Head
Notes:-
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.
(Para 30)
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. (Para 31)
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)
Page
2
Crl.A.
@ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 2
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.
1.
The
applications for impleadment are allowed.
2.
Leave granted in all the special leave
petitions.
3.
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.
4.
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.
5.
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
nonperforming 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. (2014) 6 SCC 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.”
6.
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.
7.
We have heard the learned counsel for both the
parties.
8.
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.
9.
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
securitization 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
thelegal system in respect of these areas."
(emphasis
laid by this Court)
10.
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.
11.
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)
12.
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.
Subsection (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.”
13.
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 (2000) 6 SCC 394 , 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)
14.
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.
15.
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.
16.
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 (1980) 4 SCC 136, 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.”
17.
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.
18.
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.
19.
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. (2005) 1 SCC 787, 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."
20.
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.
21.
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:
22.
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. (2008) 1 SCC
125
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
nonperforming 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 reditor 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. (1980) 3 SCC
610:
“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.”
23.
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.
24.
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.
25.
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.”
26.
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.
27.
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(1971)
1 SCC 85
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. (1992) 4 SCC 363 Further, a three
Judge Bench of this Court in the case of Union of India v.Dhanawanti
Devi & Ors.
(1996) 6 SCC 44
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)
28.
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.
29.
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.
30.
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. (2009) 4 SCC 94
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)
31.
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(1994) 3 SCC 1 , 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)
32.
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.
33.
We are unable to agree with the contentions advanced
by the learned counsel appearing on behalf of
the respondent Banks.
34.
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
