. 754 OF 2014
CRIMINAL APPEAL NO. 62 OF 2016
(Arising out of SLP(Crl) No. 6944 of 2015)
CRIMINAL APPEAL NO. 63 OF 2016
(Arising out of SLP (Crl) No. 6945 of 2015)
CIVIL APPEAL NO. 469 OF 2016
(Arising out of SLP(C) No. 25133 of 2015)
CRIMINAL APPEAL NO. 64 OF 2016
(Arising out of SLP(Crl) No. 6941 of 2015)
CIVIL APPEAL NO. 417 OF 2016
(Arising out of SLP(C) No. 28040 of 2015)
CIVIL APPEAL NO. 419 OF 2016
(Arising out of SLP(C) No. 28446 of 2015)
CIVIL APPEAL NO. 420 OF 2016
(Arising out of SLP(C) No. 28300 of 2015)
CIVIL APPEAL NO. 421 OF 2016
(Arising out of SLP(C) No. 12772 of 2015)
and
CIVIL APPEAL NO. 422 OF 2016
(Arising out of SLP(C)No. 31080 of 2015)
J U D G M E N T
V. GOPALA GOWDA, J.
The applications for impleadment are allowed.
Leave granted in all the special leave petitions.
In the present batch of appeals, the broad point which requires our
attention and consideration is whether a ‘protected tenant’ under The
Maharashtra Rent Control Act, 1999 (in short the ‘Rent Control Act’) can be
treated as a lessee, and whether the provisions of The Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (in short, the ‘SARFAESI Act’) will override the provisions of
the Rent Control Act. How can the right of the ‘protected tenant’ be
preserved in cases where the debtor-landlord secures a loan by offering the
very same property as a security interest either to Banks or Financial
Institutions, is also the essential legal question to be decided by us.
In all the appeals, the same question of law would arise for consideration.
For the sake of convenience and brevity, we would refer to the relevant
facts from the appeal arising out of S.L.P.(Crl.) No.8060 of 2015, which
has been filed against the impugned judgment and order dated 29.11.2014 in
M.A.No. 123 of 2011 in Case No.237 of 2010 passed by the learned Chief
Metropolitan Magistrate, Esplanade, Mumbai, wherein the application of the
appellant herein for impleadment as intervenor as well as stay of the order
dated 08.04.2011 passed in Case No.237 of 2010 by the learned Magistrate,
Esplanade, Mumbai, was dismissed.
Respondent Nos. 4 and 5 had approached the Bank of India (Respondent No.1)
(in short “the respondent Bank”) for a financial loan, which was granted
against equitable mortgage of several properties belonging to them,
including the property in which the appellant is allegedly a tenant. The
respondent nos. 4 and 5 failed to pay the dues within the stipulated time
and thus, in terms of the SARFAESI Act, their account became a non-
performing asset. On 12.03.2010, the respondent-Bank served on them notice
under Section 13(2) of SARFAESI Act. On failure of the respondents to clear
the dues from the loan amount borrowed by the above respondent nos. 4 and 5
within the stipulated statutory period of 60 days, the respondent-Bank
filed an application before the Chief Metropolitan Magistrate, Mumbai under
Section 14 of the SARFAESI Act for seeking possession of the mortgaged
properties which are in actual possession of the Appellant. The learned
Chief Metropolitan Magistrate allowed the application filed by the
respondent-Bank vide order dated 08.04.2011 and directed the Assistant
Registrar, Borivali Centre of Courts to take possession of the secured
assets. On 26.05.2011, the respondent no.4 served a notice on the
appellant, asking him to vacate the premises in which he was residing
within 12 days from the receipt of the notice. The appellant fearing
eviction, filed a Rent Suit R.A.D. Suit No. 913 of 2011 before the Court of
Small Causes, Bombay. Vide order dated 08.06.2011, the Small Causes Court
allowed the application and passed an ad interim order of injunction in
favour of the appellant, restraining respondent no.4 from obstructing the
possession of the appellant over the suit premises during the pendency of
the suit. In view of the order dated 08.06.2011, the appellant then filed
an application as an intervenor to stay the execution of the order dated
08.04.2011 passed by the Chief Metropolitan Magistrate. The learned Chief
Metropolitan Magistrate vide order dated 29.11.2014 dismissed the
application filed by the appellant by placing reliance on a judgment of
this Court rendered in the case of Harshad Govardhan Sondagar v.
International Assets Reconstruction Co. Ltd. & Ors.[1]. Dismissing the
application, the learned judge held as under:
“3. ...the Hon’ble Supreme Court has held that the alleged tenant has to
produce proof of execution of a registered instrument in his favour by the
lessor. Where he does not produce proof of execution of a registered
instrument in his favour and instead relies on an unregistered instrument
or oral agreement accompanied by delivery of possession, the Chief
Metropolitan Magistrate or the District Magistrate, as the case may be,
will have to come to the conclusion that he is not entitled to the
possession of the secured asset for more than a year from the date of the
instrument or from the date of delivery of possession in his favour by the
landlord.
4. It is to be highlighted that the intervener did not place on record any
registered instrument to fulcrum his contention. So, in view of the ratio
laid down in Harshad Sondagar’s case (cited supra), I hold that the
intervener is not entitled to any protection under the law.”
The learned Chief Metropolitan Magistrate further held that when the
secured creditor takes action under Section 13 or 14 of the SARFAESI Act to
recover the possession of the secured interest and recover the loan amount
by selling the same in public auction, then it is not open for the Court to
grant an injunction under Section 33 of the Rent Control Act. The learned
Chief Metropolitan Magistrate further held that the order dated 08.06.2011
passed by the Small Causes Court, Mumbai cannot be said to be binding upon
the respondent-Bank, especially in the light of the fact that it was not a
party to the proceedings. Hence the present appeal filed by the appellant.
We have heard the learned counsel for both the parties.
Before we consider the submissions advanced by the learned counsel
appearing on behalf of the parties, it is essential to first appreciate the
provisions of law in question.
The Maharashtra Rent Control Act, 1999, which repealed the Bombay Rent Act,
1947 was enacted by the state legislature of Maharashtra under Entry 18 of
List II of the Seventh Schedule of the Constitution of India to consolidate
and unify the different provisions and legislations in the State which
existed pertaining to rent and the landlord-tenant relationship. The
Statement of objects and reasons of the Rent Control Act reads, inter alia,
as under:
“1……At present, there are three different rent control laws, which are in
operation in this State……All these three laws have different provisions and
the courts or authorities which have the jurisdiction to decide matters
arising out of these laws are also not uniform. The Procedures under all
the three laws are also different in many of the material aspect.
2. Many features of the rent control laws have outlived their utility. The
task, therefore, of unifying, consolidating and amending the rent control
laws in the State and to bring the rent control legislation in tune with
the changed circumstances now, had been engaging the attention of the
Government……
3. In the meantime, the Central Government announced the national housing
policy which recommends, inter alia, to carry out suitable amendments to
the existing rent control laws for creating and enabling involvement in
housing activity and for guaranteeing access to shelter for the poor. The
National Housing Policy further recognized the important role of rental
housing in urban areas in different income groups and low-income households
in particular who cannot afford ownership house. The existing rent control
legislation has resulted in a freeze of rent, very low returns in
investment and difficulty in resuming possession and has adversely affected
investment in rental housing and cause deterioration of the rental housing
stock.”
On the other hand, the SARFAESI Act was enacted by the Parliament with a
view to regulate the securitisation and reconstruction of financial assets
and enforcement of security interests against the debtor by securing the
possession of such secured assets and recover the loan amount due to the
Banks and Financial Institutions. The statement of objects and reasons of
the SARFAESI Act reads as under:
"The financial sector has been one of the key drivers in India's efforts to
achieve success in rapidly developing its economy. While banking industry
in India is progressively complying with the international prudential norms
and accounting practices, there are certain areas in which the banking and
financial sector do not have a level playing field as compared to other
participants in the financial markets in the world. There is no legal
provision for facilitating Securitisation of financial assets of banks and
financial institutions. Further, unlike international banks, the banks and
financial institutions in India do not have power to take possession of
securities and sell them. Our existing legal framework relating to
commercial transactions has not kept pace with the changing commercial
practices and financial sector reforms. This has resulted in slow pace of
recovery of defaulting loans and mounting levels of non-performing assets
of banks and financial institutions. Narasimham Committee I and II and
Andhyarujina Committee constituted by the Central Government for the
purpose of examining banking sector reforms have considered the need for
changes in the legal system in respect of these areas."
(emphasis laid by this Court)
The SARFAESI Act enacted under List I of the Constitution of India thus,
seeks to regulate asset recovery by the Banks. It becomes clear from a
perusal of the Statements of Objects and Reasons of the Rent Control Act
and the SARFAESI Act that the two Acts are meant to operate in completely
different spheres. So far as residential tenancy rights are concerned, they
are governed by the provisions of the Rent Control Act which occupies the
field on the subject.
The controversy in the instant case arises squarely out of the
interpretation of a decision of this Court in the case of Harshad Govardhan
Sondagar (supra). The fact situation facing the court in that case was
similar to the one in the instant case. The premises which the appellants
therein claimed to be the tenants of had been mortgaged to different banks
as collateral security to such borrowed amount by the landlord/debtor. On
default of payment of the borrowed amount by the landlords/debtors, the
banks made application under Section 14(1) of the SARFAESI Act to the Chief
Metropolitan Magistrate, praying that the possession of the premises be
handed over to them in accordance with the provisions of the SARFAESI Act.
This Court in the case of Harshad Govardhan Sondagar (supra) held as under:
“34……In our view, therefore, the High Court has not properly appreciated
the judgment of this Court in Transcore (supra) and has lost sight of the
opening words of sub-section (1) of Section 13 of the SARFAESI Act which
state that notwithstanding anything contained in Section 69 or Section 69A
of the Transfer of Property Act, 1882, any security interest created in
favour of any secured creditor may be enforced, without the intervention of
the court or tribunal, by such creditor in accordance with the provisions
of the Act. The High Court has failed to appreciate that the provisions of
Section 13 of the SARFAESI Act thus override the provisions of Section 69
or Section 69A of the Transfer of Property Act, but does not override the
provisions of the Transfer of Property Act relating to the rights of a
lessee under a lease created before receipt of a notice under sub-Section
(2) of Section 13 of the SARFAESI Act by a borrower. Hence, the view taken
by the Bombay High Court in the impugned judgment as well as in M/s Trade
Well (supra) so far as the rights of the lessee in possession of the
secured asset under a valid lease made by the mortgagor prior to the
creation of mortgage or after the creation of mortgage in accordance with
Section 65A of the Transfer of Property Act is not correct and the impugned
judgment of the High Court insofar it takes this view is set aside.”
(emphasis laid by this Court)
Mr. Pallav Shishodia, the learned senior counsel appearing on behalf of the
appellant in the appeal @ out of S.L.P. (C) No. 8060 of 2015 places
reliance on the decision of this Court in Harshad Govardhan Sondagar
(supra), to contend that prior tenancy in respect of the mortgaged property
to the Bank is protected in terms of the Rent Control Act. The relevant
paragraphs of the decision are quoted as under:
“25. The opening words of sub-section (1) of Section 14 of the SARFAESI Act
also provides that if any of the secured asset is required to be sold or
transferred by the secured creditor under the provisions of the Act, the
secured creditor may take the assistance of the Chief Metropolitan
Magistrate or the District Magistrate. Where, therefore, such a request is
made by the secured creditor and the Chief Metropolitan Magistrate or the
District Magistrate finds that the secured asset is in possession of a
lessee but the lease under which the lessee claims to be in possession of
the secured asset stands determined in accordance with 4 Section 111 of the
Transfer of Property Act, the Chief Metropolitan Magistrate or the District
Magistrate may pass an order for delivery of possession of secured asset in
favour of the secured creditor to enable the secured creditor to sell and
transfer the same under the provisions of the SARFAESI Act. Sub-section (6)
of Section 13 of the SARFAESI Act provides that any transfer of secured
asset after taking possession of secured asset by the secured creditor
shall vest in the transferee all rights in, or in relation to, the secured
asset transferred as if the transfer had been made by the owner of such
secured asset. In other words, the transferee of a secured asset will not
acquire any right in a secured asset under sub-section (6) of Section 13 of
the SARFAESI Act, unless it has been effected after the secured creditor
has taken over possession of the secured asset. Thus, for the purpose of
transferring the secured asset and for realizing the secured debt, the
secured creditor will require the assistance of the Chief Metropolitan
Magistrate or the District Magistrate for taking possession of a secured
asset from the lessee where the 4 lease stands determined by any of the
modes mentioned in Section 111 of the Transfer of Property Act.
32. When we read sub-section (1) of Section 17 of the SARFAESI Act, we find
that under the said sub-section “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 under the
Chapter, may apply to the Debts Recovery Tribunal having jurisdiction in
the matter within 45 days from the date on which such measures had been
taken. We agree with the Mr. Vikas Singh that the words ‘any person’ are
wide enough to include a lessee also. It is also possible to take a view
that within 45 days from the date on which a possession notice is delivered
or affixed or published under sub-rules (1) and (2) of Rule 8 of the
Security Interest (Enforcement) Rules, 2002, a lessee may file an
application before the Debts Recovery Tribunal having jurisdiction in the
matter for restoration of possession in case he is dispossessed of the
secured asset. But when we read subsection (3) of Section 17 of the
SARFAESI Act, we find that the Debts Recovery Tribunal has powers to
restore 5 possession of the secured asset to the borrower only and not to
any person such as a lessee. Hence, even if the Debt Recovery Tribunal
comes to the conclusion that any of the measures referred to in sub-section
(4) of Section 13 taken by the secured creditor are not in accordance with
the provisions of the Act, it cannot restore possession of the secured
asset to the lessee. Where, therefore, the Debts Recovery Tribunal
considers the application of the lessee and comes to the conclusion that
the lease in favour of the lessee was made prior to the creation of
mortgage or the lease though made after the creation of mortgage is in
accordance with the requirements of Section 65A of the Transfer of Property
Act and the lease was valid and binding on the mortgagee and the lease is
yet to be determined, the Debts Recovery Tribunal will not have the power
to restore possession of the secured asset to the lessee. In our considered
opinion, therefore, there is no remedy available under Section 17 of the
SARFAESI Act to the lessee to protect his lawful possession under a valid
lease.”
The learned senior counsel contends that it is a settled position of law
that in the absence of a valid document of lease for more than one year or
in case of an invalid lease deed, the relation of tenancy between a
landlord and the tenant is still created due to delivery of possession to
the tenant and payment of rent to the landlord-owner and such tenancy is
deemed to be a tenancy from month to month in respect of such property. The
learned senior counsel further places reliance on a three Judge Bench
decision of this Court in Anthony v. K.C. Ittoop & Sons & Ors.[2], wherein
it was held as under:
“....so far as the instrument of lease is concerned there is no scope for
holding that appellant is a lessee by virtue of the said instrument. The
court is disabled from using the instrument as evidence...
But this above finding does not exhaust the scope of the issue whether
appellant is a lessee of the building. A lease of immovable property is
defined in Section 105 of the TP Act. A transfer of a right to enjoy a
property in consideration of a price paid or promised to be rendered
periodically or on specified occasions is the basic fabric for a valid
lease. The provision says that such a transfer can be made expressly or by
implication. Once there is such a transfer of right to enjoy the property a
lease stands created. What is mentioned in the three paragraphs of the
first part of Section 107 of the TP Act are only the different modes of how
leases are created.... Thus, de hors the instrument parties can create a
lease as envisaged in the second paragraph of Section 107 which reads thus:
All other leases of immovable property may be made either by a registered
instrument or by oral agreement accompanied by delivery of possession.
When lease is a transfer of a right to enjoy the property and such transfer
can be made expressly or by implication, the mere fact that an unregistered
instrument came into existence would not stand in the way of the court to
determine whether there was in fact a lease otherwise than through such
deed.”
(emphasis laid by this Court)
The learned senior counsel further contends that where a lease deed or
document of tenancy in respect of the property in question is for a period
exceeding one year, but such document has not been registered, then, by
virtue of payment of rent, the relationship of tenancy between a landlord
and the tenant comes into existence and in such cases, the tenant must be
deemed to be a tenant from month to month and the same would amount to a
tenancy from month to month. Thus, in the instant case, the tenancy of the
appellants in respect of the property in question which is the secured
asset of the Bank being from month to month would also be protected under
the provisions of the Rent Control Act.
The learned senior counsel further contends that according to the decision
of this Court in the case of Harshad Govardhan Sondagar (supra), if a
person claiming to be a tenant or lessee either produces a registered
agreement or relies on an oral agreement accompanied by delivery of
possession, then such tenancy/possession of the property with the appellant
as tenant needs to be protected. It is further contended that the Harshad
Govardhan Sondagar (supra) has clearly held that the tenancy claims of the
tenants are to be decided by the Chief Metropolitan Magistrate in
accordance with any other law that may be relevant after giving an
opportunity of hearing to the persons who claim tenancy in respect of such
property. The term “any other law that may be relevant” clearly indicates a
reference to the State Rent Protection laws, which in the case at hand is
the Rent Control Act. Thus, the protection of the State Rent Control
legislation is also to be considered by the learned magistrate while
deciding an application filed by the Bank under Section 14 of the SARFAESI
Act.
On the other hand, Mr. Amarendra Sharan, learned senior counsel appearing
on behalf of the respondents in Crl.A. @ S.L.P. (Crl) Nos. 6941, 6944 and
6945 of 2015 contends that the pith and substance of the central enactment
in the instant case, which is the SARFAESI Act needs to be appreciated.
Proper implementation of the provisions of the SARFAESI Act is in the
larger interest of the nation. The learned senior counsel places reliance
on a Constitution Bench decision of this Court in the case of Ishwari
Khetan Sugar Mills Pvt. Ltd. & Ors. v. State of Uttar Pradesh & Ors.[3],
wherein it was held as under:
“13. If in pith and substance a legislation falls within one entry or the
other but some portion of the subject-matter of the legislation
incidentally trenches upon and might enter a field under another List, the
Act as a whole would be valid notwithstanding such incidental trenching.
This is well established by a catena of decisions [see Union of India v.
H.S. Dhillon and Kerala State Electricity Board v. Indian Aluminium Co.]
After referring to these decisions in State of Karnataka v. Ranganatha
Reddy and Anr. Untwalia, J. speaking for the Constitution Bench has in
terms stated that the pith and substance of the Act has to be looked into
and an incidental trespass would not invalidate the law. The challenge in
that case was to the Nationalisation of contract carriages by the Karnataka
State, inter alia, on the ground that the statute was invalid as it was a
legislation on the subject of interstate trade and commerce. Repelling this
contention the Court unanimously held that in pith and substance the
impugned legislation was for acquisition of contract carriages and not an
Act which deals with inter-State trade and commerce.”
The learned senior counsel further contends that the SARFAESI Act was
enacted by the Parliament under Entry 45 of List I of the Constitution of
India. It is a special Act with a special purpose and procedure laid down
for the recovery of the secured asset of the debtor by the Bank to recover
the amount due to it, and thus, any encroachment upon this Act should not
be permitted, as it would defeat the laudable object of the Act, which has
been enacted keeping in view the larger public interest.
Mr. Vikas Singh, the learned senior counsel appearing on behalf of the
respondent State Bank of India in the appeal arising out of S.L.P. (C) No.
28040 of 2015 contends that the SARFAESI Act cannot be allowed to fail at
the hands of the present appellants, who have no registered instrument of
lease.
The learned senior counsel further contends that in light of the decision
of this Court in the case of Harshad Govardhan Sondagar (supra), the
present case is barred by res judicata. He places reliance on the three
Judge Bench decision of this Court in the case of Bhanu Kumar Jain v.
Archana Kumar & Anr.[4], wherein it was held as under:
“It is now well-settled that principles of res judicata applies in
different stages of the same proceedings.
19. In Y.B. Patil (supra) it was held:
"4... It is well settled that principles of res judicata can be invoked not
only in separate subsequent proceedings, they also get attracted in
subsequent stage of the same proceedings. Once an order made in the course
of a proceeding becomes final, it would be binding at the subsequent state
of that proceeding..."
20. In Vijayabai (supra), it was held:
"13. We find in the present case the Tahsildar reopened the very question
which finally stood concluded, viz., whether Respondent 1 was or was not
the tenant of the suit land. He further erroneously entered into a new
premise of reopening the question of validity of the compromise which could
have been in issue if at all in appeal or revision by holding that
compromise was arrived at under pressure and allurement. How can this
question be up for determination when this became final under this very
same statute?..."
21. Yet again in Hope Plantations Ltd. (supra), this Court laid down the
law in the following terms:
"17... One important consideration of public policy is that the decisions
pronounced by courts of competent jurisdiction should be final, unless they
are modified or reversed by appellate authorities; and the other principle
is that no one should be made to face the same kind of litigation twice
over, because such a process would be contrary to considerations of fair
play and justice."
Mr. M.T. George, the learned counsel appearing on behalf of the Bank in
the appeal arising out of S.L.P. (C) No. 12772 of 2015 contends that the
tenancy has not been determined conclusively, as the documents produced on
record to prove the relationship of tenancy are not registered and do not
hold much water. Mr. Rajeev Kumar Pandey, the learned counsel appearing on
behalf of the respondent Bank in the appeal arising out of S.L.P. (C) No.
31080 of 2015 submits that the property in question was mortgaged before it
was leased. Such a lease would thus, not entitle the lessee to stop the
bank from taking possession over the property which was mortgaged to it.
The other learned counsel appearing on behalf of other Banks in the
connected appeals adopted the arguments advanced by the aforesaid learned
senior counsel appearing on behalf of some of the Banks. It was also
contended that the appellants in the connected appeals have not been able
to produce sufficient documentary evidence to prove that they are tenants
in respect of the properties in question in the proceedings under Section
14 of the SARFAESI Act and hence, they have no locus standi to prefer the
above appeals questioning the correctness of the Order passed by the
learned Magistrate.
We have carefully considered the above rival legal submissions made on
behalf of the parties and answer the same as hereunder:
The SARFAESI Act, which came into force from 21.06.2002, was enacted to
provide procedures to the Banks to recover their security interest from the
debtors and their collateral security assets as provided under the
provisions of the Act. The scope of the Act was explained by this Court in
the case of Transcore v. Union of India & Anr.[5] as under:
“12. The NPA Act, 2002 is enacted to regulate securitization and
reconstruction of financial assets and enforcement of security interest and
for matters connected therewith. The NPA Act enables the banks and FIs to
realize long-term assets, manage problems of liquidity, asset-liability
mismatch and to improve recovery of debts by exercising powers to take
possession of securities, sell them and thereby reduce non-performing
assets by adopting measures for recovery and reconstruction. The NPA Act
further provides for setting up of asset reconstruction companies which are
empowered to take possession of secured assets of the borrower including
the right to transfer by way of lease; assignment or sale. The said Act
also empowers the said asset reconstruction companies to take over the
management of the business of the borrower....
13. Non-performing assets (NPA) are a cost to the economy. When the Act was
enacted in 2002, the NPA stood at Rs 1.10 lakh crores. This was a drag on
the economy. Basically, NPA is an account which becomes non-viable and non-
performing in terms of the guidelines given by RBI. As stated in the
Statement of Objects and Reasons, NPA arises on account of mismatch between
asset and liability. The NPA account is an asset in the hands of the bank
or FI. It represents an amount receivable and realizable by the banks or
FIs. In that sense, it is an asset in the hands of the secured creditor.
Therefore, the NPA Act, 2002 was primarily enacted to reduce the non-
performing assets by adopting measures not only for recovery but also for
reconstruction. Therefore, the Act provides for setting up of asset
reconstruction companies, special purpose vehicles, asset management
companies, etc. which are empowered to take possession of secured assets of
the borrower including the right to transfer by way of lease, assignment or
sale. It also provides for realization of the secured assets. It also
provides for takeover of the management of the borrower company.”
Thus, it becomes clear that the SARFAESI Act is meant to operate as a tool
for banks and ensures a smooth debt recovery process. The provisions of
SARFAESI Act make its purport amply clear, specifically under the
provisions of Sections 13(2) and 13(4) of the Act, which read as under:
“13. Enforcement of Security interest.-
(2) Where any borrower, who is under a liability to a secured creditor
under a security agreement, makes any default in repayment of secured debt
or any instalment thereof, and his account in respect of such debt is
classified by the secured creditor as non-performing asset, then, the
secured creditor may require the borrower by notice in writing to discharge
in full his liabilities to the secured creditor within sixty days from the
date of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
“(4) In case the borrower fails to discharge his liability in full within
the period specified in sub-section (2), the secured creditor may take
recourse to one or more of the following measures to recover his secured
debt, namely:--
(a) take possession of the secured assets of the borrower including the
right to transfer by way of lease, assignment or sale for realising the
secured asset....”
Further, the provision under Section 35 of the SARFAESI Act provides that
it shall override all other laws, which is quoted as hereunder:
“35. The provisions of this Act to override other laws.- The provisions of
this Act shall have effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or any instrument
having effect by virtue of any such law."
Providing a smooth and efficient recovery procedure to enable the banks to
recover the Non Performing Assets is a laudable object indeed, which needs
to be ensured for the development of the economy of the Country. What has
complicated the matters, however, is the clash of this laudable object with
another laudable object, namely, to secure the rights of the tenants under
the various Rent Control Acts. The history of these Rent Control Acts can
be traced to as far back as the Second World War. At that time, due to the
massive inflation and shortage of commodities, not only had the cost of
living risen exponentially, the tenants were also often left to the mercy
of the landlords as far as evictions or prices of rent were concerned. Rent
Control Acts have been enacted by the different state legislatures to
secure the rights of the weaker sections of the society, viz., the tenants.
Justice Krishna Iyer aptly observed in the case of Miss Santosh Mehta v. Om
Prakash & Ors.[6]:
“2. Rent Control laws are basically designed to protect tenants because
scarcity of accommodation is a nightmare for those who own none and if
evicted, will be helpless.”
The preamble of the Rent Control Act reads as under:
“An Act to unify, consolidate and amend the law relating to the control of
rent and repairs of certain premises and of eviction and for encouraging
the construction of new houses by assuring a fair return on the investment
by landlords and to provide for the matters connected with the purposes
aforesaid……”
It becomes clear from a perusal of the preamble of the Act that the
ultimate object behind the enactment of this legislation is to control and
regulate the rate of rent so that unnecessary hardship is not caused to the
tenant, and also to provide protection to the tenants against arbitrary and
unreasonable evictions from the possession of the property. The protection
of the tenants against unjust evictions becomes even more pronounced when
examined in the light of Section 15 of the Rent Control Act, which reads as
under:
“15. No ejectment ordinarily to be made if tenant pays or is ready and
willing to pay standard rent and permitted increases.(1) A landlord shall
not be entitled to the recovery of possession of any premises so long as
the tenant pays, or is ready and willing to pay, the amount of the,
standard rent and permitted increases, if any, and observes and performs
the other conditions of the tenancy, in so far as they are consistent with
the provisions of this Act.”
Section 15, thus, restricts the right of a landlord to recover possession
of the tenanted premises from a tenant.
When we understand the factual matrix in the backdrop of the objectives of
the above two legislations, the controversy in the instant case assumes
immense significance. There is an interest of the bank in recovering the
Non Performing Asset on the one hand, and protecting the right of the
blameless tenant on the other. The Rent Control Act being a social welfare
legislation, must be construed as such. A landlord cannot be permitted to
do indirectly what he has been barred from doing under the Rent Control
Act, more so when the two legislations, that is the SARFAESI Act and the
Rent Control Act operate in completely different fields. While SARFAESI Act
is concerned with Non Performing Assets of the Banks, the Rent Control Act
governs the relationship between a tenant and the landlord and specifies
the rights and liabilities of each as well as the rules of ejectment with
respect to such tenants. The provisions of the SARFAESI Act cannot be used
to override the provisions of the Rent Control Act. If the contentions of
the learned counsel for the respondent Banks are to be accepted, it would
render the entire scheme of all Rent Control Acts operating in the country
as useless and nugatory. Tenants would be left wholly to the mercy of their
landlords and in the fear that the landlord may use the tenanted premises
as a security interest while taking a loan from a bank and subsequently
default on it. Conversely, a landlord would simply have to give up the
tenanted premises as a security interest to the creditor banks while he is
still getting rent for the same. In case of default of the loan, the
maximum brunt will be borne by the unsuspecting tenant, who would be
evicted from the possession of the tenanted property by the Bank under the
provisions of the SARFAESI Act. Under no circumstances can this be
permitted, more so in view of the statutory protections to the tenants
under the Rent Control Act and also in respect of contractual tenants along
with the possession of their properties which shall be obtained with due
process of law.
The issue of determination of tenancy is also one which is well settled.
While Section 106 of the Transfer of Property Act, 1882 does provide for
registration of leases which are created on a year to year basis, what
needs to be remembered is the effect of non-registration, or the creation
of tenancy by way of an oral agreement. According to Section 106 of the
Transfer of Property Act, 1882, a monthly tenancy shall be deemed to be a
tenancy from month to month and must be registered if it is reduced into
writing. The Transfer of Property Act, however, remains silent on the
position of law in cases where the agreement is not reduced into writing.
If the two parties are executing their rights and liabilities in the nature
of a landlord-tenant relationship and if regular rent is being paid and
accepted, then the mere factum of non-registration of deed will not make
the lease itself nugatory. If no written lease deed exists, then such
tenants are required to prove that they have been in occupation of the
premises as tenants by producing such evidence in the proceedings under
Section 14 of the SARFAESI Act before the learned Magistrate. Further, in
terms of Section 55(2) of the special law in the instant case, which is the
Rent Control Act, the onus to get such a deed registered is on the
landlord. In light of the same, neither the landlord nor the banks can be
permitted to exploit the fact of non registration of the tenancy deed
against the tenant. Further, the learned counsel for the appellants rightly
placed reliance on a three Judge Bench decision of this Court in Anthony
(supra). At the cost of repetition, in that case it was held as under:
“But the above finding does not exhaust the scope of the issue whether the
appellant was a lessee of the building. A lease of immovable property is
defined in Section 105 of the TP Act. A transfer of a right to enjoy a
property in consideration of a price paid or promised to be rendered
periodically or on specified occasions is the basic fabric for a valid
lease. The provision says that such a transfer can be made expressly or by
implication. Once there is such a transfer of right to enjoy the property a
lease stands created. What is mentioned in the three paragraphs of the
first part of Section 107 of the TP Act are only the different modes of how
leases are created. The first paragraph has been extracted above and it
deals with the mode of creating the particular kinds of leases mentioned
therein.
The third paragraph can be read along with the above as it contains a
condition to be complied with if the parties choose to create a lease as
per a registered instrument mentioned therein.
All other leases, if created, necessarily fall within the ambit of the
second paragraph. Thus, de hors the instrument parties can create a lease
as envisaged in the second paragraph of Section 107 which reads thus:
All other leases of immovable property may be made either by a registered
instrument or by oral agreement accompanied by delivery of possession.”
It further saddens us to see the manner in which the decision in the case
of Harshad Govardhan Sondagar (supra) has been misinterpreted to create
this confusion. Random sentences have been picked up from the judgment and
used, without any attempt to understand the true purport of the judgment in
its entirety.
It is a well settled position of law that a word or sentence cannot be
picked up from a judgment to construe that it is the ratio decidendi on the
relevant aspect of the case. It is also a well settled position of law that
a judgment cannot be read as a statute and interpreted and applied to fact
situations. An eleven Judge Bench of this Court in the case of H.H.
Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur of Gwalior & Ors. v.
Union of India[7] held as under:
“It is difficult to regard a word, a clause or a sentence occurring in a
judgment of this Court, divorced from its context, as containing a full
exposition of the law on a question when the question did not even fall to
be answered in that judgment.”
The same view was reiterated by a Division Bench of this Court in the case
of Commissioner of Income Tax v. Sun Engineering Works (P.) Ltd.[8]
Further, a three Judge Bench of this Court in the case of Union of India v.
Dhanawanti Devi & Ors.[9] held as under:
“9. It is not everything said by a Judge while giving judgment that
constitutes a precedent. The only thing in a judge’s decision binding a
party is the principle upon which the case is decided and for this reason
it is important to analyse a decision and isolate from it the ratio
decidendi. According to the well-settled theory of precedents, every
decision contains three basic postulates - (i) findings of material facts,
direct and inferential. An inferential finding of facts is the inference
which the Judge draws from the direct, or perceptible facts; (ii)
statements of the principles of law applicable to the legal problems
disclosed by the facts; and (iii) judgment based on the combined effect of
the above. A decision is only an authority for what it actually decides.
What is of the essence in a decision is its ratio and not every observation
found therein nor what logically follows from the various observations made
in the judgment. Every judgment must be read as applicable to the
particular facts proved, or assumed to be proved, since the generality of
the expressions which may be found there is not intended to be exposition
of the whole law, but governed and qualified by the particular facts of the
case in which such expressions are to be found. It would, therefore, be not
profitable to extract a sentence here and there from the judgment and to
build upon it because the essence of the decision is its ratio and not
every observation found therein. The enunciation of the reason or principle
on which a question before a court has been decided is alone binding as a
precedent. The concrete decision alone is binding between the parties to
it, but it is the abstract ratio decidendi, ascertained on a consideration
of the judgment in relation to the subject matter of the decision, which
alone has the force of law and which, when it is clear what it was, is
binding. It is only the principle laid down in the judgment that is binding
law under Article 141 of the Constitution. A deliberate judicial decision
arrived at after hearing an argument on a question which arises in the case
or is put in issue may constitute a precedent, no matter for what reason,
and the precedent by long recognition may mature into rule of stare
decisis. It is the rule deductible from the application of law to the facts
and circumstances of the case which constitutes its ratio decidendi.
10. Therefore, in order to understand and appreciate the binding force of a
decision it is always necessary to see what were the facts in the case in
which the decision was given and what was the point which had to be
decided. No judgment can be read as if it is a statute. A word or a clause
or a sentence in the judgment cannot be regarded as a full exposition of
law. Law cannot afford to be static and therefore, Judges are to employ an
intelligent technique in the use of precedents……”
(emphasis laid by this Court)
The decision of this Court rendered in the case of Harshad Govardhan
Sondagar (supra) cannot be understood to have held that the provisions of
the SARFAESI Act override the provisions of the Rent Control Act, and that
the Banks are at liberty to evict the tenants residing in the tenanted
premises which have been offered as collateral securities for loans on
which default has been done by the debtor/landlord.
As far as granting leasehold rights being created after the property has
been mortgaged to the bank, the consent of the creditor needs to be taken.
We have already taken this view in the case of Harshad Govardhan Sondagar
(supra). We have not stated anything to the effect that the tenancy created
after mortgaging the property must necessarily be registered under the
provisions of the Registration Act and the Stamp Act.
It is a settled position of law that once tenancy is created, a tenant can
be evicted only after following the due process of law, as prescribed under
the provisions of the Rent Control Act. A tenant cannot be arbitrarily
evicted by using the provisions of the SARFAESI Act as that would amount to
stultifying the statutory rights of protection given to the tenant. A non
obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze
the statutory rights vested on the tenants under the Rent Control Act. The
expression ‘any other law for the time being in force’ as appearing in
Section 35 of the SARFAESI Act cannot mean to extend to each and every law
enacted by the Central and State legislatures. It can only extend to the
laws operating in the same field. Interpreting the non obstante clause of
the SARFAESI Act, a three Judge Bench of this Court in the case of Central
Bank of India v. State of Kerala & Ors.[10] has held as under:
“18. The DRT Act and Securitisation Act were enacted by Parliament in the
backdrop of recommendations made by the Expert Committees appointed by the
Central Government for examining the causes for enormous delay in the
recovery of dues of banks and financial institutions which were adversely
affecting fiscal reforms. The committees headed by Shri T. Tiwari and Shri
M. Narasimham suggested that the existing legal regime should be changed
and special adjudicatory machinery be created for ensuring speedy recovery
of the dues of banks and financial institutions. Narasimham and
Andhyarujina Committees also suggested enactment of new legislation for
securitisation and empowering the banks etc. to take possession of the
securities and sell them without intervention of the Court.
XXX XXX XXX
110. The DRT Act facilitated establishment of two-tier system of Tribunals.
The Tribunals established at the first level have been vested with the
jurisdiction, powers and authority to summarily adjudicate the claims of
banks and financial institutions in the matter of recovery of their dues
without being bogged down by the technicalities of the Code of civil
Procedure. The Securitisation Act drastically changed the scenario inasmuch
as it enabled banks, financial institutions and other secured creditors to
recover their dues without intervention of the Courts or Tribunals. The
Securitisation Act also made provision for registration and regulation of
securitisation/reconstruction companies, securitisation of financial assets
of banks and financial institutions and other related provisions.
111. However, what is most significant to be noted is that there is no
provision in either of these enactments by which first charge has been
created in favour of banks, financial institutions or secured creditors qua
the property of the borrower.
112. Under Section 13(1) of the Securitisation Act, limited primacy has
been given to the right of a secured creditor to enforce security interest
vis-à-vis Section 69 or Section 69A of the Transfer of Property Act. In
terms of that sub-Section, a secured creditor can enforce security interest
without intervention of the Court or Tribunal and if the borrower has
created any mortgage of the secured asset, the mortgagee or any person
acting on his behalf cannot sell the mortgaged property or appoint a
receiver of the income of the mortgaged property or any part thereof in a
manner which may defeat the right of the secured creditor to enforce
security interest. This provision was enacted in the backdrop of Chapter
VIII of Narasimham Committee's 2nd Report in which specific reference was
made to the provisions relating to mortgages under the Transfer of Property
Act.
113. In an apparent bid to overcome the likely difficulty faced by the
secured creditor which may include a bank or a financial institution,
Parliament incorporated the non obstante clause in Section 13 and gave
primacy to the right of secured creditor vis a vis other mortgagees who
could exercise rights under Sections 69 or 69A of the Transfer of Property
Act. However, this primacy has not been extended to other provisions like
Section 38C of the Bombay Act and Section 26B of the Kerala Act by which
first charge has been created in favour of the State over the property of
the dealer or any person liable to pay the dues of sales tax, etc.
………………
116. The non obstante clauses contained in Section 34(1) of the DRT Act and
Section 35 of the Securitisation Act give overriding effect to the
provisions of those Acts only if there is anything inconsistent contained
in any other law or instrument having effect by virtue of any other law. In
other words, if there is no provision in the other enactments which are
inconsistent with the DRT Act or Securitisation Act, the provisions
contained in those Acts cannot override other legislations.”
(emphasis laid by this Court)
If the interpretation of the provisions of SARFAESI Act as submitted by the
learned senior counsel appearing on behalf of the Banks is accepted, it
would not only tantamount to violation of rule of law, but would also
render a valid Rent Control statute enacted by the State Legislature in
exercise of its legislative power under Article 246 (2) of the Constitution
of India useless and nugatory. The Constitution of India envisages a
federal feature, which has been held to be a basic feature of the
Constitution, as has been held by the seven Judge Bench of this Court in
the case of S.R. Bommai & Ors. v. Union of India[11], wherein Justice K.
Ramaswamy in his concurring opinion elaborated as under:
“247. Federalism envisaged in the Constitution of India is a basic feature
in which the Union of India is permanent within the territorial limits set
in Article 1 of the Constitution and is indestructible. The State is the
creature of the Constitution and the law made by Articles 2 to 4 with no
territorial integrity, but a permanent entity with its boundaries alterable
by a law made by Parliament. Neither the relative importance of the
legislative entries in Schedule VII, Lists I and II of the Constitution,
nor the fiscal control by the Union per se are decisive to conclude that
the Constitution is unitary. The respective legislative powers are
traceable to Articles 245 to 254 of the Constitution. The State qua the
Constitution is federal in structure and independent in its exercise of
legislative and executive power. However, being the creature of the
Constitution the State has no right to secede or claim sovereignty. Qua the
Union, State is quasi-federal. Both are coordinating institutions and ought
to exercise their respective powers with adjustment, understanding and
accommodation to render socio-economic and political justice to the people,
to preserve and elongate the constitutional goals including secularism.
248. The preamble of the Constitution is an integral part of the
Constitution. Democratic form of Government, federal structure, unity and
integrity of the nation, secularism, socialism, social justice and judicial
review are basic features of the Constitution.”
(emphasis laid by this Court)
In view of the above legal position, if we accept the legal submissions
made on behalf of the Banks to hold that the provisions of SARFAESI Act
override the provisions of the various Rent Control Acts to allow a Bank to
evict a tenant from the tenanted premise, which has become a secured asset
of the Bank after the default on loan by the landlord and dispense with the
procedure laid down under the provisions of the various Rent Control Acts
and the law laid down by this Court in catena of cases, then the
legislative powers of the state legislatures are denuded which would amount
to subverting the law enacted by the State Legislature. Surely, such a
situation was not contemplated by the Parliament while enacting the
SARFAESI Act and therefore the interpretation sought to be made by the
learned counsel appearing on behalf of the Banks cannot be accepted by this
Court as the same is wholly untenable in law.
We are unable to agree with the contentions advanced by the learned
counsel appearing on behalf of the respondent Banks.
In view of the foregoing, the impugned judgments and orders passed by the
High Court/ Chief Metropolitan Magistrate are set aside and the appeals are
allowed. We further direct that the amounts which are in deposit pursuant
to the conditional interim order of this Court towards rent either before
the Chief Metropolitan Magistrate/Magistrate Court or with the concerned
Banks, shall be adjusted by the concerned Banks towards the debt due from
the debtors/landlords in respect of the appellants in these appeals. The
enhanced rent by way of conditional interim order shall be continued to be
paid to the respective Banks, which amount shall also be adjusted towards
debts of the debtors/landlords. All the pending applications are disposed
of.
…………………………………………………………J.
[V. GOPALA GOWDA]
…………………………………………………………J.
[AMITAVA ROY]
New Delhi,
January 20,2016
-----------------------
[1] (2014) 6 SCC 1
[2] (2000) 6 SCC 394
[3] (1980) 4 SCC 136
[4] (2005) 1 SCC 787
[5] (2008) 1 SCC 125
[6] (1980) 3 SCC 610
[7] (1971) 1 SCC 85
[8] (1992) 4 SCC 363
[9] (1996) 6 SCC 44
[10] (2009) 4 SCC 94
[11] (1994) 3 SCC 1
IN THE SUPREME COURT OF INDIA CRIMINAL/CIVIL
APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 52 OF 2016
(Arising out of SLP (Crl.) No.8060 of 2015)
VISHAL N. KALSARIA ………APPELLANT
Vs.
BANK OF INDIA & ORS. ………RESPONDENTS
with
CRIMINAL APPEAL NO. 53 OF 2016
(Arising out of SLP(Crl) No. 8064 of 2015)
CRIMINAL APPEAL NO. 54 OF 2016
(Arising out of SLP(Crl) No. 8063 of 2015)
CRIMINAL APPEAL NO. 55 OF 2016
(Arising out of SLP(Crl) No. 8062 of 2015)
CRIMINAL APPEAL NO. 56 OF 2016
(Arising out of SLP(Crl) No. 8066 of 2015)
CRIMINAL APPEAL NO. 57 OF 2016
(Arising out of SLP(Crl) No. 8067 of 2015)
CRIMINAL APPEAL NO. 58 OF 2016 (Arising out of SLP(Crl) No. 8068
of 2015)
CRIMINAL APPEAL NO. 59 OF 2016
(Arising out of SLP(Crl) No. 8069 of 2015)
CIVIL APPEAL NOS. 414-415 OF 2016
(Arising out of SLP(C) Nos.13295-13296 of 2015)
CRIMINAL APPEAL NO. 753 OF 2014
CRIMINAL APPEAL NO. 754 OF 2014
CRIMINAL APPEAL NO. 62 OF 2016
(Arising out of SLP(Crl) No. 6944 of 2015)
CRIMINAL APPEAL NO. 63 OF 2016
(Arising out of SLP (Crl) No. 6945 of 2015)
CIVIL APPEAL NO. 469 OF 2016
(Arising out of SLP(C) No. 25133 of 2015)
CRIMINAL APPEAL NO. 64 OF 2016
(Arising out of SLP(Crl) No. 6941 of 2015)
CIVIL APPEAL NO. 417 OF 2016
(Arising out of SLP(C) No. 28040 of 2015)
CIVIL APPEAL NO. 419 OF 2016
(Arising out of SLP(C) No. 28446 of 2015)
CIVIL APPEAL NO. 420 OF 2016
(Arising out of SLP(C) No. 28300 of 2015)
CIVIL APPEAL NO. 421 OF 2016
(Arising out of SLP(C) No. 12772 of 2015)
and
CIVIL APPEAL NO. 422 OF 2016
(Arising out of SLP(C)No. 31080 of 2015)
J U D G M E N T
V. GOPALA GOWDA, J.
The applications for impleadment are allowed.
Leave granted in all the special leave petitions.
In the present batch of appeals, the broad point which requires our
attention and consideration is whether a ‘protected tenant’ under The
Maharashtra Rent Control Act, 1999 (in short the ‘Rent Control Act’) can be
treated as a lessee, and whether the provisions of The Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002 (in short, the ‘SARFAESI Act’) will override the provisions of
the Rent Control Act. How can the right of the ‘protected tenant’ be
preserved in cases where the debtor-landlord secures a loan by offering the
very same property as a security interest either to Banks or Financial
Institutions, is also the essential legal question to be decided by us.
In all the appeals, the same question of law would arise for consideration.
For the sake of convenience and brevity, we would refer to the relevant
facts from the appeal arising out of S.L.P.(Crl.) No.8060 of 2015, which
has been filed against the impugned judgment and order dated 29.11.2014 in
M.A.No. 123 of 2011 in Case No.237 of 2010 passed by the learned Chief
Metropolitan Magistrate, Esplanade, Mumbai, wherein the application of the
appellant herein for impleadment as intervenor as well as stay of the order
dated 08.04.2011 passed in Case No.237 of 2010 by the learned Magistrate,
Esplanade, Mumbai, was dismissed.
Respondent Nos. 4 and 5 had approached the Bank of India (Respondent No.1)
(in short “the respondent Bank”) for a financial loan, which was granted
against equitable mortgage of several properties belonging to them,
including the property in which the appellant is allegedly a tenant. The
respondent nos. 4 and 5 failed to pay the dues within the stipulated time
and thus, in terms of the SARFAESI Act, their account became a non-
performing asset. On 12.03.2010, the respondent-Bank served on them notice
under Section 13(2) of SARFAESI Act. On failure of the respondents to clear
the dues from the loan amount borrowed by the above respondent nos. 4 and 5
within the stipulated statutory period of 60 days, the respondent-Bank
filed an application before the Chief Metropolitan Magistrate, Mumbai under
Section 14 of the SARFAESI Act for seeking possession of the mortgaged
properties which are in actual possession of the Appellant. The learned
Chief Metropolitan Magistrate allowed the application filed by the
respondent-Bank vide order dated 08.04.2011 and directed the Assistant
Registrar, Borivali Centre of Courts to take possession of the secured
assets. On 26.05.2011, the respondent no.4 served a notice on the
appellant, asking him to vacate the premises in which he was residing
within 12 days from the receipt of the notice. The appellant fearing
eviction, filed a Rent Suit R.A.D. Suit No. 913 of 2011 before the Court of
Small Causes, Bombay. Vide order dated 08.06.2011, the Small Causes Court
allowed the application and passed an ad interim order of injunction in
favour of the appellant, restraining respondent no.4 from obstructing the
possession of the appellant over the suit premises during the pendency of
the suit. In view of the order dated 08.06.2011, the appellant then filed
an application as an intervenor to stay the execution of the order dated
08.04.2011 passed by the Chief Metropolitan Magistrate. The learned Chief
Metropolitan Magistrate vide order dated 29.11.2014 dismissed the
application filed by the appellant by placing reliance on a judgment of
this Court rendered in the case of Harshad Govardhan Sondagar v.
International Assets Reconstruction Co. Ltd. & Ors.[1]. Dismissing the
application, the learned judge held as under:
“3. ...the Hon’ble Supreme Court has held that the alleged tenant has to
produce proof of execution of a registered instrument in his favour by the
lessor. Where he does not produce proof of execution of a registered
instrument in his favour and instead relies on an unregistered instrument
or oral agreement accompanied by delivery of possession, the Chief
Metropolitan Magistrate or the District Magistrate, as the case may be,
will have to come to the conclusion that he is not entitled to the
possession of the secured asset for more than a year from the date of the
instrument or from the date of delivery of possession in his favour by the
landlord.
4. It is to be highlighted that the intervener did not place on record any
registered instrument to fulcrum his contention. So, in view of the ratio
laid down in Harshad Sondagar’s case (cited supra), I hold that the
intervener is not entitled to any protection under the law.”
The learned Chief Metropolitan Magistrate further held that when the
secured creditor takes action under Section 13 or 14 of the SARFAESI Act to
recover the possession of the secured interest and recover the loan amount
by selling the same in public auction, then it is not open for the Court to
grant an injunction under Section 33 of the Rent Control Act. The learned
Chief Metropolitan Magistrate further held that the order dated 08.06.2011
passed by the Small Causes Court, Mumbai cannot be said to be binding upon
the respondent-Bank, especially in the light of the fact that it was not a
party to the proceedings. Hence the present appeal filed by the appellant.
We have heard the learned counsel for both the parties.
Before we consider the submissions advanced by the learned counsel
appearing on behalf of the parties, it is essential to first appreciate the
provisions of law in question.
The Maharashtra Rent Control Act, 1999, which repealed the Bombay Rent Act,
1947 was enacted by the state legislature of Maharashtra under Entry 18 of
List II of the Seventh Schedule of the Constitution of India to consolidate
and unify the different provisions and legislations in the State which
existed pertaining to rent and the landlord-tenant relationship. The
Statement of objects and reasons of the Rent Control Act reads, inter alia,
as under:
“1……At present, there are three different rent control laws, which are in
operation in this State……All these three laws have different provisions and
the courts or authorities which have the jurisdiction to decide matters
arising out of these laws are also not uniform. The Procedures under all
the three laws are also different in many of the material aspect.
2. Many features of the rent control laws have outlived their utility. The
task, therefore, of unifying, consolidating and amending the rent control
laws in the State and to bring the rent control legislation in tune with
the changed circumstances now, had been engaging the attention of the
Government……
3. In the meantime, the Central Government announced the national housing
policy which recommends, inter alia, to carry out suitable amendments to
the existing rent control laws for creating and enabling involvement in
housing activity and for guaranteeing access to shelter for the poor. The
National Housing Policy further recognized the important role of rental
housing in urban areas in different income groups and low-income households
in particular who cannot afford ownership house. The existing rent control
legislation has resulted in a freeze of rent, very low returns in
investment and difficulty in resuming possession and has adversely affected
investment in rental housing and cause deterioration of the rental housing
stock.”
On the other hand, the SARFAESI Act was enacted by the Parliament with a
view to regulate the securitisation and reconstruction of financial assets
and enforcement of security interests against the debtor by securing the
possession of such secured assets and recover the loan amount due to the
Banks and Financial Institutions. The statement of objects and reasons of
the SARFAESI Act reads as under:
"The financial sector has been one of the key drivers in India's efforts to
achieve success in rapidly developing its economy. While banking industry
in India is progressively complying with the international prudential norms
and accounting practices, there are certain areas in which the banking and
financial sector do not have a level playing field as compared to other
participants in the financial markets in the world. There is no legal
provision for facilitating Securitisation of financial assets of banks and
financial institutions. Further, unlike international banks, the banks and
financial institutions in India do not have power to take possession of
securities and sell them. Our existing legal framework relating to
commercial transactions has not kept pace with the changing commercial
practices and financial sector reforms. This has resulted in slow pace of
recovery of defaulting loans and mounting levels of non-performing assets
of banks and financial institutions. Narasimham Committee I and II and
Andhyarujina Committee constituted by the Central Government for the
purpose of examining banking sector reforms have considered the need for
changes in the legal system in respect of these areas."
(emphasis laid by this Court)
The SARFAESI Act enacted under List I of the Constitution of India thus,
seeks to regulate asset recovery by the Banks. It becomes clear from a
perusal of the Statements of Objects and Reasons of the Rent Control Act
and the SARFAESI Act that the two Acts are meant to operate in completely
different spheres. So far as residential tenancy rights are concerned, they
are governed by the provisions of the Rent Control Act which occupies the
field on the subject.
The controversy in the instant case arises squarely out of the
interpretation of a decision of this Court in the case of Harshad Govardhan
Sondagar (supra). The fact situation facing the court in that case was
similar to the one in the instant case. The premises which the appellants
therein claimed to be the tenants of had been mortgaged to different banks
as collateral security to such borrowed amount by the landlord/debtor. On
default of payment of the borrowed amount by the landlords/debtors, the
banks made application under Section 14(1) of the SARFAESI Act to the Chief
Metropolitan Magistrate, praying that the possession of the premises be
handed over to them in accordance with the provisions of the SARFAESI Act.
This Court in the case of Harshad Govardhan Sondagar (supra) held as under:
“34……In our view, therefore, the High Court has not properly appreciated
the judgment of this Court in Transcore (supra) and has lost sight of the
opening words of sub-section (1) of Section 13 of the SARFAESI Act which
state that notwithstanding anything contained in Section 69 or Section 69A
of the Transfer of Property Act, 1882, any security interest created in
favour of any secured creditor may be enforced, without the intervention of
the court or tribunal, by such creditor in accordance with the provisions
of the Act. The High Court has failed to appreciate that the provisions of
Section 13 of the SARFAESI Act thus override the provisions of Section 69
or Section 69A of the Transfer of Property Act, but does not override the
provisions of the Transfer of Property Act relating to the rights of a
lessee under a lease created before receipt of a notice under sub-Section
(2) of Section 13 of the SARFAESI Act by a borrower. Hence, the view taken
by the Bombay High Court in the impugned judgment as well as in M/s Trade
Well (supra) so far as the rights of the lessee in possession of the
secured asset under a valid lease made by the mortgagor prior to the
creation of mortgage or after the creation of mortgage in accordance with
Section 65A of the Transfer of Property Act is not correct and the impugned
judgment of the High Court insofar it takes this view is set aside.”
(emphasis laid by this Court)
Mr. Pallav Shishodia, the learned senior counsel appearing on behalf of the
appellant in the appeal @ out of S.L.P. (C) No. 8060 of 2015 places
reliance on the decision of this Court in Harshad Govardhan Sondagar
(supra), to contend that prior tenancy in respect of the mortgaged property
to the Bank is protected in terms of the Rent Control Act. The relevant
paragraphs of the decision are quoted as under:
“25. The opening words of sub-section (1) of Section 14 of the SARFAESI Act
also provides that if any of the secured asset is required to be sold or
transferred by the secured creditor under the provisions of the Act, the
secured creditor may take the assistance of the Chief Metropolitan
Magistrate or the District Magistrate. Where, therefore, such a request is
made by the secured creditor and the Chief Metropolitan Magistrate or the
District Magistrate finds that the secured asset is in possession of a
lessee but the lease under which the lessee claims to be in possession of
the secured asset stands determined in accordance with 4 Section 111 of the
Transfer of Property Act, the Chief Metropolitan Magistrate or the District
Magistrate may pass an order for delivery of possession of secured asset in
favour of the secured creditor to enable the secured creditor to sell and
transfer the same under the provisions of the SARFAESI Act. Sub-section (6)
of Section 13 of the SARFAESI Act provides that any transfer of secured
asset after taking possession of secured asset by the secured creditor
shall vest in the transferee all rights in, or in relation to, the secured
asset transferred as if the transfer had been made by the owner of such
secured asset. In other words, the transferee of a secured asset will not
acquire any right in a secured asset under sub-section (6) of Section 13 of
the SARFAESI Act, unless it has been effected after the secured creditor
has taken over possession of the secured asset. Thus, for the purpose of
transferring the secured asset and for realizing the secured debt, the
secured creditor will require the assistance of the Chief Metropolitan
Magistrate or the District Magistrate for taking possession of a secured
asset from the lessee where the 4 lease stands determined by any of the
modes mentioned in Section 111 of the Transfer of Property Act.
32. When we read sub-section (1) of Section 17 of the SARFAESI Act, we find
that under the said sub-section “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 under the
Chapter, may apply to the Debts Recovery Tribunal having jurisdiction in
the matter within 45 days from the date on which such measures had been
taken. We agree with the Mr. Vikas Singh that the words ‘any person’ are
wide enough to include a lessee also. It is also possible to take a view
that within 45 days from the date on which a possession notice is delivered
or affixed or published under sub-rules (1) and (2) of Rule 8 of the
Security Interest (Enforcement) Rules, 2002, a lessee may file an
application before the Debts Recovery Tribunal having jurisdiction in the
matter for restoration of possession in case he is dispossessed of the
secured asset. But when we read subsection (3) of Section 17 of the
SARFAESI Act, we find that the Debts Recovery Tribunal has powers to
restore 5 possession of the secured asset to the borrower only and not to
any person such as a lessee. Hence, even if the Debt Recovery Tribunal
comes to the conclusion that any of the measures referred to in sub-section
(4) of Section 13 taken by the secured creditor are not in accordance with
the provisions of the Act, it cannot restore possession of the secured
asset to the lessee. Where, therefore, the Debts Recovery Tribunal
considers the application of the lessee and comes to the conclusion that
the lease in favour of the lessee was made prior to the creation of
mortgage or the lease though made after the creation of mortgage is in
accordance with the requirements of Section 65A of the Transfer of Property
Act and the lease was valid and binding on the mortgagee and the lease is
yet to be determined, the Debts Recovery Tribunal will not have the power
to restore possession of the secured asset to the lessee. In our considered
opinion, therefore, there is no remedy available under Section 17 of the
SARFAESI Act to the lessee to protect his lawful possession under a valid
lease.”
The learned senior counsel contends that it is a settled position of law
that in the absence of a valid document of lease for more than one year or
in case of an invalid lease deed, the relation of tenancy between a
landlord and the tenant is still created due to delivery of possession to
the tenant and payment of rent to the landlord-owner and such tenancy is
deemed to be a tenancy from month to month in respect of such property. The
learned senior counsel further places reliance on a three Judge Bench
decision of this Court in Anthony v. K.C. Ittoop & Sons & Ors.[2], wherein
it was held as under:
“....so far as the instrument of lease is concerned there is no scope for
holding that appellant is a lessee by virtue of the said instrument. The
court is disabled from using the instrument as evidence...
But this above finding does not exhaust the scope of the issue whether
appellant is a lessee of the building. A lease of immovable property is
defined in Section 105 of the TP Act. A transfer of a right to enjoy a
property in consideration of a price paid or promised to be rendered
periodically or on specified occasions is the basic fabric for a valid
lease. The provision says that such a transfer can be made expressly or by
implication. Once there is such a transfer of right to enjoy the property a
lease stands created. What is mentioned in the three paragraphs of the
first part of Section 107 of the TP Act are only the different modes of how
leases are created.... Thus, de hors the instrument parties can create a
lease as envisaged in the second paragraph of Section 107 which reads thus:
All other leases of immovable property may be made either by a registered
instrument or by oral agreement accompanied by delivery of possession.
When lease is a transfer of a right to enjoy the property and such transfer
can be made expressly or by implication, the mere fact that an unregistered
instrument came into existence would not stand in the way of the court to
determine whether there was in fact a lease otherwise than through such
deed.”
(emphasis laid by this Court)
The learned senior counsel further contends that where a lease deed or
document of tenancy in respect of the property in question is for a period
exceeding one year, but such document has not been registered, then, by
virtue of payment of rent, the relationship of tenancy between a landlord
and the tenant comes into existence and in such cases, the tenant must be
deemed to be a tenant from month to month and the same would amount to a
tenancy from month to month. Thus, in the instant case, the tenancy of the
appellants in respect of the property in question which is the secured
asset of the Bank being from month to month would also be protected under
the provisions of the Rent Control Act.
The learned senior counsel further contends that according to the decision
of this Court in the case of Harshad Govardhan Sondagar (supra), if a
person claiming to be a tenant or lessee either produces a registered
agreement or relies on an oral agreement accompanied by delivery of
possession, then such tenancy/possession of the property with the appellant
as tenant needs to be protected. It is further contended that the Harshad
Govardhan Sondagar (supra) has clearly held that the tenancy claims of the
tenants are to be decided by the Chief Metropolitan Magistrate in
accordance with any other law that may be relevant after giving an
opportunity of hearing to the persons who claim tenancy in respect of such
property. The term “any other law that may be relevant” clearly indicates a
reference to the State Rent Protection laws, which in the case at hand is
the Rent Control Act. Thus, the protection of the State Rent Control
legislation is also to be considered by the learned magistrate while
deciding an application filed by the Bank under Section 14 of the SARFAESI
Act.
On the other hand, Mr. Amarendra Sharan, learned senior counsel appearing
on behalf of the respondents in Crl.A. @ S.L.P. (Crl) Nos. 6941, 6944 and
6945 of 2015 contends that the pith and substance of the central enactment
in the instant case, which is the SARFAESI Act needs to be appreciated.
Proper implementation of the provisions of the SARFAESI Act is in the
larger interest of the nation. The learned senior counsel places reliance
on a Constitution Bench decision of this Court in the case of Ishwari
Khetan Sugar Mills Pvt. Ltd. & Ors. v. State of Uttar Pradesh & Ors.[3],
wherein it was held as under:
“13. If in pith and substance a legislation falls within one entry or the
other but some portion of the subject-matter of the legislation
incidentally trenches upon and might enter a field under another List, the
Act as a whole would be valid notwithstanding such incidental trenching.
This is well established by a catena of decisions [see Union of India v.
H.S. Dhillon and Kerala State Electricity Board v. Indian Aluminium Co.]
After referring to these decisions in State of Karnataka v. Ranganatha
Reddy and Anr. Untwalia, J. speaking for the Constitution Bench has in
terms stated that the pith and substance of the Act has to be looked into
and an incidental trespass would not invalidate the law. The challenge in
that case was to the Nationalisation of contract carriages by the Karnataka
State, inter alia, on the ground that the statute was invalid as it was a
legislation on the subject of interstate trade and commerce. Repelling this
contention the Court unanimously held that in pith and substance the
impugned legislation was for acquisition of contract carriages and not an
Act which deals with inter-State trade and commerce.”
The learned senior counsel further contends that the SARFAESI Act was
enacted by the Parliament under Entry 45 of List I of the Constitution of
India. It is a special Act with a special purpose and procedure laid down
for the recovery of the secured asset of the debtor by the Bank to recover
the amount due to it, and thus, any encroachment upon this Act should not
be permitted, as it would defeat the laudable object of the Act, which has
been enacted keeping in view the larger public interest.
Mr. Vikas Singh, the learned senior counsel appearing on behalf of the
respondent State Bank of India in the appeal arising out of S.L.P. (C) No.
28040 of 2015 contends that the SARFAESI Act cannot be allowed to fail at
the hands of the present appellants, who have no registered instrument of
lease.
The learned senior counsel further contends that in light of the decision
of this Court in the case of Harshad Govardhan Sondagar (supra), the
present case is barred by res judicata. He places reliance on the three
Judge Bench decision of this Court in the case of Bhanu Kumar Jain v.
Archana Kumar & Anr.[4], wherein it was held as under:
“It is now well-settled that principles of res judicata applies in
different stages of the same proceedings.
19. In Y.B. Patil (supra) it was held:
"4... It is well settled that principles of res judicata can be invoked not
only in separate subsequent proceedings, they also get attracted in
subsequent stage of the same proceedings. Once an order made in the course
of a proceeding becomes final, it would be binding at the subsequent state
of that proceeding..."
20. In Vijayabai (supra), it was held:
"13. We find in the present case the Tahsildar reopened the very question
which finally stood concluded, viz., whether Respondent 1 was or was not
the tenant of the suit land. He further erroneously entered into a new
premise of reopening the question of validity of the compromise which could
have been in issue if at all in appeal or revision by holding that
compromise was arrived at under pressure and allurement. How can this
question be up for determination when this became final under this very
same statute?..."
21. Yet again in Hope Plantations Ltd. (supra), this Court laid down the
law in the following terms:
"17... One important consideration of public policy is that the decisions
pronounced by courts of competent jurisdiction should be final, unless they
are modified or reversed by appellate authorities; and the other principle
is that no one should be made to face the same kind of litigation twice
over, because such a process would be contrary to considerations of fair
play and justice."
Mr. M.T. George, the learned counsel appearing on behalf of the Bank in
the appeal arising out of S.L.P. (C) No. 12772 of 2015 contends that the
tenancy has not been determined conclusively, as the documents produced on
record to prove the relationship of tenancy are not registered and do not
hold much water. Mr. Rajeev Kumar Pandey, the learned counsel appearing on
behalf of the respondent Bank in the appeal arising out of S.L.P. (C) No.
31080 of 2015 submits that the property in question was mortgaged before it
was leased. Such a lease would thus, not entitle the lessee to stop the
bank from taking possession over the property which was mortgaged to it.
The other learned counsel appearing on behalf of other Banks in the
connected appeals adopted the arguments advanced by the aforesaid learned
senior counsel appearing on behalf of some of the Banks. It was also
contended that the appellants in the connected appeals have not been able
to produce sufficient documentary evidence to prove that they are tenants
in respect of the properties in question in the proceedings under Section
14 of the SARFAESI Act and hence, they have no locus standi to prefer the
above appeals questioning the correctness of the Order passed by the
learned Magistrate.
We have carefully considered the above rival legal submissions made on
behalf of the parties and answer the same as hereunder:
The SARFAESI Act, which came into force from 21.06.2002, was enacted to
provide procedures to the Banks to recover their security interest from the
debtors and their collateral security assets as provided under the
provisions of the Act. The scope of the Act was explained by this Court in
the case of Transcore v. Union of India & Anr.[5] as under:
“12. The NPA Act, 2002 is enacted to regulate securitization and
reconstruction of financial assets and enforcement of security interest and
for matters connected therewith. The NPA Act enables the banks and FIs to
realize long-term assets, manage problems of liquidity, asset-liability
mismatch and to improve recovery of debts by exercising powers to take
possession of securities, sell them and thereby reduce non-performing
assets by adopting measures for recovery and reconstruction. The NPA Act
further provides for setting up of asset reconstruction companies which are
empowered to take possession of secured assets of the borrower including
the right to transfer by way of lease; assignment or sale. The said Act
also empowers the said asset reconstruction companies to take over the
management of the business of the borrower....
13. Non-performing assets (NPA) are a cost to the economy. When the Act was
enacted in 2002, the NPA stood at Rs 1.10 lakh crores. This was a drag on
the economy. Basically, NPA is an account which becomes non-viable and non-
performing in terms of the guidelines given by RBI. As stated in the
Statement of Objects and Reasons, NPA arises on account of mismatch between
asset and liability. The NPA account is an asset in the hands of the bank
or FI. It represents an amount receivable and realizable by the banks or
FIs. In that sense, it is an asset in the hands of the secured creditor.
Therefore, the NPA Act, 2002 was primarily enacted to reduce the non-
performing assets by adopting measures not only for recovery but also for
reconstruction. Therefore, the Act provides for setting up of asset
reconstruction companies, special purpose vehicles, asset management
companies, etc. which are empowered to take possession of secured assets of
the borrower including the right to transfer by way of lease, assignment or
sale. It also provides for realization of the secured assets. It also
provides for takeover of the management of the borrower company.”
Thus, it becomes clear that the SARFAESI Act is meant to operate as a tool
for banks and ensures a smooth debt recovery process. The provisions of
SARFAESI Act make its purport amply clear, specifically under the
provisions of Sections 13(2) and 13(4) of the Act, which read as under:
“13. Enforcement of Security interest.-
(2) Where any borrower, who is under a liability to a secured creditor
under a security agreement, makes any default in repayment of secured debt
or any instalment thereof, and his account in respect of such debt is
classified by the secured creditor as non-performing asset, then, the
secured creditor may require the borrower by notice in writing to discharge
in full his liabilities to the secured creditor within sixty days from the
date of notice failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
“(4) In case the borrower fails to discharge his liability in full within
the period specified in sub-section (2), the secured creditor may take
recourse to one or more of the following measures to recover his secured
debt, namely:--
(a) take possession of the secured assets of the borrower including the
right to transfer by way of lease, assignment or sale for realising the
secured asset....”
Further, the provision under Section 35 of the SARFAESI Act provides that
it shall override all other laws, which is quoted as hereunder:
“35. The provisions of this Act to override other laws.- The provisions of
this Act shall have effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or any instrument
having effect by virtue of any such law."
Providing a smooth and efficient recovery procedure to enable the banks to
recover the Non Performing Assets is a laudable object indeed, which needs
to be ensured for the development of the economy of the Country. What has
complicated the matters, however, is the clash of this laudable object with
another laudable object, namely, to secure the rights of the tenants under
the various Rent Control Acts. The history of these Rent Control Acts can
be traced to as far back as the Second World War. At that time, due to the
massive inflation and shortage of commodities, not only had the cost of
living risen exponentially, the tenants were also often left to the mercy
of the landlords as far as evictions or prices of rent were concerned. Rent
Control Acts have been enacted by the different state legislatures to
secure the rights of the weaker sections of the society, viz., the tenants.
Justice Krishna Iyer aptly observed in the case of Miss Santosh Mehta v. Om
Prakash & Ors.[6]:
“2. Rent Control laws are basically designed to protect tenants because
scarcity of accommodation is a nightmare for those who own none and if
evicted, will be helpless.”
The preamble of the Rent Control Act reads as under:
“An Act to unify, consolidate and amend the law relating to the control of
rent and repairs of certain premises and of eviction and for encouraging
the construction of new houses by assuring a fair return on the investment
by landlords and to provide for the matters connected with the purposes
aforesaid……”
It becomes clear from a perusal of the preamble of the Act that the
ultimate object behind the enactment of this legislation is to control and
regulate the rate of rent so that unnecessary hardship is not caused to the
tenant, and also to provide protection to the tenants against arbitrary and
unreasonable evictions from the possession of the property. The protection
of the tenants against unjust evictions becomes even more pronounced when
examined in the light of Section 15 of the Rent Control Act, which reads as
under:
“15. No ejectment ordinarily to be made if tenant pays or is ready and
willing to pay standard rent and permitted increases.(1) A landlord shall
not be entitled to the recovery of possession of any premises so long as
the tenant pays, or is ready and willing to pay, the amount of the,
standard rent and permitted increases, if any, and observes and performs
the other conditions of the tenancy, in so far as they are consistent with
the provisions of this Act.”
Section 15, thus, restricts the right of a landlord to recover possession
of the tenanted premises from a tenant.
When we understand the factual matrix in the backdrop of the objectives of
the above two legislations, the controversy in the instant case assumes
immense significance. There is an interest of the bank in recovering the
Non Performing Asset on the one hand, and protecting the right of the
blameless tenant on the other. The Rent Control Act being a social welfare
legislation, must be construed as such. A landlord cannot be permitted to
do indirectly what he has been barred from doing under the Rent Control
Act, more so when the two legislations, that is the SARFAESI Act and the
Rent Control Act operate in completely different fields. While SARFAESI Act
is concerned with Non Performing Assets of the Banks, the Rent Control Act
governs the relationship between a tenant and the landlord and specifies
the rights and liabilities of each as well as the rules of ejectment with
respect to such tenants. The provisions of the SARFAESI Act cannot be used
to override the provisions of the Rent Control Act. If the contentions of
the learned counsel for the respondent Banks are to be accepted, it would
render the entire scheme of all Rent Control Acts operating in the country
as useless and nugatory. Tenants would be left wholly to the mercy of their
landlords and in the fear that the landlord may use the tenanted premises
as a security interest while taking a loan from a bank and subsequently
default on it. Conversely, a landlord would simply have to give up the
tenanted premises as a security interest to the creditor banks while he is
still getting rent for the same. In case of default of the loan, the
maximum brunt will be borne by the unsuspecting tenant, who would be
evicted from the possession of the tenanted property by the Bank under the
provisions of the SARFAESI Act. Under no circumstances can this be
permitted, more so in view of the statutory protections to the tenants
under the Rent Control Act and also in respect of contractual tenants along
with the possession of their properties which shall be obtained with due
process of law.
The issue of determination of tenancy is also one which is well settled.
While Section 106 of the Transfer of Property Act, 1882 does provide for
registration of leases which are created on a year to year basis, what
needs to be remembered is the effect of non-registration, or the creation
of tenancy by way of an oral agreement. According to Section 106 of the
Transfer of Property Act, 1882, a monthly tenancy shall be deemed to be a
tenancy from month to month and must be registered if it is reduced into
writing. The Transfer of Property Act, however, remains silent on the
position of law in cases where the agreement is not reduced into writing.
If the two parties are executing their rights and liabilities in the nature
of a landlord-tenant relationship and if regular rent is being paid and
accepted, then the mere factum of non-registration of deed will not make
the lease itself nugatory. If no written lease deed exists, then such
tenants are required to prove that they have been in occupation of the
premises as tenants by producing such evidence in the proceedings under
Section 14 of the SARFAESI Act before the learned Magistrate. Further, in
terms of Section 55(2) of the special law in the instant case, which is the
Rent Control Act, the onus to get such a deed registered is on the
landlord. In light of the same, neither the landlord nor the banks can be
permitted to exploit the fact of non registration of the tenancy deed
against the tenant. Further, the learned counsel for the appellants rightly
placed reliance on a three Judge Bench decision of this Court in Anthony
(supra). At the cost of repetition, in that case it was held as under:
“But the above finding does not exhaust the scope of the issue whether the
appellant was a lessee of the building. A lease of immovable property is
defined in Section 105 of the TP Act. A transfer of a right to enjoy a
property in consideration of a price paid or promised to be rendered
periodically or on specified occasions is the basic fabric for a valid
lease. The provision says that such a transfer can be made expressly or by
implication. Once there is such a transfer of right to enjoy the property a
lease stands created. What is mentioned in the three paragraphs of the
first part of Section 107 of the TP Act are only the different modes of how
leases are created. The first paragraph has been extracted above and it
deals with the mode of creating the particular kinds of leases mentioned
therein.
The third paragraph can be read along with the above as it contains a
condition to be complied with if the parties choose to create a lease as
per a registered instrument mentioned therein.
All other leases, if created, necessarily fall within the ambit of the
second paragraph. Thus, de hors the instrument parties can create a lease
as envisaged in the second paragraph of Section 107 which reads thus:
All other leases of immovable property may be made either by a registered
instrument or by oral agreement accompanied by delivery of possession.”
It further saddens us to see the manner in which the decision in the case
of Harshad Govardhan Sondagar (supra) has been misinterpreted to create
this confusion. Random sentences have been picked up from the judgment and
used, without any attempt to understand the true purport of the judgment in
its entirety.
It is a well settled position of law that a word or sentence cannot be
picked up from a judgment to construe that it is the ratio decidendi on the
relevant aspect of the case. It is also a well settled position of law that
a judgment cannot be read as a statute and interpreted and applied to fact
situations. An eleven Judge Bench of this Court in the case of H.H.
Maharajadhiraja Madhav Rao Jivaji Rao Scindia Bahadur of Gwalior & Ors. v.
Union of India[7] held as under:
“It is difficult to regard a word, a clause or a sentence occurring in a
judgment of this Court, divorced from its context, as containing a full
exposition of the law on a question when the question did not even fall to
be answered in that judgment.”
The same view was reiterated by a Division Bench of this Court in the case
of Commissioner of Income Tax v. Sun Engineering Works (P.) Ltd.[8]
Further, a three Judge Bench of this Court in the case of Union of India v.
Dhanawanti Devi & Ors.[9] held as under:
“9. It is not everything said by a Judge while giving judgment that
constitutes a precedent. The only thing in a judge’s decision binding a
party is the principle upon which the case is decided and for this reason
it is important to analyse a decision and isolate from it the ratio
decidendi. According to the well-settled theory of precedents, every
decision contains three basic postulates - (i) findings of material facts,
direct and inferential. An inferential finding of facts is the inference
which the Judge draws from the direct, or perceptible facts; (ii)
statements of the principles of law applicable to the legal problems
disclosed by the facts; and (iii) judgment based on the combined effect of
the above. A decision is only an authority for what it actually decides.
What is of the essence in a decision is its ratio and not every observation
found therein nor what logically follows from the various observations made
in the judgment. Every judgment must be read as applicable to the
particular facts proved, or assumed to be proved, since the generality of
the expressions which may be found there is not intended to be exposition
of the whole law, but governed and qualified by the particular facts of the
case in which such expressions are to be found. It would, therefore, be not
profitable to extract a sentence here and there from the judgment and to
build upon it because the essence of the decision is its ratio and not
every observation found therein. The enunciation of the reason or principle
on which a question before a court has been decided is alone binding as a
precedent. The concrete decision alone is binding between the parties to
it, but it is the abstract ratio decidendi, ascertained on a consideration
of the judgment in relation to the subject matter of the decision, which
alone has the force of law and which, when it is clear what it was, is
binding. It is only the principle laid down in the judgment that is binding
law under Article 141 of the Constitution. A deliberate judicial decision
arrived at after hearing an argument on a question which arises in the case
or is put in issue may constitute a precedent, no matter for what reason,
and the precedent by long recognition may mature into rule of stare
decisis. It is the rule deductible from the application of law to the facts
and circumstances of the case which constitutes its ratio decidendi.
10. Therefore, in order to understand and appreciate the binding force of a
decision it is always necessary to see what were the facts in the case in
which the decision was given and what was the point which had to be
decided. No judgment can be read as if it is a statute. A word or a clause
or a sentence in the judgment cannot be regarded as a full exposition of
law. Law cannot afford to be static and therefore, Judges are to employ an
intelligent technique in the use of precedents……”
(emphasis laid by this Court)
The decision of this Court rendered in the case of Harshad Govardhan
Sondagar (supra) cannot be understood to have held that the provisions of
the SARFAESI Act override the provisions of the Rent Control Act, and that
the Banks are at liberty to evict the tenants residing in the tenanted
premises which have been offered as collateral securities for loans on
which default has been done by the debtor/landlord.
As far as granting leasehold rights being created after the property has
been mortgaged to the bank, the consent of the creditor needs to be taken.
We have already taken this view in the case of Harshad Govardhan Sondagar
(supra). We have not stated anything to the effect that the tenancy created
after mortgaging the property must necessarily be registered under the
provisions of the Registration Act and the Stamp Act.
It is a settled position of law that once tenancy is created, a tenant can
be evicted only after following the due process of law, as prescribed under
the provisions of the Rent Control Act. A tenant cannot be arbitrarily
evicted by using the provisions of the SARFAESI Act as that would amount to
stultifying the statutory rights of protection given to the tenant. A non
obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze
the statutory rights vested on the tenants under the Rent Control Act. The
expression ‘any other law for the time being in force’ as appearing in
Section 35 of the SARFAESI Act cannot mean to extend to each and every law
enacted by the Central and State legislatures. It can only extend to the
laws operating in the same field. Interpreting the non obstante clause of
the SARFAESI Act, a three Judge Bench of this Court in the case of Central
Bank of India v. State of Kerala & Ors.[10] has held as under:
“18. The DRT Act and Securitisation Act were enacted by Parliament in the
backdrop of recommendations made by the Expert Committees appointed by the
Central Government for examining the causes for enormous delay in the
recovery of dues of banks and financial institutions which were adversely
affecting fiscal reforms. The committees headed by Shri T. Tiwari and Shri
M. Narasimham suggested that the existing legal regime should be changed
and special adjudicatory machinery be created for ensuring speedy recovery
of the dues of banks and financial institutions. Narasimham and
Andhyarujina Committees also suggested enactment of new legislation for
securitisation and empowering the banks etc. to take possession of the
securities and sell them without intervention of the Court.
XXX XXX XXX
110. The DRT Act facilitated establishment of two-tier system of Tribunals.
The Tribunals established at the first level have been vested with the
jurisdiction, powers and authority to summarily adjudicate the claims of
banks and financial institutions in the matter of recovery of their dues
without being bogged down by the technicalities of the Code of civil
Procedure. The Securitisation Act drastically changed the scenario inasmuch
as it enabled banks, financial institutions and other secured creditors to
recover their dues without intervention of the Courts or Tribunals. The
Securitisation Act also made provision for registration and regulation of
securitisation/reconstruction companies, securitisation of financial assets
of banks and financial institutions and other related provisions.
111. However, what is most significant to be noted is that there is no
provision in either of these enactments by which first charge has been
created in favour of banks, financial institutions or secured creditors qua
the property of the borrower.
112. Under Section 13(1) of the Securitisation Act, limited primacy has
been given to the right of a secured creditor to enforce security interest
vis-à-vis Section 69 or Section 69A of the Transfer of Property Act. In
terms of that sub-Section, a secured creditor can enforce security interest
without intervention of the Court or Tribunal and if the borrower has
created any mortgage of the secured asset, the mortgagee or any person
acting on his behalf cannot sell the mortgaged property or appoint a
receiver of the income of the mortgaged property or any part thereof in a
manner which may defeat the right of the secured creditor to enforce
security interest. This provision was enacted in the backdrop of Chapter
VIII of Narasimham Committee's 2nd Report in which specific reference was
made to the provisions relating to mortgages under the Transfer of Property
Act.
113. In an apparent bid to overcome the likely difficulty faced by the
secured creditor which may include a bank or a financial institution,
Parliament incorporated the non obstante clause in Section 13 and gave
primacy to the right of secured creditor vis a vis other mortgagees who
could exercise rights under Sections 69 or 69A of the Transfer of Property
Act. However, this primacy has not been extended to other provisions like
Section 38C of the Bombay Act and Section 26B of the Kerala Act by which
first charge has been created in favour of the State over the property of
the dealer or any person liable to pay the dues of sales tax, etc.
………………
116. The non obstante clauses contained in Section 34(1) of the DRT Act and
Section 35 of the Securitisation Act give overriding effect to the
provisions of those Acts only if there is anything inconsistent contained
in any other law or instrument having effect by virtue of any other law. In
other words, if there is no provision in the other enactments which are
inconsistent with the DRT Act or Securitisation Act, the provisions
contained in those Acts cannot override other legislations.”
(emphasis laid by this Court)
If the interpretation of the provisions of SARFAESI Act as submitted by the
learned senior counsel appearing on behalf of the Banks is accepted, it
would not only tantamount to violation of rule of law, but would also
render a valid Rent Control statute enacted by the State Legislature in
exercise of its legislative power under Article 246 (2) of the Constitution
of India useless and nugatory. The Constitution of India envisages a
federal feature, which has been held to be a basic feature of the
Constitution, as has been held by the seven Judge Bench of this Court in
the case of S.R. Bommai & Ors. v. Union of India[11], wherein Justice K.
Ramaswamy in his concurring opinion elaborated as under:
“247. Federalism envisaged in the Constitution of India is a basic feature
in which the Union of India is permanent within the territorial limits set
in Article 1 of the Constitution and is indestructible. The State is the
creature of the Constitution and the law made by Articles 2 to 4 with no
territorial integrity, but a permanent entity with its boundaries alterable
by a law made by Parliament. Neither the relative importance of the
legislative entries in Schedule VII, Lists I and II of the Constitution,
nor the fiscal control by the Union per se are decisive to conclude that
the Constitution is unitary. The respective legislative powers are
traceable to Articles 245 to 254 of the Constitution. The State qua the
Constitution is federal in structure and independent in its exercise of
legislative and executive power. However, being the creature of the
Constitution the State has no right to secede or claim sovereignty. Qua the
Union, State is quasi-federal. Both are coordinating institutions and ought
to exercise their respective powers with adjustment, understanding and
accommodation to render socio-economic and political justice to the people,
to preserve and elongate the constitutional goals including secularism.
248. The preamble of the Constitution is an integral part of the
Constitution. Democratic form of Government, federal structure, unity and
integrity of the nation, secularism, socialism, social justice and judicial
review are basic features of the Constitution.”
(emphasis laid by this Court)
In view of the above legal position, if we accept the legal submissions
made on behalf of the Banks to hold that the provisions of SARFAESI Act
override the provisions of the various Rent Control Acts to allow a Bank to
evict a tenant from the tenanted premise, which has become a secured asset
of the Bank after the default on loan by the landlord and dispense with the
procedure laid down under the provisions of the various Rent Control Acts
and the law laid down by this Court in catena of cases, then the
legislative powers of the state legislatures are denuded which would amount
to subverting the law enacted by the State Legislature. Surely, such a
situation was not contemplated by the Parliament while enacting the
SARFAESI Act and therefore the interpretation sought to be made by the
learned counsel appearing on behalf of the Banks cannot be accepted by this
Court as the same is wholly untenable in law.
We are unable to agree with the contentions advanced by the learned
counsel appearing on behalf of the respondent Banks.
In view of the foregoing, the impugned judgments and orders passed by the
High Court/ Chief Metropolitan Magistrate are set aside and the appeals are
allowed. We further direct that the amounts which are in deposit pursuant
to the conditional interim order of this Court towards rent either before
the Chief Metropolitan Magistrate/Magistrate Court or with the concerned
Banks, shall be adjusted by the concerned Banks towards the debt due from
the debtors/landlords in respect of the appellants in these appeals. The
enhanced rent by way of conditional interim order shall be continued to be
paid to the respective Banks, which amount shall also be adjusted towards
debts of the debtors/landlords. All the pending applications are disposed
of.
…………………………………………………………J.
[V. GOPALA GOWDA]
…………………………………………………………J.
[AMITAVA ROY]
New Delhi,
January 20,2016
-----------------------
[1] (2014) 6 SCC 1
[2] (2000) 6 SCC 394
[3] (1980) 4 SCC 136
[4] (2005) 1 SCC 787
[5] (2008) 1 SCC 125
[6] (1980) 3 SCC 610
[7] (1971) 1 SCC 85
[8] (1992) 4 SCC 363
[9] (1996) 6 SCC 44
[10] (2009) 4 SCC 94
[11] (1994) 3 SCC 1
