Counsel for the petitioners on the issue of limitation. As already noted,
it is the stand of the petitioners that the application under Section 14
of the SARFAESI Act was filed before the Chief Judicial Magistrate
only on 11.09.2013 and therefore, beyond a period of 3 years from the
date on which the 2nd respondent was aware of the resistance offered
by the petitioners to an attempted dispossession. The petitioners point
to their submissions in the writ petition filed by the 1st respondent as
also the S.A. filed by them before the Debts Recovery Tribunal to
contend that the 2nd respondent was aware, as early as in 2009, of
their objections in the matter. It is argued, therefore, that by virtue of
Article 137 of the Limitation Act, the Section 14 application ought to
have been filed within three years from 2009 and, since it was not, the
said application of the 2nd respondent could not have been
entertained by the learned Magistrate. Persuasive though the
argument may seem at first blush, I'm afraid it cannot be accepted.
Section 36 of the SARFAESI Act that deals with limitation reads as
follows:
"36. Limitation.-No secured creditor shall be entitled to
take all or any of the measures under sub-section (4) of
section 13, unless his claim in respect of the financial
asset is made within the period of limitation prescribed
under the Limitation Act, 1963 (36 of 1963).
20. It will be apparent from a reading of the above provision
that once a claim in respect of a financial asset is made within the
period of limitation prescribed under the Limitation Act, 1963, then
the measure adopted by the secured creditor under Section 13 (4) is
also deemed to be within limitation. This view has been endorsed by a
Division Bench of this Court in the judgment dated 22.08.2012 in
W.A.No.899 of 2011 [E.P.Sreedharan v. Manager, Indian Bank
and Ors.]. A Special Leave Petition preferred against the said
judgment was dismissed by the Supreme Court on 17.02.2014
[S.L.P.Nos.10904-10905/2013]. Further, the decision of this Court in
Sami v. Bank of India - [2011 (3) KLT 554] is authority for the
proposition that the action of a financial institution in approaching the
Magistrate under Section 14 of the SARFAESI Act would itself
constitute a measure under Section 13 (4) of the Act. On the facts of
the instant cases, therefore, since it is not in dispute that the notice
under Section 13 (2) was issued within the period of limitation under
the Limitation Act, 1963, the subsequent measures taken by the 2nd
respondent, including approaching the Magistrate under Section 14 of
the SARFAESI Act, have to be seen as within the period of limitation
prescribed under the SARFAESI Act.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR
TUESDAY, THE 19TH DAY OF JANUARY 2016
WP(C).No. 30016 of 2015 (B)
P.M. KELUKUTTY,
Vs
YOUNG MEN'S CHRISTIAN ASSOCIATION,
A.K.JAYASANKARAN NAMBIAR, J.
-------------------------------
Dated this the 19th day of January, 2016
Citation:AIR 2016 kerala 135
As the issue involved in all these writ petitions is the same, they
are taken up together for consideration and disposed by this common
judgment. For the sake of convenience, the reference to facts and
exhibits is from W.P.(C).No.30016/2015.
2. The petitioners in these writ petitions are tenants in
buildings owned by the 1st respondent. The 1st respondent
constructed the said building, which is a four storeyed building, after
demolishing a two storeyed building that originally stood on the site.
For the purposes of constructing the said building, the 1st respondent
had availed a term loan of Rs.400 Lakhs from the 2nd respondent
bank. The security offered by the 1st respondent, for the loan amounts
advanced to it by the 2nd respondent, was in the form of a mortgage
by deposit of title deeds. Ext.P2 dated 31.12.2004 is the memorandum
of deposit of title deeds. The 1st respondent also entered into Ext.P3
loan agreement dated 27.12.2004, whereby it agreed to repay the 2nd
respondent the said loan amount in installments in the manner
specified in the schedule to the said agreement. Annexure 3 of the
schedule to the said agreement states that towards the term loan of
Rs.4 Crores, a sum of Rs.150 Lakhs has to be paid on receipt of
advance from prospective shop tenants within the time stipulated
therein, and the balance amount has to be paid in 120 equal monthly
installments starting from 6 months from the date of disbursement.
3. The 1st respondent began to lease out various premises
within the building in question to third parties even while the building
was under construction. As a result, there were registered lease deeds
executed by the 1st respondent in favour of various persons, both
prior to and subsequent to, the creation of the mortgage by deposit of
title deeds. There were also certain unregistered lease deeds that
were executed by the 1st respondent, subsequent to the creation of
the mortgage. The 1st respondent, thereafter, occasioned a default in
effecting repayment of the loan amounts to the 2nd respondent and, as
a consequence, the 2nd respondent initiated steps under the
SARFAESI Act, against the secured asset viz. the four storeyed
building, for recovery of the defaulted loan amounts. The said
proceedings culminated in a private sale of the building in question to
one Ahammed Koya.
4. It is relevant to note that the petitioners had, in the
meanwhile, and on coming to know of the proposed sale to Ahammed
Koya, got themselves impleaded in a writ petition that had been filed
by the 1st respondent seeking to interdict the proceedings initiated by
the 2nd respondent bank under the SARFAESI Act. The petitioners
basically wanted an opportunity to redeem the mortgage executed by
the 1st respondent by paying the amounts payable to the 2nd
respondent bank. The writ petition was subsequently dismissed as
infructuous when the private sale took place. The petitioners,
therefore, filed S.A.No.18/2010 before the Debts Recovery Tribunal
challenging the private sale. This S.A. was dismissed by Ext.P18 order
on the ground that the Tribunal did not have the jurisdiction to decide
the claim for redemption of mortgage and subrogation put forward by
the petitioners.
5. The 2nd respondent thereafter, issued a sale certificate of sale
of the property in question and registered the same as Document No
630/1/2013 of the Sub Registrar, Kozhikode on 10.09.2013.
Immediately thereafter, it took steps in terms of Section 14 of the
SARFAESI Act, to obtain vacant possession of the building in question.
The petitioners, therefore, submitted objections before the Chief
Judicial Magistrate, inter alia, pointing out that their tenancy rights in
the building could not be determined without recourse to the
provisions of Section 111 of the Transfer of Property Act. The
litigation that ensued resulted in Exts.P20A and P21 judgments, of a
single bench and Division bench respectively, of this court whereby
this court directed the Chief Judicial Magistrate to consider the
objections raised by the tenants in the building to the application
preferred by the 2nd respondent bank under Section 14 of the
SARFAESI Act. The Chief Judicial Magistrate, thereafter, considered
the matter and by Ext.P26 common order dated 18.08.2015 found that
only those tenants who had obtained tenancy rights before the date of
creation of mortgage would be entitled to a protection from
dispossession and that, the tenants who had obtained tenancy rights
through lease deeds executed subsequent to the creation of the
mortgage, would not be entitled to such protection. In arriving at the
said finding, the learned Magistrate found that Ext.P3 agreement
constituted a mortgage deed, the terms of which expressly prevented
the 1st respondent from executing lease agreements with respect to
the building in question and, further, that the lease agreements
executed subsequent to the creation of the mortgage did not conform
to the nature of leases permitted under Section 65A (2) of the
Transfer of Property Act. Ext.P26 common order of the Chief Judicial
Magistrate is impugned in these writ petitions.
6. I have heard learned Senior Counsel Sri.Sudhi Vasudevan for
the petitioners in all these writ petitions and Sri.E.Narayanan,
Sri.Mohammed Navaz as also Sri.S.Easwaran, the learned counsel
appearing for respondents 1, 2 and 3.
7. The contentions put forth on behalf of the petitioners in these
writ petitions, briefly stated, are as follows:
Ext.P3 agreement is not valid since the 1 st respondent
did not have the necessary permission from the
International YMCA to execute such an agreement. The
agreement is therefore null and void.
Alternatively, the 1 strespondent had the power to
execute lease agreements, and this power was one that
was generally available with any mortgagor and
independent of the powers granted under Section 65A
of the Transfer of Property Act. The lease agreements
entered into between the petitioners and the 1st
respondent were therefore valid and the petitioners
were consequently entitled to protection from
dispossession under Section 14 of the SARFAESI Act.
The contrary intention referred to in Section 65A(3) is
in respect of an intended prohibition, if any, to create a
lease so long as it is expressed in a mortgage deed. It
follows, therefore, that if there is no express
prohibition on the mortgagor to create a lease, then
the provisions of Section 65A will not be attracted.
Reliance is placed on paragraph 17 of the decision of
the Supreme Court in Harshad Govardhan Sondagar
v. International Assets Reconstruction Company
Limited and Others - [(2014) 6 SCC 1].
It is contended, in the alternative, that there is no
requirement of the contrary intention mentioned in
Section 65A (3) being expressed in a mortgage deed. A
contrary intention can be gathered from an express
consent granted in an agreement entered into between
the parties. The general power of a mortgagor to
create a lease was recognised in law even before the
introduction of Section 65A of the TP Act. The Section
does not take away the right of the mortgagee to give
consent to the creation of a lease. Reference is made to
the decision in Kamakshaya Narayan Singh v.
Chohan Ram and another - [AIR 1952 SC 401].
As regards the requirement of registration of a
mortgage deed, it is submitted that a mortgage deed
need not be in writing. An oral arrangement can also
be deemed to be a mortgage deed by adopting a
purposive interpretation by reading the provisions of
Section 58 along with Section 96 of the Act.
Alternatively, for the purposes of Section 65A, an
agreement to create a mortgage can also be seen as a
mortgage deed and in such a case, the requirement of
registration will not apply.
It is further contended that the provisions of Section
49 of the Registration Act clearly indicate that a
non-registration of the mortgage deed itself would
render the mortgage invalid. As Ext.P3 is not
registered, it cannot be seen a valid mortgage deed in
the eyes of law and consequently, a mortgage itself
never came into existence. The document itself can,
however, be relied upon for a collateral purpose of
establishing the consent of the mortgagee under the
document. Reliance is placed on the decisions in Babu
Parasu Kaikadi (Dead) by L.Rs. v. Babu (Dead) by
L.Rs. - [AIR 2004 SC 754] and State of Haryana
and Others v. Navir Singh and Another - [2013
KHC 2518]. The decision in Dipak Kumar Singh
and Another v. Park Street Properties (P) Limited
- [2014 KHC 3373 (Cal)] is relied upon for the
proposition that once a document has been accepted in
evidence before the lower court, the same cannot be
challenged as inadmissible before the Higher Court.
It is submitted that in the private sale entered into
between the mortgagee and the purchaser of the
property, there was an express agreement that the sale
was on "as is where is" basis. This meant that the
mortgagee intended that the tenancies created in the
property would continue notwithstanding the sale. The
mortgagee cannot, therefore, now turn around and
contend that the tenants should be dispossessed. Any
such contention would be hit by the principles of
estoppel. Reliance is placed on the decision in
Mahendra Mahato v. Central Bank of India -
[2015 (1) KLT SN 81 (C.No.100) (Cal)].
It is argued that since the petitioners' induction as a
lessee is accepted by the respondents, the termination
of the lease can only be in the manner contemplated
under the Rent Control Laws. The decision in V.
Dhanapal Chettiar v. Yesodai Ammal - [AIR 1979
SC 1745] is relied upon for contending that the Rent
Control Laws will prevail over the provisions of the TP
Act.
Lastly, by referring to Article 137 of the Limitation Act,
it is contended that the time for making an application
under Section 14 of the SARFAESI Act is three years
from the date of arising of the cause of action. It is
contended that for reckoning the starting point of
limitation, the date on which the necessity arose to
seek the assistance of court is relevant. The resistance
by the petitioners to the attempt at dispossession was
evident in 2009, when the writ petition that led to
Ext.P31 judgment was filed and, further, in 2010, when
the petitioners approached the DRT through an S.A.
The application under Section 14 was preferred only
on 11.09.2013, and was therefore, barred by limitation.
It is pointed out that this issue, although raised in the
objection filed before the Magistrate, was not
considered by him in Ext.P26 common order.
8. The above contentions of the learned Senior Counsel for the
petitioners are vehemently resisted by counsel for the respondents
who would contend as follows:-
The issue regarding validity of the mortgage, raised
by the petitioners, is hit by the principles of
constructive res judicata. Reliance is placed on the
provisions of Section 11 of the CPC and, in
particular, Explanation IV thereto. It is also pointed
out that the petitioners had accepted the creation of
mortgage in the earlier writ petition filed before this
court.
As regards the submissions made on the applicability
of Section 65A (3) of the Transfer of Property Act, it
is submitted that paragraph 17 of the decision of the
Supreme Court in Harshad Govardhan Sondagar
v. International Assets Reconstruction Company
Limited and Others - [(2014) 6 SCC 1] is a
complete answer to the submissions on behalf of the
petitioners.
On the issue of whether Ext.P3 can be treated as a
mortgage deed, it is contended that the said
document is only a loan agreement that was marked
as such by the Magistrate. For the said document to
be a mortgage deed, it should be an instrument that
effects a transfer of the property. In Ext.P3
agreement, there is no stipulation with regard to a
transfer of property. It only speaks of the creation of
a charge on fixed assets but does not effect a
transfer of property. Reliance is placed on the
decision in Bank of India v. Abhay D. Narottam
and Others - [(2005) 11 SCC 520] to contend that
a mere undertaking to create a mortgage is not
sufficient to create any interest in immovable
property. It is also argued that the said document is
not registered and since the collateral purpose, for
which the document is sought to be used by the
petitioners, is for styling it as a mortgage deed, the
proviso to Section 49 would not come to the aid of
the petitioners and the unregistered document
cannot be relied upon for any purpose. Reliance is
placed on the decisions in State of Haryana and
Others v. Narvir Singh and Another - [(2014) 1
SCC 105] and Indus Towers Ltd. v. Sub
Inspector of Police - [2013 (3) KLT 828]. It is
reiterated that merely by giving consent, the
mortgagee cannot be seen as contracting out of the
provisions of Section 65A (1) & (2) and that the
contrary intention must be expressed in the
mortgage deed. Reliance is placed on the decision in
Public Trustee v. Lawrence - [(1911-1913) All.
E.R. Rep. 670].
Countering the submissions on the issue of
limitation, it is submitted that Section 36 of the
SARFAESI Act makes the Limitation Act applicable
only for the purposes of Section 13 (4) of the
SARFAESI Act. The said provision, read with Section
29 of the Limitation Act, would indicate that it is the
period of limitation in the special statute that would
prevail. Reliance is placed on the decision in
Commissioner of Customs and Central Excise v.
Hongo India Private Limited and Another -
[(2009) 5 SCC 791]. It is contended that in such
cases, the period of limitation is 12 years from the
date of creation of mortgage as provided under
Article 62 of the Limitation Act. Section 14
proceedings being post Section 13 (4) actions, the
provisions of Section 36 will ensure that, so long as
Section 13 (2) proceedings are initiated within 12
years from the date of creation of the mortgage,
Section 14 proceedings will be treated as within
time. Reliance is placed on the decisions in
Kottakkal Co-op. Urban Bank Ltd. v.
Balakrishnan - [2008 (2) KLT 456] and
Sreedharan v. Indian Bank - [2011 (2) KLT
627]. Alternatively, it is contended that, even if the
limitation period is taken as 3 years under Article
137, which governs applications made to court, then
in the instant case the notice under Section 13 (2)
was issued on 16.11.2007, which was well within the
period of three years from the date of arising of the
cause of action.
9. On a consideration of the facts and circumstances of the case
and the submissions made across the bar, I find that the sustainability
of Ext.P26 common order dated 18.08.2015 of the Chief Judicial
Magistrate is the issue that arises for consideration in these cases.
The learned Magistrate found that only those tenants who had
obtained tenancy rights before the date of creation of mortgage would
be entitled to a protection from dispossession and that, the tenants
who had obtained tenancy rights through lease deeds executed
subsequent to the creation of the mortgage, would not be entitled to
such protection. The petitioners in these writ petitions are all persons
who had entered into lease agreements with the 1st respondent,
subsequent to Ext.P3 agreement entered into between the 1st and 2nd
respondents, as also subsequent to 31.12.2004, the date on which a
mortgage by deposit of title deeds was created by the 1st respondent
in favour of the 2nd respondent. The judgment of the Supreme Court
in Harshad Govardhan Sondagar v. International Assets
Reconstruction Company Limited and Others - [(2014) 6 SCC 1]
recognises the rights of tenants under post mortgage leases to resist
an action for dispossession subject to certain conditions. The following
extracts from the said decision may now be noted;
17. After the mortgage of an immovable property
is created by the borrower in favour of a secured creditor,
the right of the borrower to lease a mortgaged property
is regulated by Section 65-A of the Transfer of Property
Act. Section 65-A of the Transfer of Property Act is
extracted hereinbelow:
"65-A. Mortgagor's power to lease.--(1) Subject
to the provisions of sub-section (2), a mortgagor, while
lawfully in possession of the mortgaged property, shall
have power to make leases thereof which shall be
binding on the mortgagee.
(2)(a) Every such lease shall be such as would be
made in the ordinary course of management of the
property concerned, and in accordance with any local
law,custom or usage.
(b) Every such lease shall reserve the best rent that
can reasonably be obtained, and no premium shall be
paid or promised and no rent shall be payable in advance.
(c) No such lease shall contain a covenant for
renewal.
(d) Every such lease shall take effect from a date
not later than six months from the date on which it is
made.
(e) In the case of a lease of buildings, whether
leased with or without the land on which they stand, the
duration of the lease shall in no case exceed three years,
and the lease shall contain a covenant for payment of the
rent and condition of re-entry on the rent not being paid
within a time therein specified.
(3) The provisions of sub-section (1) apply only if
and as far as a contrary intention is not expressed in the
mortgage deed; and the provisions of sub-section (2) may
be varied or extended by the mortgage deed and, as so
varied and extended, shall, as far as may be, operate in
like manner and with all like incidents, effects and
consequences, as if such variations or extensions were
contained in that sub-section."
Thus, sub-section (1) of Section 65-A of the Transfer of
Property Act states that the mortgagor has the power to
make lease of a mortgaged property while he is in lawful
possession of the same subject to the provisions of sub-
section (2) of Section 65-A of the Transfer of Property Act
and such lease is binding on the mortgagee. Sub-section
(3) of Section 65-A further provides that such a power is
available with the mortgagor to make a lease of the
mortgaged property only if and as far as a contrary
intention is not expressed in the mortgage deed. Thus, so
long as the mortgage deed does not prohibit a mortgagor
from making a lease of the mortgaged property and so
long as the lease satisfies the requirements of sub-section
(2) of Section 65-A, a lease made by a borrower as a
mortgagor will not only be valid but is also binding on the
secured creditor as a mortgagee.
18. We may now consider whether the provisions
of the SARFAESI Act have the effect of terminating these
valid leases made by the borrower or the mortgagor
made in accordance with the provisions of the Transfer of
Property Act. Section 35 of the SARFAESI Act, on which
the High Court has placed reliance in Trade Well as well
as in the impugned judgment is reproduced hereinbelow:
"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"
Section 35 of the SARFAESI Act, therefore, provides that
the provisions of the SARFAESI Act shall have effect,
notwithstanding anything inconsistent therewith
contained in any other law for the time being in force.
Thus, if there is any provision in the SARFAESI Act and if
there is any provision in any other law which is
inconsistent therewith, the provision of the SARFAESI
Act will have effect and not the provision of any other law.
19. The only section in the SARFAESI Act which
confers a statutory right on the secured creditor to take
possession of the secured asset and enforce the secured
asset for the realisation of the secured debt is Section 13.
We will, therefore, have to find out whether there is any
provision in Section 13 of the SARFAESI Act which is
inconsistent with the right of a borrower or a mortgagor
to make a lease in accordance with the provisions of the
Transfer of Property Act and the corresponding right of a
lessee to remain in possession of the property leased out
to him during the period of a lease.
20. xxxxx
21. When we read the different provisions of Section
13 of the SARFAESI Act extracted above, we find that
sub-section (4) of Section 13 provides that in case the
borrower fails to discharge his liability in full within
sixty days from the date of notice, as provided in sub-
section (2) of Section 13 of the SARFAESI Act, the
secured creditor may take recourse to one or more of the
measures mentioned therein to recover his secured debt.
One of the measures mentioned in clause (a) in
sub-section (4) of Section 13 of the SARFAESI Act is to
take possession of the secured assets of the borrower
including the right to transfer by way of lease. Where,
however, the lawful possession of the secured asset is
not with the borrower, but with the lessee under a valid
lease, the secured creditor cannot take over possession
of the secured asset until the lawful possession of the
lessee gets determined. There is, however, no mention in
sub-section (4) of Section 13 of the SARFAESI Act that a
lease made by the borrower in favour of a lessee will
stand determined on the secured creditor deciding to
take any of the measures mentioned in Section 13 of the
said Act. Sub-section (13) of Section 13 of the SARFAESI
Act, however, provides that after receipt of notice
referred to in sub-section (2) of Section 13 of the
SARFAESI Act, no borrower shall lease any of his secured
assets referred to in the notice, without the prior written
consent of the secured creditor. This provision in sub-
section (13) of Section 13 of the SARFAESI Act and the
provisions of the Transfer of Property Act enabling the
borrower or the mortgagor to make a lease are
inconsistent with each other. Hence, sub-section (13) of
Section 13 of the SARFAESI Act will override the
provisions of Section 65-A of the Transfer of Property Act
by virtue of Section 35 of the SARFAESI Act, and a lease
of a secured asset made by the borrower after he
receives the notice under sub-section (2) of Section 13
from the secured creditor intending to enforce that
secured asset will not be a valid lease.
36. We may now consider the contention of the
respondents that some of the appellants have not
produced any document to prove that they are bona fide
lessees of the secured assets. We find that in the cases
before us, the appellants have relied on the written
instruments or rent receipts issued by the landlord to
the tenant. Section 107 of the Transfer of Property Act
provides that a lease of immovable property from year to
year, or for any term exceeding one year or reserving a
yearly rent, can be made "only by a registered
instrument" and all other leases of immovable property
may be made either by a registered instrument or by oral
agreement accompanied by delivery of possession.
Hence, if any of the appellants claim that they are
entitled to possession of a secured asset for any term
exceeding one year from the date of the lease made in his
favour, he 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."
10. The issue that arises for consideration, therefore, is
whether the petitioners can be treated as tenants under post
mortgage leases who are entitled to a protection from dispossession.
The power of a mortgagor, who retains possession of the mortgaged
property, to create leases, is recognised by Section 65A of the
Transfer of Property Act. The said provision reads as under;
[65A. Mortgagor's power to lease.-(1) Subject to the
provisions of sub section (2), a mortgagor, while lawfully in
possession of the mortgaged property shall have power to make
leases thereof which shall be binding on the mortgagee.
(2) (a) Every such lease shall be such as would be made
in the ordinary course of management of the property
concerned, and in accordance with any local law, custom or
usage,
(b) Every such lease shall reserve the best rent that can
reasonably be obtained, and no premium shall be paid or
promised and no rent shall be payable in advance,
(c) No such lease shall contain a covenant for renewal,
(d) Every such lease shall take effect from a date not
later than six months from the date on which it is made,
(e) In the case of a lease of buildings, whether leased
with or without the land on which they stand, the duration of
the lease shall in no case exceed three years and the lease shall
contain a covenant for payment of the rent and a condition of
re-en try on the rent not being paid with a time therein
specified.
(3) The provisions of sub-section (1) apply only if and as
far as a contrary intention is not expressed in the mortgage-
deed; and the provisions of sub section (2) may be varied or
extended by the mortgage-deed and, as so varied and extended,
shall, as far as may be, operate in like manner and with all like
incidents, effects and consequences, as if such variations or
extensions were contained in that sub-section.]
11. It will be seen from a reading of the above provision that it
is one that is designed to protect the interests of the mortgagee,
inter alia in a mortgage created by deposit of title deeds, by
permitting the mortgagor, who retains possession of the immovable
property, to create only such leases as do not prejudice the right of
the mortgagee to proceed against the property in the event of the
mortgagor not paying the amounts due to him. The power to create
leases is therefore made subject to the provisions of sub-section 2,
which stipulates the conditions that must necessarily be incorporated
in the leases that are so created. The provisions of sub-section (3),
however, recognise a power in the mortgagee to permit a mortgagor
to create leases that are not hedged in by the conditions specified in
sub-section (2), with the rider that such a contrary intention must be
found expressed in a mortgage deed and, when so expressed, will
operate to extend or vary the terms of the mortgage entered into
between the parties.
12. In the instant cases, de hors Ext.P3 agreement, the lease
agreements under which the petitioners herein obtained their tenancy
rights, are post mortgage leases that do not satisfy the requirement of
Section 65A of the Transfer of Property Act, as rightly found by the
Chief Judicial Magistrate in Ext.P26 common order. Consequently, the
petitioners would not ordinarily be entitled to the protection from
dispossession. This is because the judgment of the Supreme Court in
Harshad Govardhan's case (Supra) has interpreted the provisions
of the SARFAESI Act as recognizing only such post mortgage leases
as conform to the requirements of Section 65 A, and have been
created prior to the initiation of proceedings under Section 13 (2) of
the SARFAESI Act, as entitled to a protection from dispossession
under Section 14 of the SARFAESI Act.
13. The question then arises as to whether Ext.P3 agreement
could be construed as a mortgage deed and, if so, whether the terms
of the said deed contain an express permission by the mortgagee to
the mortgagor to create leases that were not hedged in by the
conditions stipulated in sub-section (2) of Section 65A of the Transfer
of Property Act. Such an enquiry is necessitated since the petitioners
contend that the lease agreements that conferred tenancy rights on
them were entered into before a notice under Section 13 (2) was
served on the 1st respondent mortgagor and Ext.P3 agreement
contains a contrary intention with regard to the nature of leases that
could be created by the 1st respondent mortgagor. It is contended,
therefore, that the lease agreements in their case were valid and not
hit by the provisions of Section 65A (2).
14. I find from a reading of the clauses in Ext.P3 agreement,
especially clause 3 of the agreement, read with Appendix III thereto,
that the agreement between the 1st and 2nd respondent did envisage
the creation of tenancy rights in the building in question, as the
specific terms of repayment clearly stipulate that repayments should
be effected utilizing the advance amounts received from prospective
tenants. The said clause, when read with clause 3 of the agreement,
must be seen as permitting the entering into of lease agreements by
the mortgagor. Consequently, Ext.P3 agreement can be said to have
contained the expression of a contrary intention for the purposes of
Section 65 A (3) of the Transfer of Property Act, though not in a valid
mortgage deed. The finding to the contrary in Ext.P26 common order
of the Chief Judicial Magistrate is therefore factually and legally
incorrect.
15. The learned Magistrate, however, finds that Ext.P3 is a
mortgage deed. While there is no discussion in the order to support
such a finding, it is relevant to note that Ext.P3 does not effect a
transfer of the interest in respect of the property from the 1st
respondent in favour of the 2nd respondent. As already noted, the said
agreement was entered into on 27.12.2004 and it was only on
31.12.2004 that a mortgage was created by deposit of title deeds. No
doubt, it could be argued that, the inter se rights of the mortgagor
and mortgagee were spelt out in Ext.P3 agreement and, on account of
its proximity in time with the creation of a mortgage by deposit of title
deeds, it ought to be seen as a mortgage deed. Such an argument
would find support in the decision of the Supreme Court in Rachpal
Mahraj v. Bhagwandas Daruka - [AIR 1950 SC 272], wherein, at
para 4 it is observed as follows:
"4. A mortgage by deposit of title deeds is a form of
mortgage recognised by Section 58(f) of the TP Act, which
provides that it may be effected in certain towns (including
Calcutta) by a person `delivering to his creditor or his agent
documents of title to immovable property with intent to
create a security thereon'. That is to say, when the debtor
deposits with the creditor the title deeds of his property with
intent to create a security,the law implies a contract between
the parties to create a mortgage, and no registered
instrument is required under Section 59 as in other forms of
mortgage. But if the parties choose to reduce the contract to
writing, the implication is excluded by their express bargain,
and the document will be the sole evidence of its terms. In
such a case the deposit and the document both form integral
parts of the transaction and are essential ingredients in the
creation of the mortgage. As the deposit alone is not intended
to create the charge and the document, which constitutes the
bargain regarding the security, is also necessary and operates
to create the charge in conjunction with the deposit, it
requires registration under Section 17 of the Registration
Act, 1908, as a non-testamentary instrument creating an
interest in immovable property, where the value of such
property is one hundred rupees and upwards. The time
factor is not decisive. The document may be handed over to
the creditor along with the title deeds and yet may not be
registrable."
16. The said argument would, however, be of no assistance to
the petitioners herein because a mortgage deed, to be valid, has to be
registered in terms of Section 17 of the Registration Act and, it is not
in dispute in the instant case that Ext.P3 agreement is not a
registered document. The effect of non -registration of a document
that is compulsorily registrable is clearly spelt out in Section 49 of the
Registration Act, which reads as follows:
"49. Effect of non-registration of documents
required to be registered.- No document required by
Section 17 or by any provision of the Transfer of
Property Act,1882 (4 of 1882) to be registered shall-
a) affect any immovable property comprised
therein, or
b) confer any power to adopt, or
c) be received as evidence of any transaction
affecting such property or conferring such power,
unless it has been registered:
Provided that an unregistered document affecting
immovable property and required by this Act or the
Transfer of Property Act, 1882 (4 of 1882), to be
registered may be received as evidence of a contract in a
suit for specific performance under Chapter II of the
Specific Relief Act, 1877 (3 of 1877), or as evidence of
any collateral transaction not required to be effected by
registered instrument."
17. Further, in the decision of the Supreme Court in United
Bank of India Ltd v. Lekharam Sonoram & Co. - [AIR 1965 SC
1591], the possibility of relying on such a document as evidence was
negated in the following words;
"7. ... It is essential to bear in mind that the essence
of a mortgage by deposit of title deeds is the actual
handing over by a borrower to the lender of documents of
title to immovable property with the intention that those
documents shall constitute a security which will enable
the creditor ultimately to recover the money which he has
lent. But if the parties choose to reduce the contract to
writing, this implication of law is excluded by their
express bargain, and the document will be the sole
evidence of its terms. In such a case the deposit and the
document both form integral parts of the transaction and
are essential ingredients in the creation of the mortgage.
It follows that in such a case the document which
constitutes the bargain regarding security requires
registration under Section 17 of the Registration Act,
1908, as a non-testamentary instrument creating an
interest in immovable property, where the value of such
property is one hundred rupees and upwards. If a
document of this character is not registered it cannot be
used in the evidence at all and the transaction itself
cannot be proved by oral evidence either."
18. The inescapable conclusion, therefore, is that while it may
be possible to contend that Ext.P3 agreement contains within it an
express consent by the 2nd respondent, to the creation of leases by the
1st respondent, Ext.P3 agreement cannot be treated as a mortgage
deed for the purposes of Section 65A (3) of the Transfer of Property
Act. Consequently, the petitioner cannot be heard to contend that the
mortgagee had expressly consented to the creation of leases contrary
to the provisions of sub-section (2) of Section 65A. This is more so
because I am of the view that the contrary intention, if any, must be
expressed in a mortgage deed and cannot be inferred from other
circumstances or conduct of the mortgagee. The arguments to the
contrary advanced by the learned Senior counsel for the petitioners,
are therefore, rejected. I also do not find any substance in the
contentions of the petitioner on the validity of Ext.P3 agreement
because the petitioners had accepted the said transaction in earlier
proceedings and such a contention would not be available to them at
this stage on the principles of constructive res judicata. I hold,
therefore, that the petitioners are not entitled to any protection from
dispossession, in proceedings under the SARFAESI Act initiated at the
instance of the 2nd respondent bank.
19. I must now turn to the contentions of the learned Senior
Counsel for the petitioners on the issue of limitation. As already noted,
it is the stand of the petitioners that the application under Section 14
of the SARFAESI Act was filed before the Chief Judicial Magistrate
only on 11.09.2013 and therefore, beyond a period of 3 years from the
date on which the 2nd respondent was aware of the resistance offered
by the petitioners to an attempted dispossession. The petitioners point
to their submissions in the writ petition filed by the 1st respondent as
also the S.A. filed by them before the Debts Recovery Tribunal to
contend that the 2nd respondent was aware, as early as in 2009, of
their objections in the matter. It is argued, therefore, that by virtue of
Article 137 of the Limitation Act, the Section 14 application ought to
have been filed within three years from 2009 and, since it was not, the
said application of the 2nd respondent could not have been
entertained by the learned Magistrate. Persuasive though the
argument may seem at first blush, I'm afraid it cannot be accepted.
Section 36 of the SARFAESI Act that deals with limitation reads as
follows:
"36. Limitation.-No secured creditor shall be entitled to
take all or any of the measures under sub-section (4) of
section 13, unless his claim in respect of the financial
asset is made within the period of limitation prescribed
under the Limitation Act, 1963 (36 of 1963).
20. It will be apparent from a reading of the above provision
that once a claim in respect of a financial asset is made within the
period of limitation prescribed under the Limitation Act, 1963, then
the measure adopted by the secured creditor under Section 13 (4) is
also deemed to be within limitation. This view has been endorsed by a
Division Bench of this Court in the judgment dated 22.08.2012 in
W.A.No.899 of 2011 [E.P.Sreedharan v. Manager, Indian Bank
and Ors.]. A Special Leave Petition preferred against the said
judgment was dismissed by the Supreme Court on 17.02.2014
[S.L.P.Nos.10904-10905/2013]. Further, the decision of this Court in
Sami v. Bank of India - [2011 (3) KLT 554] is authority for the
proposition that the action of a financial institution in approaching the
Magistrate under Section 14 of the SARFAESI Act would itself
constitute a measure under Section 13 (4) of the Act. On the facts of
the instant cases, therefore, since it is not in dispute that the notice
under Section 13 (2) was issued within the period of limitation under
the Limitation Act, 1963, the subsequent measures taken by the 2nd
respondent, including approaching the Magistrate under Section 14 of
the SARFAESI Act, have to be seen as within the period of limitation
prescribed under the SARFAESI Act. Thus, although it might be a fact
that the issue of limitation, though raised by the petitioners before the
Magistrate, was not considered by him in Ext.P26 common order, for
the reasons stated above, I do not see any merit in the said contention
and therefore do not deem it necessary to remit the matter to the
learned Magistrate for an examination of the said issue.
The writ petitions are thus dismissed by holding as follows:
1. The post mortgage lease agreements that
conferred tenancy rights on the petitioners in the instant
cases, though created before the initiation of proceedings
under Section 13 (2) of the SARFAESI Act, cannot be
seen as valid leases on account of the fact that they do
not conform to the conditions stipulated in Section 65A(2)
of the Transfer of Property Act.
2. Ext.P3 agreement cannot be seen as a valid
registered mortgage deed, the terms of which would
operate to express a contrary intention for the purposes
of sub-section (3) of Section 65A of the Transfer of
Property Act.
3. The proceedings initiated by the 2nd respondent
under Section 14 of the SARFAESI Act, for dispossession
of the petitioners from the building in question, are not
barred by limitation.
4. The petitioners are consequently, not entitled to
any protection against dispossession as envisaged in the
judgment of the Supreme Court in the Harshad
Govardhan's case (Supra).
A.K.JAYASANKARAN NAMBIAR
JUDGE
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