Ozg Sarfaesi / DRT Lawyer
Ozg Business Resource Center
Ahmedabad | Pune | Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone # 09811415831-37-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
Banks
used to take advantage of the provisions of SARFAESI Act, 2002 earlier in
taking possession of the ‘secured asset’ even when the tenant was in possession
of the property. Absolutely, there is no difficulty in taking the possession of
the ‘secured asset’ using the protection and assistance under Section 14 of the
Act if the property was actually in possession of the borrower or the
guarantor. Courts were looking into the issue of rights of tenants and the bona fides as the owner of the property
can play with the Bank with fictitious arrangements. Any person aggrieved, including a Tenant, can
approach the Debt Recovery Tribunal under section 17 of the Act. When a tenant
approaches the Court or the Tribunal seeking protection of his rights and
questioning the action being taken by the Bank using Section 14 of SARFAESI
Act, 2002, the Court or the Tribunal used to look into or emphasize as to:
(a). Whether there are bona fides in the contention of the tenant?
(b). If Tenant relies on any
agreement with the landlord, the date of the agreement or the date from when
the Tenant was in possession of the property.
(c). The knowledge of the Bank
in respect of tenancy while sanctioning the loan.
(c). Whether the agreement
between the tenant or the landlord registered and legal?
When
a tenant files an application under section 17 of the SARFAESI Act, 2002
questioning the action of taking physical possession of the property by the
Bank, the interpretation initially was infavour of the Banks in most of the
cases unless the tenant establishes a clear case. However, now, the Courts
rightly are emphasizing at the laws protecting the rights of the tenants and as
to how the Banks are not allowed to take advantage of the provisions of the
SARFAESI Act, 2002. Looking at the plight of the tenants, State Governments
must have made laws to protect the rights of the tenants and the tenants used
to be protected irrespective of the agreement between the landlord and the tenant
while if there exist any agreement, the relevant contents like the payment of
advance, rent agreed etc. are taken into consideration. The laws infavour of the tenants are called
‘welfare legislation’ and justified time and again irrespective of the criticism
by the landlords that they are being harassed and in most of the times, it
becomes very difficult to get the tenants vacated. A tenant can ask for fixation of fair rent
irrespective of the clauses in the agreement if there is any agreement and the
landlord is asked to follow a procedure in evicting the tenant and the landlord
is supposed to establish a ground for getting the tenant vacated. If the landlord wants to get a tenant
evicted, he has to approach the Tribunal or the Court under the special legislation
protecting the rights of the tenants if there is any such legislation; and even
if the landlord wins the case against the tenant, the tenant has got a right of
Appeal, a writ jurisdiction or revisional jurisdiction can also be invoked
thereafter and matters can even go to the Supreme Court. These laws infavour of tenants are often
criticized, but, those continue to have the statutory force unless repealed.
Explaining
as to how the rights of the tenants are to be protected and the Banks are not
allowed to get the tenants evicted without following the due process of law,
the High Court of Kerala, in N.P.
Pushpangadan & Others Vs. The Federal Bank Ltd (2011 (4) ILR(Ker) 196, 2011
(4) KLT 134 (FB), 2011 (4) KLJ 93, 2011 (4) KHC 40), was
pleased to explain the issues and held as follows:
“22. An owner of a building wish to get his
tenant evicted. A particular
owner may have so many tenants under him. In view of the provisions of the
Kerala Buildings (Lease and Rent Control) Act, a landlord can get an order of
eviction only if the grounds enumerated in the Rent Control Act are
established. An unscrupulous landlord may apply under Section 133 of the Code
of Criminal Procedure and get an order for demolition of the building, even
without notice to the tenants. The tenants
may, sometimes, be successful in resisting such illegal action, by approaching
the civil court. If it were to be held that the Securitisation Act overrides
the Kerala Buildings (Lease and Rent Control) Act, a landlord who has let out his
building to several tenants and wants to get them evicted can easily manipulate
things to achieve that object without recourse to the machinery provided under
the Rent Control Act. He can take a loan from a bank on mortgaging the tenanted
building, deliberately commit default in repaying the loan and allow the
measures under Section 13(4) and 14 of the Securitisation Act to be taken by
the secured creditor. The tenants can thus be easily evicted summarily, either
before the sale or after sale under the Securitisation Act. If a sale takes
place, the landlord can also manage to have it purchased in the name of his
confidant. In such cases, how could the civil court or the High Court or the
authorities under the Securitisation Act protect the interests of the tenants,
if the interpretation of the law is as stated above? If that is the
interpretation of law, we would be creating two categories of tenants in
respect of tenanted buildings;
namely (a) those who are governed by the Kerala Buildings (Lease and Rent
Control) Act but whose landlord has not taken any loan and created security
interest in respect of the tenanted building and (b) those who are not entitled
to the protection of the Rent Control Act only for the reason that the landlord
has created a security interest in respect of the building and proceedings
under the Securitisation Act have been taken. The Securitisation Act, in our
view, does not create such a situation denying the rights of tenants under the
Kerala Buildings (Lease and Rent Control) Act.”
On the same point, the
High Court of Madras in Indian Bank Vs. M/s Nippon Enterprises
South (2011 (2) CTC 474, 2011 (2) LW 521, 2011 AIR (Mad) 238), was pleased
to observe as follows:
“36. Under Section 13(4) of the SARFAESI Act, the secured creditor
can take possession of the secured assets of the borrower. There can be no
difficulty in taking such possession of the secured assets either under Section
13(4) or under Section 14 of the SARFAESI Act, if the secured asset is in the
possession of the borrower or guarantor, as the case may be. SARFAESI Act
entitles the creditor to take possession of the secured assets either by
issuing possession notice under Section 13(4) or by making application to the
Chief Metropolitan Magistrate/District Magistrate to take physical possession
under Section 14. Though the function of Chief Metropolitan Magistrate/District
Magistrate is only ministerial, the provision of Section 14 confers drastic
power to take possession even by use of force. The difficulty arises only in
cases where the possession of the property is in the hands of the tenant
(lessee). The SARFAESI Act does not contain any specific provision enabling the
secured creditor to take possession from the hands of a tenant (lessee). On the
other hand, the TN Rent Control Act contemplates that a tenant is entitled in
law to continue to be in possession unless he is evicted under the provisions
of the said Act. SARFAESI Act being mainly procedural and the TN Rent Control
Act being exclusively dealing with the substantive right of tenants, both the
Acts operate on different fields. Only in the event the SARFAESI Act contains a
provision to enable the bank to take possession of a secured asset from a
lessee, then only it can be held that there is conflict between the SARFAESI
Act and the TN Rent Control Act in which case, the TN Rent Control Act should
give way for the SARFAESI Act to have overriding effect. However, there is no
such provision in the SARFAESI Act enabling the bank to take possession from
the lessee, though the Act speaks of the right of the bank to take possession
of the secured asset. Moreover, right from Section 13(2) till exhausting the
provision of appeal, the bank deals only with the borrower/guarantor and the
lessee is nowhere in the picture, as the Act does not require the bank to
involve the lessee/tenant as well in the proceedings. Thus, we do not find any
overlapping or inconsistency between these two Acts. When there is no such
overlapping or repugnancy between these two provisions in respect of taking
possession from the lessee, it has to be held that physical possession of the
secured assets from the lessee/tenant can be taken only by invoking the
provisions of the TN Rent Control Act.”
It is a different case if it is clearly
proved that a person claiming to be a tenant and the agreement with the
land-lord is fictitious though it is very difficult to establish mala fides on the part of the Bank.
If the legal proposition is allowed to
be settled in the near future that the Banks can not override the provisions of
the laws made by State Governments in the interests of the tenants and Banks
can not evict the tenants using Section 14 of SARFAESI Act, 2002, then, both
the interests of the Banks and also the borrowers are to be looked-into carefully. The Banks can sell the secured assets by
following the due procedure and there is no need for the Banks to take physical
possession of the property before selling the properties in auction. There were
some conflicting judgments as to the responsibilities of the Banks in taking
physical possession of the property even after confirmation of sale infavour of
the bidder and the need of Banks to take physical possession of the properties
while conducting the auction. However, as I think, it is settled that the Banks
can auction the property under the provisions of SARFAESI Act, 2002 without
taking actual possession of the property and there is no responsibility on the
part of the Bank in getting the physical possession of secured asset even when
the auction sale is concluded and the price is received unless it is agreed
otherwise at the time of Auction. But, the interesting issue is like:
What happens to the value of the property if it is sold without
taking actual possession of the property?
When a Bank sells the property in
Public Auction or other permitted means without actually taking the physical
possession of the property, the Bank may get lesser price for the property as
the bidder has to take the risk of getting the tenant vacated. The Banks can
justify selling the property for a lesser price in view of the compulsions and
the legal position. The borrower or the guarantor who has mortgaged the
property with the Bank may have a different and serious contention in this
regard. When the property is sold for a lesser price in view of the risk
involved in getting the tenant vacated, the Borrower may not agree to that
contention and may seriously contend that the property is undervalued and sold
for a lesser price. The Borrower has every right to raise these kinds of
arguments as the balance sale consideration after adjustments, should go to the
borrower or the guarantor as the case may be. Again, if the sale consideration
is not sufficient to meet the liability, the Bank may initiate further
proceedings against the borrower for the remaining.
It all depends upon the facts of that
particular case like the outstanding amount, the value of the property and the
contention of the borrower or the owner of the property and there may not be
any hard-and-fast rule on these complicated issues under SARFAESI Act, 2002.
The borrower or the guarantor can not
speak for the tenant and it is for the tenant to ask for the protection of his
rights when the Bank initiates steps to take physical possession of the
property. The responsibilities of the
owner of the property in normal circumstances may be different and in normal
circumstances, the owner may be duty bound to ensure that no third party
disturbs the tenant. 
