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.
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.
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
Vs.
BANK OF INDIA & ORS.
Citation;(2016)3 SCC762
V. GOPALA GOWDA, J.
Dated;January 20,2016
Citation;(2016) 3 SCC762
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 orEtc.Etc. 3
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 passedPage 5
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 5
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.
1 (2014) 6 SCC 1
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 thePage 7
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 7
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 whichPage 8
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 8
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 banksPage 9
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 9
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)
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 wasPage 10
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 10
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-SectionPage 11
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 11
(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 thePage 12
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 12
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 toPage 13
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 13
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 betweenPage 14
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 14
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
2 (2000) 6 SCC 394Page 15
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 15
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 personPage 16
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 16
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 thePage 17
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 17
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.”
3 (1980) 4 SCC 136Page 18
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 18
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 BhanuPage 19
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 19
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
4 (2005) 1 SCC 787Page 20
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 20
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 connectedPage 21
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 21
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.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
5 (2008) 1 SCC 125 Page 22
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 22
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 meantPage 23
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 23
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:Page 24
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 24
“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. OmPage 25
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 25
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.”
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
6 (1980) 3 SCC 610Page 26
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 26
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 tenantsP
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 nonregistration
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 suchPage 29
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 29
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 createPage 30
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 30
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 India7 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
7 (1971) 1 SCC 85
8 (1992) 4 SCC 363
9 (1996) 6 SCC 44
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.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
10 (2009) 4 SCC 94
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 India11, 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,
11 (1994) 3 SCC 1
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
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
Vs.
BANK OF INDIA & ORS.
Citation;(2016)3 SCC762
V. GOPALA GOWDA, J.
Dated;January 20,2016
Citation;(2016) 3 SCC762
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 orEtc.Etc. 3
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 passedPage 5
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 5
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.
1 (2014) 6 SCC 1
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 thePage 7
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 7
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 whichPage 8
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 8
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 banksPage 9
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 9
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)
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 wasPage 10
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 10
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-SectionPage 11
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 11
(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 thePage 12
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 12
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 toPage 13
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 13
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 betweenPage 14
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 14
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
2 (2000) 6 SCC 394Page 15
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 15
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 personPage 16
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 16
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 thePage 17
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 17
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.”
3 (1980) 4 SCC 136Page 18
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 18
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 BhanuPage 19
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 19
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
4 (2005) 1 SCC 787Page 20
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 20
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 connectedPage 21
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 21
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.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
5 (2008) 1 SCC 125 Page 22
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 22
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 meantPage 23
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 23
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:Page 24
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 24
“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. OmPage 25
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 25
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.”
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
6 (1980) 3 SCC 610Page 26
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 26
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 tenantsP
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 nonregistration
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 suchPage 29
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 29
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 createPage 30
Crl.A. @ SLP(Crl.) No. 8060 of 2015 Etc.Etc. 30
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 India7 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
7 (1971) 1 SCC 85
8 (1992) 4 SCC 363
9 (1996) 6 SCC 44
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.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
10 (2009) 4 SCC 94
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 India11, 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,
11 (1994) 3 SCC 1
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
No comments:
Post a Comment