IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.J.CHELAMESWAR & THE HONOURABLE MR. JUSTICE K.T.SANKARAN & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN FRIDAY, THE 23RD SEPTEMBER 2011 / 1ST ASWINA 1933 WP(C).No. 14496 of 2008(A) PETITIONERS: 1. N.P.PUSHPANGADAN,S/O.PRABHAKARAN, NADICHIRAYIL,CMC 26, CHERTHALA-688 524. 2. K.K.NATESAN,S/O.KESAVAN, KALITHATTUNKAL,CMC 14, CHERTHALA-688 524. 3. S.P.BIJU,RESIDING AT BISMI, MUTTAKKAD P.O.,THIRUVANANTHAPURAM. 4. V.R.SIVADASAN,S/O.RAGHAVAN, KIZHAKKEVELI,CMC 18, CHERTHALA-688 524. 5. MINI CHANDRAN,W/O.DR.K.R.VASUDEVAN, KUNNUMPURATHU VEEDU,MUHAMMA P.O., CHERTHALA. 6. A.SINDHU,W/O.JAYA PRAKASH, UDAYAGIRI,MARUTHORVATTOM P.O., CHERTHALA. BY ADV. SRI.JAWAHAR JOSE RESPONDENTS: 1. THE FEDERAL BANK LTD., REP.BY ITS BRANCH MANAGER, CHERTHALA BRANCH,CHERTHALA, ALAPPUZHA DISTRICT. 2. R.JAYASANKAR,S/O.RADHAKRISHNAN, SANKAR VILLA,CMC 10, CHERTHALA, ALAPPUZHA DISTRICT. 3. LALITHAMBIKA,W/O.LATE RADHAKRISHNAN, SANKAR VILLA,CMC 10, CHERTHALA, ALAPPUZHA DISTRICT. 4. JAYALAKSHMI,D/O.LALITHAMBIKA, SANKAR VILLA,CMC 10, CHERTHALA, ALAPPUZHA DISTRICT. 5. CHARLES, S/O.P.T.CHERIAN, PALATHARA FASHION JEWELLERS, A.S.ROAD,CHERTHALA,ALAPPUZHA DISTRICT. 6. P.K.VIJAYAKUMAR, ADVOCATE-COMMISSIONER, ALAPPUZHA-688 013. R1 BY ADV.SRI.MOHAN JACOB GEORGE SMT.P.V.PARVATHI SMT.REENA THOMAS SRI.L.RAM MOHAN R5 BY ADV. SRI.A.KRISHNAN R6 BY ADV.SRI.GRASHIOUS KURIAKOSE SRI.B.PRAMOD R2 BY ADV. SRI.T.K.VIPINDAS R3 BY ADV. SMT.P.K.PRIYA SRI.K.M.HASHIR SRI.K.V.SREE VINAYAKAN THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 20/09/2011, THE COURT ON 23/09/2011 DELIVERED THE FOLLOWING: APPENDIX PETITIONERS' EXHIBITS: EXT.P1 TRUE COPY OF THE NOTICE DATED 5.5.2008 ISSUED BY THE ADVOCATE COMMISSIONER. EXT.P2 TRUE COPY OF REGISTRATION CERTIFICATE DATED 4.10.1986 ISSUED BY THE ASST. LABOUR OFFICER, CHERTHALA. EXT.P3 TRUE COPY OF THE RENT RECEIPT DATED 27.12.2005 ISSUED BY THE THIRD RESPONDENT. EXT.P4 TRUE COPY OF CONSENT DEED DATED 1.2.2005 EXECUTED BY THE THIRD RESPONDENT. EXT.P5 TRUE COPY OF RENT RECEIPT DATED 8.11.2007 ISSUED BY THE THIRD RESPONDENT. EXT.P6 TRUE COPY OF RENT RECEIPT DATED 15.3.2000 ISSUED TO THE THIRD PETITIONER. EXT.P7 TRUE COPY OF RENT RECEIPT DATED 20.4.2006 ISSUED TO THE THIRD PETITIONER. EXT.P8 TRUE COPY OF LICENSE FEE RECEIPT ISSUED BY THE CHERTHALA MUNICIPALITY IN THE NAME OF THE THIRD PETITIONER. EXT.P9 TRUE COPY OF REGISTRATION CERTIFICATE ISSUED TO THE FOURTH PETITIONER DATED 14.1.98 BY THE ASST. LABOUR OFFICER, CHERTHALA. EXT.P10 TRUE COPY OF LICENSE FEE RECEIPT DATED 1.12.90 ISSUED BY THE CHERTHALA MUNICIPALITY. EXT.P11 TRUE COPY OF REGISTRATION CERTIFICATE DATED 27.12.99 ISSUED BY THE ASST. LABOUR OFFICER, CHERTHALA. EXT.P12 TRUE COPY OF REGISTRATION CERTIFICATE DATED 1.6.2005 ISSUED BY THE ASST. LABOUR OFFICER, CHERTHALA. EXT.P13 TRUE COPY OF LICENSE FEES RECEIPT DATED 6.3.1986 ISSUED BY THE CHERTHALA MUNICIPALITY. EXT.P14 TRUE COPY OF PROFESSION TAX RECEIPT DATED 6.3.2007 ISSUED BY THE CHERTHALA MUNICIPALITY. RESPONDENTS' EXHIBITS: EXT.R1(a) COPY OF THE INTERIM ORDER DATED 24.11.2006 IN W.P.(C) NO.31273 OF 2006. EXT.R1(b) COPY OF THE ORDER DATED 2.3.2007 IN W.P.(C) NO.31273/2006. EXT.R1(c) COPY OF THE ORDER DATED 12.6.2007 IN S.A.NO.33 OF 2007 PASSED BY THE DRT, ERNAKULAM. EXT.R1(d) COPY OF THE JUDGMENT DATED 25.10.2007 IN W.P.(C) NO.31708 OF 2007. EXT.R1(e) COPY OF THE ORDER DATED 26.2.2008 IN I.A.NO.23 OF 2008 IN W.A.NO.2587 OF 2007. EXT.R1(f) COPY OF THE SECTION 13(2) NOTICE. EXT.R1(g) COPY OF THE POSSESSION NOTICE DATED 2.11.2006. EXT.R1(h) COPY OF THE POSSESSION NOTICE PUBLISHED IN THE KERALA KAUMUDI DATED 20.4.2007. EXT.R1(i) COPY OF THE POSSESSION NOTICE PUBLISHED IN THE MALAYALA MANORAMA DATED 20.4.2007. EXT.R1(j) COPY OF THE SALE NOTICE DATED 7.5.2007 PUBLISHED IN THE MATHRUBHUMI DAILY. //TRUE COPY// AHZ/ J.CHELAMESWAR, C.J., K.T.SANKARAN & P.N.RAVINDRAN, JJ. ------------------------------------------------------------- W.P.(C) NO. 14496 OF 2008 ------------------------------------------------------------- Dated this the 23rd day of September, 2011 JUDGMENT K.T.Sankaran, J. When this Writ Petition along with another Writ Petition came up for hearing before another Bench of this Court, the following questions of law were framed for consideration: (i) Whether the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘Securitisation Act’) has an overriding effect over the provisions of the Kerala Buildings (Lease and Rent Control) Act, 1965 ? and (ii) Whether a tenant under the provisions of the Kerala Buildings (Lease and Rent Control) Act of a premise which is the subject matter of securitisation proceedings can be summarily evicted under Sections 13 (4) and 14 of the Securitisation Act irrespective of the protection available to him under the Rent Control Act ? 2. According to the petitioners, they are tenants in a line building consisting of six rooms in Ward No.13 of Cherthala Municipality. The building belonged to the predecessor in interest of respondents 2 to 4. The second respondent availed a loan from the first respondent Bank in the year 2004. It is stated that respondents 2 to 4 have created security W.P.(C). NO.14496 of 2008 :: 2 :: interest over the property as collateral security for the loan availed from the Bank. The loan was classified as non-performing assets (NPA) and the first respondent Bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “the Securitisation Act”). The Bank filed a petition under Section 14 of the Securitisation Act before the Court of the Chief Judicial Magistrate, Alappuzha, who passed an order to take possession of the property. A Commissioner was appointed for that purpose. The Commissioner issued Ext.P1 notice to the tenants in the building stating that he would visit the property on 9.5.2008 to take possession. The tenants were directed to give vacant possession. 3. According to the petitioners, they are tenants in the building and they are entitled to protection from eviction under the provisions of the Kerala Buildings (Lease and Rent Control) Act, 1965 (hereinafter referred to as “the Rent Control Act”) and also under the Transfer of Property Act. It is stated that the father of the first petitioner had taken a building in the property on lease, about seventy years back, from the original landlord. Later, the property was purchased by the predecessor in interest of respondents 2 to 4. The landlord filed a petition under Section 11(4)(iv) of the Rent Control Act, on the ground of reconstruction of the building. That petition was allowed and the present building with six rooms was W.P.(C). NO.14496 of 2008 :: 3 :: reconstructed in the year 1986. The first petitioner was inducted in 1986 on a monthly rental of `150/-, which was subsequently enhanced to `400/-. The first petitioner is conducting a bakery and tea stall in the building. The second petitioner is a tenant in respect of another room since 1991 and he is conducting a photo studio on a rental of `300/-, which was subsequently enhanced to `500/-. The third petitioner took on lease another room in the line building in 1996 and he is conducting a watch repair shop on a rental of `300/-, which was subsequently enhanced to `500/-. The fourth petitioner is a tenant in respect of another room since 1988 on a rental of `300/-, which was subsequently enhanced to `500/-. He is conducting a store under the name and style “Anitha Lady Store” in that room. The fifth petitioner took the room on rent in 1986 and he is conducting a medical store under the name and style “Rasheed Medicals” on a rental of `350/-, which was subsequently enhanced to `500/-. The sixth petitioner took the southernmost room from respondents 2 to 4 in the year 2000 and he is conducting a tailoring shop therein. Exts.P2 to P14 documents were produced by the petitioners to prove that they are tenants in the building. They contended that no notice was issued to them in any proceeding except the notice issued by the Commissioner. 4. According to the petitioners, since they were tenants at the time W.P.(C). NO.14496 of 2008 :: 4 :: of creation of the mortgage, their tenancy right would not be affected by any of the measures taken under Section 13 (4) of the Securitisation Act. The leasehold right of the petitioners was not terminated in accordance with law and it could be terminated only by an order of eviction under the provisions of the Rent Control Act. The prayer in the Writ Petition is to quash Ext.P1 notice by the issue of a writ of certiorari and to declare that the secured creditor having not obtained the leasehold right, the petitioners are not liable to be evicted by the secured creditor without recourse to the due process of law. 5. In the counter affidavit, the first respondent contended as follows: The writ petitioners are set up by respondents 2 to 4 to delay the proceedings under the Securitisation Act. Respondents 2 to 4 filed W.P.(C) No.31273 of 2006 challenging the notice issued for taking possession and the notice issued for sale under Section 13(4) of the Securitisation Act. The writ petitioners therein undertook to settle the liability to the bank. An interim order of stay was passed on 24.11.2006. The interim order was later extended by six months on condition that the writ petitioners therein should deposit `2.5 lakhs per month commencing from March, 2007. It was held that in case of default, the interim order would stand vacated. Respondents 2 to 4 (writ petitioners in W.P.(C) No.31273 of 2006) committed default. They also moved the Debts W.P.(C). NO.14496 of 2008 :: 5 :: Recovery Tribunal in Securitisation Application No.33 of 2007. That application was disposed of by Ext.R1(c) order dated 12.6.2007 granting time to the applicants till 26.10.2007 to settle the liability. Confirmation of sale was stayed till 26.10.2007. Respondents 2 to 4 did not settle the liability as agreed. Instead, they filed W.P.(C)No.31708 of 2007 seeking enlargement of time. The said Writ Petition was dismissed on 25.10.2007 (Ext.R1(d)). Respondents 2 to 4 challenged the judgment of the learned single Judge in W.A.No.2587 of 2007, which was disposed of by Ext.R1 (e) judgment dated 26.2.2008 granting two more months' time to respondents 2 to 4 herein to settle the entire liability to the bank. The defaulters having failed in all their attempts to protract the proceedings under the Securitisation Act, they have now set up the petitioners to further delay the matter. The first respondent contended that the petitioners were inducted only after creation of mortgage in favour of the bank and even after sale of the property to the fifth respondent. It was contended that the notice under Section 13(4) was affixed in the property and it was also published in the newspapers. It was further contended that before the sale also, notice was published in two newspapers. The remedy of the petitioners, if any, is to file an appeal under Section 17(1) of the Securitisation Act. It is also contended that the documents produced by the writ petitioners are fabricated. W.P.(C). NO.14496 of 2008 :: 6 :: 6. The first respondent also contended that the provisions of the Securitisation Act have overriding effect over the provisions of the Rent Control Act and the Transfer of Property Act. 7. On a consideration of the facts and circumstances of the case, we are not inclined to hold, prima facie, that the writ petitioners were inducted into possession of the building after creation of the mortgage in favour of the bank. The documents produced by the petitioners, prima facie, indicate that they were tenants in the buildings even before the date of creation of the mortgage in favour of the bank in 2001. 8. The Securitisation Act defines the terms “secured asset”, “secured debt” and “secured interest” in Sections 2(zc), 2(ze) and 2(zf) as follows: “2. Definitions:- (1) In this Act, unless the context otherwise requires,-- ...... ..... (zc) “secured asset” means the property on which security interest is created; (zd) ..... ..... (ze) “secured debt” means a debt which is secured by any security interest; (zf) “security interest” means right, title and interest of any kind whatsoever upon property, created in favour or any secured creditor and includes any mortgage, W.P.(C). NO.14496 of 2008 :: 7 :: charge, hypothecation, assignment other than those specified in section 31;” Section 31 states that the provisions of the Act shall not apply to the categories of cases mentioned in clauses (a) to (j) therein. 9. It is apposite to extract the relevant portions of Sections 13 and 14 of the Securitisation Act. They are: “13. Enforcement of security interest:-- (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 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 this Act. (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). W.P.(C). NO.14496 of 2008 :: 8 :: (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non- acceptance of the representation or objection to the borrower; Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A. (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 W.P.(C). NO.14496 of 2008 :: 9 :: of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt; Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt; (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much W.P.(C). NO.14496 of 2008 :: 10 :: of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (6) Any transfer of secured asset after taking possession thereof or take over of management under sub- section (4), by the secured creditor or by the manager on behalf of the secured creditors 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. (7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. W.P.(C). NO.14496 of 2008 :: 11 :: (8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. (9) ..... ..... (10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice W.P.(C). NO.14496 of 2008 :: 12 :: referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor. 14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset:-- (1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him -- (a) take possession of such asset and documents relating thereto; and (b) forward such assets and documents to the secured creditor. (2) For the purpose of securing compliance with the provisions of sub-section (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. W.P.(C). NO.14496 of 2008 :: 13 :: (3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court or before any authority.” 10. Section 34 of the Securitisation Act provides that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered to determine. Section 35 provides for the overriding effect of the Securitisation Act. Section 35 reads as follows: “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.” 11. When the Writ Petition came up for hearing before a learned single Judge, reliance was placed by the first respondent on the decision of a Division Bench in Antony v. Kerala Financial Corporation (1999 (2) KLT 457), wherein Section 46B of the State Financial Corporations Act, 1951, which is more or less identical to Section 35 of the Securitisation Act, was interpreted. Doubting the correctness of the decision in Antony v. Kerala Financial Corporation, the learned single Judge referred the case to a Division Bench. The Division Bench by a detailed order of W.P.(C). NO.14496 of 2008 :: 14 :: reference, referred the case to a Full Bench. The Division Bench doubted the correctness of the decisions in Antony v. Kerala Financial Corporation (1999 (2) KLT 457), Shameem v. City Police Commissioner (2005 (4) KLT SN 70 Case No.96) and Business India Builders & Developers Ltd. v. Union Bank of India (2007 (2) KLT 237). 12. The Kerala Buildings (Lease and Rent Control) Act, 1965 is an Act to regulate the leasing of buildings and to control the rent of such buildings in the State of Kerala. The objects and reasons of the Rent Control Act states that the Act was made for regulation of the letting of buildings, the prevention of unreasonable eviction of tenants from buildings and for the control of rents. Sub-section (1) of Section 11 of the Rent Control Act provides that “notwithstanding anything to the contrary contained in any other law or contract a tenant shall not be evicted, whether in execution of a decree or otherwise, except in accordance with the provisions of this Act”. Section 11 provides for various grounds of eviction, namely, arrears of rent, bona fide need of the landlord for own occupation or for the occupation of any member of his family dependent on him, sub-letting by the tenant, user of the building by the tenant in such a manner so as to destroy or reduce its value or utility materially and permanently, the tenant acquiring possession of another building or putting up another building, bona fide need of the landlord to reconstruct W.P.(C). NO.14496 of 2008 :: 15 :: the building, renovation of the building, etc. There are provisions in the Rent Control Act for protection of the tenants even when the bona fide need of the landlord is established. In a reconstructed building, the tenant has the first option to occupy. The Rent Control Act contains various provisions which protect the interests of the tenant as well as the landlord. The Rent Control Act being a special statute, the provisions of Sections 106 of the Transfer of Property Act would not apply. 13. In Central Bank of India v. State of Kerala and others ((2009) 4 SCC 94), the question which arose for consideration was whether the provisions of Section 38C of the Bombay Sales Tax Act, 1959, Section 26B of the Kerala General Sales Tax Act, 1963 and similar provisions contained in other State legislations by which first charge has been created on the property of the dealer or such other person, who is liable to pay sales tax, etc. are inconsistent with the provisions contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'DRT Act') and the Securitisation Act for enforcement of security interest and whether in view of the non obstante clauses contained in Section 34(1) of the DRT Act and Section 35 of the Securitisation Act, those Acts will have primacy over the State legislations. The Supreme Court held thus: W.P.(C). NO.14496 of 2008