HONOURABLE SRI JUSTICE A. GOPAL REDDY AND HONOURABLE SRI JUSTICE NOUSHAD ALI WRIT PETITION No. 05 OF 2010. DATED 19TH JANUARY, 2010. BETWEEN Kandimalla Srinivas Rao and anr …….Petitioners and M/s. Kandimalla Raghavaiah & Company, Rep. By its Partner K. Venkateshwarlu, Chilkaluripet and others ….Respondents. HONOURABLE SRI JUSTICE A. GOPAL REDDY AND HONOURABLE SRI JUSTICE NOUSHAD ALI WRIT PETITION No. 05 OF 2010. ORDER: (Per Hon’ble Sri Justice A. Gopal Reddy) In this application ﬁled under Article 226 of the Constitution of India, the petitioners-lessees challenge the possession notice under Section 13(4) of the Securitisation and Reconstruction of ﬁnancial Assets and Enforcement of Security Interest Act, 2002 (for brevity ‘the Act’) read with Rules 8 and 9 of the Security Interest (Enforcement Rules) 2002, issued by the 12th respondent-Bank dated 23,12,2009 in so far as it relates to the lease hold interest of the petitioners in the subject immovable properties mentioned in the said notice as arbitrary, discriminatory, without jurisdiction and violative of Articles 14 and 19(1) of the Constitution of India and consequently they seek to set aside the same and allow the petitioners to enjoy the possession of the property under the lease deed dated 30.12.1989 and renewal period thereof as provided under the lease deed. The facts in nut-shell leading to ﬁling of this Writ Petition and as admitted by the parties are that the property admeasuring Ac. 9.59 cents in D.Nos. 156/B, 156/D, 158/A, 158 and 166 together with godowns, etc and property admeasuring Ac.10.90 cents in D.Nos. 223 and 222, situated in Chilakaluripet, village and Mandal of Guntur District were obtained on lease by the petitioners from the respondents for an annual lease of Rs.1,00,000/- for a period of 21 ½ years with an option to renew it for a further period of 10 years with enhanced rent of 15% and the same has to be adjusted towards the decree amount, pursuant to the compromise dated 5.2.1990 entered into in O.S.No. 299 of 1988 on the ﬁle of the Principal Subordinate Judge, Guntur, which was ﬁled by the petitioners against the respondents 1 to 7 and 11 and others for recovery of Rs.23,59,166/- towards principal and interest to the second petitioner. The possession of the premises was delivered to the petitioners on 19.12.1989 and eversince delivery of the premises, the petitioners have been carrying on business from the said premises. It is stated that the lease deed was presented for registration before the Sub-Registrar, Chilakaluripet, Guntur District and the same was kept pending registration vide document No. P-58/1989 due to the controversy between the petitioners and the Registration authorities relating to stamp duty payable thereon. However, aggrieved by the order dated 26.7.2006 of the Chief Controlling Revenue Authority, the petitioners have ﬁled Writ Petition No. 17433 of 2006. Along with the said Writ Petition, they ﬁled WPMP.No. 21846 of 2006 seeking stay of all further proceedings pursuant to the order dated 26.7.2006. This Court by order dated 26.7.2006 refused to grant stay as prayed therein and the Writ Petition is pending consideration. While so, the 12th respondent-Indian Bank addressed a letter dated 23.11.2009 to the ﬁrst petitioner enclosing a notice under Section 13(2) of the Act, dated 30.9.2009 addressed to the respondents 1 to 6,8 to 11 stating that the respondents have availed packing credit, OCC, KCC, OD amounts with the 12 th respondent-Bank and in that connection they are in due and liable to pay in all a sum of Rs.62,08,11,296.90Ps together with interest and therefore they were called upon to discharge the liability in full within 60 days from the date of notice, failing which the enforcement rights under Section 13(4) of the Act would be enforced. In the schedule to the notice, the properties, which are under lease of the petitioners vide lease deed dated 30.12.1989 were shown as mortgage assets to the 12th respondent bank. The petitioners are also informed of a publication of demand notice in the Hindu English daily newspaper dated 21.10.2009 relating to the notice dated 30.9.2009. In those circumstances, the petitioners addressed a letter which was received by the 12th respondent-bank on 10.12.2009, wherein it was stated that they are not concerned about the inter se dispute between the respondents and the bank, except to the extent of protection of their leasehold interest in the subject immovable properties. However, the 12 th respondent bank issued impugned possession notice on 23.12.2009 under Section 13(4) of the Act and Rules made therein. Hence, the petitioners are before this Court. Sri D. Prakash Reddy, learned Senior Counsel appearing for the petitioners contended that unless the lease period is expired, the petitioners cannot be dispossessed pursuant to the impugned possession notice dated 23.12.2009. As Section 13(13) of the Act prohibits creation of lease on secured/mortgaged properties only after issuance of notice under Section 13(2) of the Act. In the present case, as per the notice dated 30.9.2009, the so called mortgage of the properties was created in the year 1983 whereas the lease in favour of the petitioners was entered into on 30.12.1989 and the notice under Section 13(2) of the Act was issued on 30.9.2009 and as such it did not in any way aﬀect the leasehold interest of the petitioners holding interest in the subject immovable properties. The petitioner entered into a comprehensive agreement dated 1.7.2008 with ITC limited for processing of tobacco, for a period of 21 months commencing from 1.7.2008 and subject to renewal from time to time, and if the property is taken possession, their lease hold interest is aﬀected and they will be put to severe loss and irreparable damage and deprived of their right to carry on business guaranteed under Article 19(1)(g) of the Constitution and they will also be exposed to the danger of committing of breach of agreement with ITC Limited. Placing reliance on Section 31(e) of the Act, he submitted that the provisions of the Act shall not be made applicable to any conditional sale, hire purchase or lease or any other contract in which no security interest has been created. In the present case lease is of the year 1989 and the same is submitted for registration and therefore, it cannot be presumed that lease was obtained only to defraud the bank, in due discharge of loan to the bank. He submitted that notice under Section 13(2) of the Act was issued in the year 2009, nearly after 20 years of creating the lease, that the petitioners have ﬁled objections to the notice under Section 13(2) of the Act and without considering the objections, orders were passed under Section 13(4) of the Act, which is in violation of principles of natural justice. In view of the same, the petitioners cannot be relegated to the appeal remedy and Writ Petition as such can be entertained. Per contra, the learned Standing Counsel for respondent-bank has contended that the respondent- Bank has ﬁled OA.No. 698 of 2002 against the respondents before the Debts Recovery Tribunal, Visakhapatnam, for recovery of loan amount and the said OA was decreed on 29.8.2008 for Rs.3,75,89,676.64Ps along with interest at 15% per annum with quarterly rests from the date of ﬁling of the application till the date of realization from the respondents jointly , severally and personally. In pursuance of the said decree, Recovery Certiﬁcate has been obtained as contemplated under Section 13 of the Act. When the petitioners admitted that the security created for the loan amount is prior to the lease deed, the respondents 1 to 6, 8 to 11 can not create leasehold rights over the mortgaged property in favour of the petitioners, which is contrary to Section 65-A(2)(e) of the Transfer of Property Act, 1882. He further submitted that under Section 13(1) of the Act, it is open for the bank that notwithstanding any thing contained in Section 69 or 69A of the TP Act, any security interest created in favour of the bank may be enforced without the intervention of the Court or Tribunal in accordance with the provisions of the Act. It is not in dispute that the respondents have availed loan from the 12th respondent-bank under packing credit, OCC, KCC, OD accounts, by mortgaging the assets, which are the subject matter of lease deed dated 30.12.1989. The loan accounts have been classiﬁed as Non Performing Asset since 1.3.1989 in accordance with the directions/guidelines relating to asset classiﬁcation issued by Reserve Bank of India. After the accounts have been classiﬁed as non- performing asset as stated supra, lease deed was executed on 30.12.1989 by the respondents-borrowers with the petitioners, which appears to be to defeat the rights of the secured creditor over the mortgaged property. Admittedly, the said lease is for a period of twenty one years six months with an option to renew it for a further period of ten years with enhanced rent at 15%. Sub-Section (1) of Section 65-A of the TP Act authorises the mortgagor who is lawfully in possession of the mortgaged property to make a lease which shall be binding on the mortgagee subject to provisions of Sub-Section (2) thereof. Clause (e) of sub-Section (2) of Section 65-A of the TP Act stipulates that in case of 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-entry on the rent not being paid within a time thereon speciﬁed. In eﬀect, the lease by mortgagor is not binding on the mortgagee if it is executed without his consent for more than three years and has made the security insuﬃcient within the meaning of Section 66 of the TP Act. Where a mortgagor while lawfully in possession of the mortgaged property creates a lease in contravention of the provisions of Section 65-A(2) of the TP Act, such lease shall not be binding on the mortgagee. A lease granted by a mortgagor after a mortgage without statutory or express power, is good by estoppel between mortgagor and lesseee, but void as between mortgagee and lessee. (See: (1956) 2 All.E.R. 373). In that view of the matter, the petitioners cannot acquire any right over the leased property against the mortgagee’s interest. To claim protection, the lease shall speciﬁcally be as per the requirements of Section 65-A of the TP Act. Further, in absence of the registered instrument, the petitioners cannot claim any valid lease from year to year or for a term exceeding one year or reserving a yearly rent. We ﬁnd no force in the contention of the learned Counsel that the provisions of the Securitisation Act will not be applicable to the property leased out wherein no secured interest has been created. A reading of Section 31 of the Act makes it clear that in case of any conditional sale, hire purchase or lease or any other contract in which no security interest has been created, the provisions of the Act will not apply. It is not a case where no security has been created by the owners/respondents/borrowers over the subject properties and in fact, the same is not the subject matter of the Writ Petition. As early as in the year 1983 , prior to the petitioners obtaining lease deed on 30.12.1989, the respondents have created mortgage to the 12th respondent-bank. In view of the same, we do not see any merit in the contention that the 12th respondent-bank cannot issue notice under Section 13(2) of the Act and possessory notice under Section 13(4) of the Act thereon. Whether the petitioners have right under the unregistered lease deed against the respondent-bank, whether such lease on the respondent-bank can be established, all these can be gone into in the appeal, if any, ﬁled under the Securitisation Act by the petitioners, upon leading evidence, or in an appeal before the appropriate forum if law permits. Further, non consideration of the objections raised by the petitioners pursuant to the notice under Section 13(2) of the Act intimating taking possession of the property, is a matter which can be adjudicated in the appeal to be eventually filed by the petitioners. The learned Senior Counsel appearing for the petitioners submitted that pursuant to the entering of agreement between the petitioners and the ITC, the ITC has addressed a letter dated 9.1.2010 stating that if the recovery proceedings are not dropped by the bank or set aside by the Court, the ITC may remove the equipment lying in the subject premises, in which case, it would cause severe loss and irreparable damage to the petitioners. Since the ITC issued notice as per the terms of the agreement entered with the petitioners, we cannot gone into the correctness of the said proceedings while exercising jurisdiction under Article 226 of the Constitution. It is open for the petitioners to agitate their rights against the ITC before the appropriate Forum, if so advised. For the foregoing discussion, we do not ﬁnd any merit in the case to exercise jurisdiction under Article 226 of the Constitution and grant relief. The Writ Petition is dismissed granting liberty to the petitioner to avail appropriate legal remedies available under law, if so advised. No costs ------------------------------------- JUSTICE A. GOPAL REDDY --------------------------------- JUSTICE NOUSHAD ALI DATED 19T H JANUARY, 2010. MSNR.