Case Note & Summary
The present appeal arises from an order of the Chief Metropolitan Magistrate, Esplanade, Mumbai, dated 31.12.2014, rejecting the application of the appellant tenant seeking to stay the execution of an order under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for taking possession of a residential flat in Andheri (West), Mumbai. The property was mortgaged by respondent no. 2 borrower/landlord with respondent no. 1 bank on 20.05.2000 by depositing title deeds to secure credit facilities. When the borrower failed to repay, the bank classified the debt as a Non-Performing Asset and issued a statutory demand notice under Section 13(2) of the SARFAESI Act on 30.04.2011 demanding payment of Rs.10,72,10,106.73. The bank then applied under Section 14 of the SARFAESI Act for possession, which was allowed by the Magistrate on 09.03.2012. The appellant claims to be a tenant of the property since January 2000 based on an oral agreement, and had filed a suit in the Small Causes Court, which granted an interim injunction restraining the landlord from disturbing his possession. The appellant also intervened in the SARFAESI proceedings, but the Magistrate rejected his application, holding that a tenant without a registered instrument is not entitled to possession for more than one year. The appellant appealed to the Supreme Court. The Court examined the scheme of the SARFAESI Act, particularly Section 13(13) which prohibits the borrower from creating any encumbrance after the notice under Section 13(2) is served. The Court held that this extinguishes the mortgagor's right to lease under Section 65A of the Transfer of Property Act, 1882. The Court distinguished the cases of Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. (2014) 6 SCC 1 and Vishal N. Kalsaria v. Bank of India (2016) 3 SCC 762, noting that those cases dealt with tenancies created before the mortgage, whereas in the present case, the tenancy was allegedly created after the mortgage. The Court also noted that the appellant could have availed the remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal but did not do so. The Court dismissed the appeal, upholding the Magistrate's order and directing the appellant to vacate the premises within a specified period.
Headnote
A) SARFAESI Act - Enforcement of Security Interest - Section 14 - Tenant's Rights - The issue was whether a tenant claiming tenancy based on an oral agreement, created after the mortgage but before the Section 13(2) notice, is entitled to protection from eviction under the SARFAESI Act. The Court held that such a tenancy is not protected as the mortgagor's right to lease is extinguished under Section 13(13) of the SARFAESI Act and Section 65A of the Transfer of Property Act, 1882. (Paras 13-14) B) SARFAESI Act - Section 13(13) - Prohibition on creating encumbrance after notice - The Court held that once a notice under Section 13(2) is served on the borrower, he cannot further enter into any contract to create any encumbrance on the property, which extinguishes the right of the mortgagor to lease the property under Section 65A of the Transfer of Property Act, 1882. (Para 13) C) SARFAESI Act - Section 17 - Right to Appeal - The Court noted that the tenant could have availed the remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal, but did not do so. (Para 15) D) Transfer of Property Act, 1882 - Section 65A - Mortgagor's power to lease - The Court held that the mortgagor's power to lease under Section 65A is subject to the provisions of the SARFAESI Act, and once a notice under Section 13(2) is issued, the mortgagor cannot create a valid lease. (Para 13)
Issue of Consideration
Whether a tenant claiming tenancy based on an oral agreement, created after the mortgage but before the Section 13(2) notice, is entitled to protection from eviction under the SARFAESI Act, and whether the law declared in Harshad Govardhan and Vishal N. Kalsaria applies to such facts.
Final Decision
The Supreme Court dismissed the appeal, upholding the order of the Chief Metropolitan Magistrate. The Court held that the appellant tenant's claim of tenancy based on an oral agreement after the mortgage was not protected under the SARFAESI Act. The Court directed the appellant to vacate the premises within a specified period (not mentioned in the provided text).
Law Points
- Tenancy created after mortgage without registered instrument is not protected under SARFAESI Act
- Section 13(13) of SARFAESI Act extinguishes mortgagor's right to lease after notice
- Section 65A of Transfer of Property Act
- 1882
- Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. (2014) 6 SCC 1
- Vishal N. Kalsaria v. Bank of India (2016) 3 SCC 762
