Case: Harshad Govardhan Sondagar Vs. Internl. Assets Reconstrn. Co. Ltd.&amp; Others

2. The appellants claim to be tenants of different premises in Mumbai. These premises were mortgaged to different banks as securities for loans advanced by the banks (hereinafter referred to as `the secured creditors). As the borrowers have defaulted inrepayment of their secured debts or instalments thereof and their accounts in respect of such debts have been classified by the secured creditors asassets, the secured creditors have issued notices of 60 days period under subsection (2) of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short `SARFAESI Act) to the borrowers saying that they intend to enforce the secured assets in the event of nonpayment of the secured debts. As the borrowers have failed to discharge their liability in full within the period of sixty days from the date of notice, the secured creditors have exercised their right under subsection (4) of Section 13 of the SARFAESI Act to take possession of the secured assets of the borrowers. The secured assets, however, consist of the premises under possession of the appellants. The secured creditors have, therefore, made a request under Section 14(1) of the SARFAESI Act to the Chief Metropolitan Magistrate, Mumbai, to take possession of the premises and handover the possession of the premises to the secured creditors in accordance with the provisions of Section 14 of the SARFAESI Act. Threatened by dispossession of the premises under their possession by the Chief Metropolitan Magistrate, Mumbai, under Section 14 of the SARFAESI Act, the appellants have moved this Court in this batch of cases. Their case is that they are not borrowers, but they are lessees of the borrowers and are entitled to remain in possession of the secured assets. A Division Bench of the Bombay High Court in M/s Trade Well, a Proprietorship Firm, Mumbai & Anr. v. Indian Bank & Anr . [2007 CRI. L.J. 2544] has, however, held that when a secured creditor takes measures under subsection (4) of Section 13 of the SARFAESI Act on account of failure of the borrower to repay his liability and approaches the Chief Metropolitan Magistrate for assistance to take possession of the secured assets, the liability of the borrower having been crystallized, there can be no adjudication by the Chief Metropolitan Magistrate and possession has to be taken by a nonadjudicatory process and there is no question of pointing out to the Chief Metropolitan Magistrate at that stage that the person who is to be dispossessed is a tenant. The Division Bench of the Bombay High Court has further held in M/s Trade Well (supra) that the remedy of the borrower as well as a thirdparty is to file an application under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal and in case the borrower or a thirdparty succeeds, the Debts Recovery Tribunal can restore possession of the secured assets to the borrower or a thirdparty. This view taken by the Bombay High Court in M/s Trade Well (supra) has been followed in the impugned judgment dated 20.08.2011 of the High Court passed in the case of International Assets Reconstruction Company Limited v. Union of India & Ors . The grievance of the appellants is that if the impugned judgment of the High Court is implemented, the appellants have no option but to surrender possession to the Chief Metropolitan Magistrate, Mumbai, and move the Debts Recovery Tribunal under Section 17 of the SARFAESI Act. Such a remedy, according to the appellants, is not actually available under Section 17 of the SARFAESI Act and if the remedy is available, it is meaningless as they have to move out from the tenanted premises and only in the event the Debts Recovery Tribunal decides in favour of the appellants, they may come back to the tenanted premises. Aggrieved by the impugned judgment, they have, therefore, filed these appeals by way of special leave under Article 136 of the Constitution.

Reasoning: 15. When we read the different provisions of Section 13 of the SARFAESI Act extracted above, we find that(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 provided in(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.The High Court, however, has relied on Transcore v. Union of India & Anr. [(2008) 1 SCC 125] for holding that the SARFAESI Act provides for recovery of possession byprocess and it removes all fetters on the right of the secured creditor and that the secured creditor is entitled to take recourse to any one or more of the measures specified in Section 13(4) of the SARFAESI Act to recover a secured debt, notwithstanding anything contained in any other law for the time being in force. The High Court has also relied on the aforesaid decision of this Court in the case of Transcore (supra) to record a finding that the scheme of Section 13(4) read with Section 17(3) of the SARFAESI Act shows that if the borrower is dispossessed not in accordance with the provisions of the SARFAESI Act, the Debts Recovery Tribunal is entitled to restore status quo ante . The High Court has also relied on the observations of this Court in Transcore (supra) that the disputes which are sought to be avoided by Rule 8 read with Rule 9 of the Security Interest (Enforcement) Rules, 2002 are those where third party interest is created overnight and third party takes up the defence of being a bona fide purchaser for value without notice. We have perused the aforesaid decision of this Court in Transcore (supra) and we find that in that case, the question whether the secured creditor, in exercise of its rights under Section 13 of the SARFAESI Act, can take over possession of the secured asset in possession of a lessee under a valid lease was not considered nor was the question whether there is anything in the SARFAESI Act inconsistent with the right of a lessee to remain in possession of the secured asset under the Transfer of Property Actour 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 subsection (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(2) of Section 13 of the SARFAESI Act by athe 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 setquestion of law that we have to consider is whether the appellants as tenants of premises in the State of Maharashtra including Mumbai will have any remedy to move these courts having jurisdiction under Section 33 of the Maharashtra Rent Control Act and obtain the relief of injunction against the secured creditor taking possession of the secured asset from the appellants.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 immoveable 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 immoveable 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 an year from the date of the instrument or from the date of delivery of possession in his favour by the landlord.