Facts

The Landlords had approached the Bank of India for a  financial loan, which  was granted against equitable mortgage of several properties belonging to them, including the property in which the Appellant before the Apex Court was a tenant. As the landlord failed to pay the dues within the stipulated time in terms   of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Int. Act, 2002 (SARFAESI Act), their account became a non-performing asset. Consequently the Bank filed an application before the Chief Metropolitan Magistrate, Mumbai under section 14 of the SARFAESI Act for seeking possession  of the mortgaged properties which are in actual possession of the Appellant. The Appellant then filed an application as an intervenor to stay the execution of the order passed by the Chief Metropolitan Magistrate. The learned Chief Metropolitan Magistrate dismissed the application filed by the Appellant. The matter ultimately reached the Apex court.

 

Issue

Whether a ‘protected tenant’ under The Maharashtra Rent Control Act, 1999 (‘Rent Control Act’) can be treated as a lessee, and whether the provisions of the ‘SARFAESI Act’ override the provisions of the Rent Control Act?

 

Views

It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the provisions of the Rent Control Act. Section 15 of  the  Rent Control Act mentions that no ejectment of a tenant can take place as long      as the standard rent is being paid to the landlord, apart from the other conditions mentioned therein. Therefore a landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Control Act, more so when   the two legislations operate in completely different fields. The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act. Doing so would render the entire scheme of all Rent Control Acts operating in     the country as useless and nugatory. Tenants would be left wholly to the mercy of

 

| Allied Laws – 37. Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act) |

 

 

their landlords and in the fear  that  the landlord may use the tenanted  premises  as a security interest while taking a loan from a bank and subsequently default on it. Conversely, a landlord would simply have to give up the tenanted premises as a security interest to the creditor banks while he is still getting rent for the same. In case of default of the loan, the maximum brunt will be borne by the unsuspecting tenant, who would be evicted from the possession of the tenanted property by     the Bank under the provisions of the SARFAESI Act. Under no circumstances can this be permitted.

 

Held

In view of the foregoing, the provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act and accordingly the impugned judgments and orders passed by the High Court/Chief Metropolitan Magistrate are set aside and the appeals are allowed. (CrA No. 52 of 2106 (Arising out of SLP   (Cri) No 8060 of 2015 & Ors dt. 20-1-2016)

Part 2:

S. 13 : Enforcement of security interest – Protected tenant – Written Lease agreements – Tenants covered by the Rent Control act cannot be dispossessed in an action initiated by the bank against the landlord under the SARFAESI Act on the premise that  no written lease agreement is on record. [S. 14, Maharashtra Rent Control Act 1999, S. 55(2), Transfer of Property Act, 1882, S. 106]

 

Facts

The Landlords had approached the Bank of India for a  financial loan, which  was granted against equitable mortgage of several properties belonging to them, including the property in which the Appellant before the Apex Court was a tenant. As the landlord failed to pay the dues within the stipulated time in terms of the SARFAESI Act, 2002, their account became a non-performingasset. Consequently the Bank filed an application before the Chief Metropolitan Magistrate, Mumbai under section 14 of the SARFAESI Act for seeking possession  of the mortgaged properties which are in actual possession of the Appellant. The Appellant then filed an application as an intervenor to stay the execution of the order passed by the Chief Metropolitan Magistrate. The learned Chief Metropolitan Magistrate dismissed the application filed by the Appellant. The matter ultimately reached the Apex court. One of the contentions raised was that the Appellant  had not provided any registered document proving the lease to be in existence.

 

 

Issue

Whether, in the absence of a written lease agreement, the tenancy of the Appellant can be questioned?

 

Views

Section 106 of the Transfer of Property Act, 1882 does provide for registration of leases which are created on a year to year basis. However,  the Act remains silent  on the position of law in cases where the agreement is not reduced into writing     or in cases of oral agreement. It can be said that if the two parties are executing their rights and liabilities in the nature of a landlord-tenant relationship and if regular rent is being paid and accepted, then the mere factum of non-registration   of deed will not make the lease itself nugatory. If no written lease deed exists,    then such tenants are required to  prove that they have been in  occupation of  the premises as tenants by producing such evidence in the proceedings under Section 14 of the SARFAESI  Act before the learned Magistrate. Further,  in terms   of Section 55(2) of the Rent Control Act, the onus to get such a deed registered       is on the landlord.

 

Held

In light of the above, neither the landlord nor the banks can be permitted to exploit the fact of non-registration of the tenancy deed against the tenant. (CrA    No. 52 of 2106 (Arising out of SLP (Cri) No 8060 of 2015 & Ors dt. 20-1-2016)

Editorial: Provisions of the SARFAESI Act, cannot be used to override the provisions of the Rent Control Act. In Delhi Punjab Goods Carrier P. Ltd. v.  Bank of Baroda AIR 2008 P & H 107 the Court held that, tenancy created after creation of charge by borrower on property, no protection in law available to such tenant

“There is no one without faults, not even men of God. They are men of God not because they are faultless, but because they know their own faults, they strive against them, they do not hide them, and are ever ready to correct themselves.”

– Mahatma Gandhi