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SARFEASI not superior to Rent Act

Tenants protected from creditors

In a judgment that grants relief to tenants, the Supreme Court has declared that the provisions of the Securitisation Act (Sarfaesi) cannot be used to override the provisions of the Rent Control Act. The Supreme Court, while setting aside judgments in several cases of the Bombay High Court, underlined that the Rent Control Act is a social welfare legislation and must be construed as such.

In the case, Vishal Kalsaria vs Bank of India, the court further explained that while Sarfaesi is concerned with non-performing assets of banks and financial institutions, the Rent Control Act governs the relationship between a tenant and the landlord and specifies the rules of ejectment with respect to tenants.

The banks had proceeded to take possession of the properties of landlords, who had defaulted on payments for the loans taken by mortgaging the properties. The tenants were caught in between. "If the contentions of the banks are to be accepted," the judgment said, "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.

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