Protection From SARFAESI Act Not Available To 'Tenant-At-Sufferance'

In CRIMINAL APPEAL NO. 1371 OF 2019, BAJARANG SHYAMSUNDER AGARWAL VS CENTRAL BANK OF INDIA & ANR., appeal was filed before the 3 judge bench of the Supreme Court against the order of the Chief Metropolitan Magistrate, Esplanade, Mumbai rejecting the application of the intervenor who is the appellant-­tenant herein seeking to stay the execution of order passed under Section 14 of the Sarfaesi Act, 2002 [ for taking possession of the property in question.

The respondent bank had applied before the Ld. CMM for taking possession of the secured asset in 2012 against which the appellant claiming to be the tenant, asserts that the secured asset was let out to him by respondent no. 2­/borrower/landlord in January, 2000 and he has been paying rent since then. Admittedly, the tenancy was based on an oral agreement. The CMM after hearing the appellant­/tenant, rejected the application holding that the appellant­/tenant being a tenant without any registered instrument is not entitled for the possession of the secured asset for more than one year from the date of execution of unregistered tenancy agreement in accordance with the law laid down in Harshad Govardhan Case.

The appellant relying heavily on Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. and Ors, (2014) 6 SCC 1 and Vishal N. Kalsaria v. Bank of India and Ors., (2016) 3 SCC 762, sought protection from eviction.

The Supreme Court while agreeing with the principle laid out in Vishal N. Kalsaria Case (supra) that the tenancy rights under the Rent Act need to be respected in appropriate cases, however, held that the holding with respect to the restricted application of the non-obstante clause under section 35 of SARFAESI Act, to only apply to the laws operating in the same field is too narrow and such a proposition does not follow from the ruling of this Court in Harshad Govardhan Case (supra).

The Supreme Court decided that the objective of SARFAESI Act, coupled with the T.P. Act and the Rent Act are required to be reconciled herein in the following manner:

a) If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for determination of leases. As the existence of a prior existing lease inevitably affects the risk undertaken by the bank while providing the loan, it is expected of Banks/Creditors to have conducted a standard due diligence in this regard. Where the bank has proceeded to accept such a property as mortgage, it will be presumed that it has consented to the risk that comes as a consequence of the existing tenancy. In such a situation, the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings.

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

c) In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under Section 107 of the T.P. Act. 

The Supreme Court observed that the legal position, as laid out in the Vishal N. Kalsaria Case (supra), that in the absence of a written lease deed the tenant may prove his existing rights by producing other relevant evidence before the Magistrate. The appellant­/tenant has to produce evidence of payment of rent, property taxes, etc. It was only after passing of the aforesaid order of the Chief Metropolitan Magistrate, that the appellant­/tenant started agitating his rights before the Small Causes Court based on a completely different fact scenario, without a whisper of the alleged tenancy under the concluded Section 14, SARFAESI Act proceedings. The respondent no.2­ borrower/landlord did not even respond to the claims of the appellant­/tenant. the appellant­/tenant has failed to produce any evidence to substantiate his claim over the secured asset. In such a situation, the appellant­/tenant cannot claim protection under the garb of the interim protection granted to him, ex parte, by solely relying upon the xerox of the rent receipts.