1. The present Securitisation Application has been filed by the applicants under Section 17 of the Securitisation And Reconstruction of Financial
Assets and Enforcement of Security Interest Act 2002 (hereinafter to referred as SARFAESI Act, 2002) with a prayer to declare the measures under
the provision of SARFAESI Act 2002 and Rules made thereunder against the property in question as illegal and set aside the order dated 18.03.2020
passed in M.C No. 66 of 2020 and consequent notice (Annexure-A17) to take physical possession of the secured asset.
2. Briefly stated facts of the present case are that the applicant No.1 having business of money landing, in order to open its Branch in Pathanamthitta
District hired the building bearing Municipal Corporation No.XXX/352/8/2116 which is a part of Multi storied commercial building comprising in Survey
No.229/13/1 (hereinafter to be referred ""the property in question"") on monthly rent of Rs.8,000/- from defendant No.2 vide lease agreement dated
14.03.2013 with security deposit of Rs.8,00,000/-. The said lease agreement was executed for a period of eleven months commencing from
01.04.2013. The applicants were put in possession of 'the property in question' on 01.04.2013 and since then, the applicants are continuing in
possession as tenant with consent of defendant No.2. The present rent of premises is Rs.9,440/- per month. The applicants are regularly paying the
rent and electricity and water charges expenses of the leased premises as per the agreement entered into between defendant No.2 and applicants.
The applicants are also paying service tax as per agreement entered between them. The applicants have also incurred huge expenses of more than
Rs.8.00 lakhs for maintenance and interior designing thereon.
3. It is the further case of the applicants that the applicants were surprised to know after receipt of communication dated 22.03.2019 from defendant
No.1 bank that 'the property in question' has been mortgaged with defendant bank in pursuance of mortgage created by defendant No.2 for availing
credit facilities. The defendant No.1 Bank has recognized the status of the applicants as tenants and directed the applicants to remit the rent directly to
it. The defendant No.2 approached the Hon'ble High Court of Kerala in Writ Petition No.9102 of 2019 for seeking extension of time to repay the dues
of defendant No.1 bank and same was allowed by Hon'ble High Court directing the defendant No.2 to make payment vide order dated 27.03.2019.
However, defendant No.2 could not make the payment; and accordingly, the applicants received notice dated 03.05.2019 from defendant No. 1 Bank
regarding default committed by defendant No.2 and make payment of rent directly to defendant No.1 Bank. Consequently, applicants showed their
willingness to pay the rent directly to defendant No.1 Bank and from June 2019, the applicants are making payment of rent to defendant No.1.
4. The applicants received notice dated 01.07.2020 from Advocate Commissioner who directed them to vacate the property in question within a period
of 30 days from date of notice. Upon enquiry, the applicants came to know that defendant No.1 Bank has filed M.C.No.66 of 2020 for taking physical
possession of the property in question under Section 14 of the SARFAESI Act, 2002. The said application was allowed by the Learned CJM vide
order dated 18.03.2020 and directed the Advocate Commissioner to take physical possession of the secured asset including the property in question.
The said application has been heard and allowed by the Learned CJM without granting an opportunity of hearing to the applicants. The applicants
being protected tenantsare entitled to be in possession of the property in question.
5. The applicants have challenged the measures taken under Section 14 of the SARFAESI Act, 2002 on the grounds that the proceedings initiated by
the defendant bank and order passed by Learned CJM is in utter violation of law; and hence liable to be quashed and set aside. The applicants did not
receive any notice in proceedings filed under Section 14 of the SARFAESI Act 2002. Learned CJM did not verify the due compliance of mandatory
provision of SARFAESI Act 2002. The applicants are in lawful possession of the property in question as bonafide tenants and are still continuing as
such. The defendant No.2 has created mortgage in favour of defendant No.1 in the year 2015 which is subsequent to lease agreement created in
favour of applicants. The defendant No.1 bank is having knowledge about tenancy right of the applicants over property in question. Even otherwise,
defendant No.1 has recognized the applicants as tenants in its correspondence vide Annexure A/7 and A/9. Therefore, present Securitisation
Application deserves to be allowed.
6. Defendant No. 1 appeared in pursuance of notice issued by this Tribunal and filed it written statement contending therein that defendant No.2
availed one Term Loan, two AMTL and one FKCC on 17.01.2013 from defendant No.1 against hypothecation of goods carrier trucks, tractors, Cars,
LMV Tractor and tipper lorry. The defendant No.2 also created equitable mortgage by deposit of title deeds to secure the loans on 18.01.2013. The
defendant No.2 committed default in repayment of dues of defendant bank and consequently loan accounts were classified as Non Performing Assets
on 29.03.2018. Thereafter, defendant No.1 Bank issued demand notice dated 25.05.2018 under Section 13(2) of the SARFAESI Act 2002. The
defendant No.1 Bank filed an application under Section 14 of the SARFAESI Act 2002 for taking physical possession of secured asset. Therefore,
defendant No.1 Bank is entitled to recover loan amount advanced to defendant No.2 from selling the secured asset.
7. It is further replied by the defendant No.1 Bank that defendant No.2 approached the Hon'ble High Court in WP(C) No.9102 of 2019 and Hon'ble
High Court directed defendant No.2 to pay Rs.50.00 lakh per month for the first five months and balance amount in sixth month. However, the
defendant No.2 did not make any payment to defendant No.1 Bank as per direction of the Hon'ble High Court. Therefore, defendant No.1 Bank
issued notice to applicants to pay the rent in the loan account and to produce the valid lease deed with defendant No 1 Bank. It was further informed
that if the applicants fail to produce a valid lease deed, defendant No.1 Bank will take physical possession of the secured asset. However, the
applicants have failed to produce any valid lease deed to prove their legal tenancy. The applicants have been inducted as tenants in the property in
question after mortgage has been created in favour of defendant No.1 Bank. Therefore, the lease is hit by Section 65-A of the Transfer of Property
Act 1882. Hence the present Securitisation Application deserves to be dismissed with cost.
8. Despite the 2nd defendant was duly served with notice, he neither appeared nor was he represented and hence the case was proceeded against the
2nd defendantex-partevide order dated 01.10.2020.
9. From pleading of the parties, the following issues have arisen for consideration and decision of this Tribunal:
(i) Whether order passed by Learned Chief Judicial Magistrate under Section 14 of the SARFAESI Act 2002 is legal and valid one?
(ii) Whether applicants are tenants over property in question?
(iii) If the applicants are tenants, then their tenancy is required to be protected as per law?
(iv) Relief if any to which the applicants are entitled.
10. Heard Learned Counsel for theapplicants as well as respondent bank. I have also carefully gone through the record of the present Securitisation
Application. I have also duly appreciated law applicable to the facts and circumstances of the present case.
11. Smt. Indu Susan Jacob, Learned Counsel for applicants argued that applicants are protected tenants as admitted by the defendant No.1 Bank.
However, Learned Chief Judicial Magistrate without affording an opportunity of hearing to the applicants passed order under Section 14 of the
SARFAESI Act 2002. Therefore, order passed by Learned Chief Judicial Magistrate is not sustainable in the eye of law; and the applicants cannot be
evicted from the property in question. Learned Counsel placed reliance upon judgment passed by the Hon'ble Apex Court in the case of Harshad
Govardhan Sondagar Versus International Assets Reconstruction Company Limited and Ors. (2014) 6 SCC 1; Visual N Calsaria Versus Bank of
India &Ors (2016) 3 SCC 762; and Bajrang Shyam Sundar Versus Central Bank of India (2019) 9 SCC 94.
12. Smt. Ruby P.Paulose, learned Counsel for the defendant bank argued that tenancy has been created in favour of applicants after equitable
mortgage was created in favour of defendant No.1 Bank. Therefore, the said lease is hit by Section 65A of the Transfer of Property Act 1882. Even
otherwise, as per mandate of Section 13(13) of the SARFAESI Act 2002, the lease cannot be extended after demand notice is issued by defendant
No.1 upon defendant No.2 without written consent of secured creditor.Learned Counsel for defendant No.1 relied upon judgment delivered by
Hon'ble High Court of Kerala in the case of Rishi Purushotaman Versus The Federal Bank Ltd and others 2019 KHC 197. She also relied upon
judgment relied upon by Learned Counsel for applicants.
Issue No.(i)
13. The applicants have challenged the legality of order passed by Learned Chief Judicial Magistrate under Section 14 of the SARFAESI Act 2002 on
the grounds that order has been passed contrary to mandatory provision of SARFAESI Act 2002 and Rules made thereunder. The opportunity of
hearing has not been given to applicants in the said proceedings.
14. It would be relevant here to refer provision of Section 14 of the SARFAESI Act 2002 which reads as under:
(1) Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured assets 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 assets, 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 asset and documents to the secured creditor:
Provided that any application by the secured creditor shall be accompanied by an affidavit duly affirmed by the authorised officer of the secured
creditor, declaring that---
(i) the aggregate amount of financial assistance granted and the total claim of the Bank as on the date of filing the application;
(ii) the borrower has created security interest over various properties and that the Bank or Financial Institution is holding a valid and subsisting security
interest over such properties and the claim of the Bank or Financial Institution is within the limitation period;
(iii) the borrower has created security interest over various properties giving the details of properties referred to in sub-clause (ii)above;
(iv) the borrower has committed default in repayment of the financial assistance granted aggregating the specified amount;
(v) consequent upon such default in repayment of the financial assistance the account of the borrower has been classified as a non-performing asset;
(vi) affirming that the period of sixty days notice as required by the provisions of sub-section (2) of section 13, demanding payment of the defaulted
financial assistance has been served on the borrower;
(vii) the objection or representation in reply to the notice received from the borrower has been considered by the secured creditor and reasons for non-
acceptance of such objection or representation had been communicated to the borrower;
(viii) the borrower has not made any repayment of the financial assistance in spite of the above notice and the Authorised Officer is, therefore, entitled
to take possession of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act;
(ix) that the provisions of this Act and the rules made thereunder had been complied with:
Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case
may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets within a
period of thirty days from the date of application.
15. Hon'ble High Court of Kerala in case of Rishi Purushotaman Versus The Federal Bank Ltd. and others 2019 KHC 197 held that ""Indeed, Remo
Software Pvt. Ltd., mandates notice if the secured asset is a tenanted premises. This judicial assertion, I reckon, is in tune with the Supreme Court's
judgment in Visual N. Calsaria Versus Bank of India: a secured creditor cannot arbitrarily evict a tenant by using the SARFAESI Act, as that would
amount to stultifying the statutory rights of protection given to tenant.
16. In the present case, upon application under section 14 of the SARFAESI Act 2002 filed by the defendant No. 1 Bank wherein the applicant No. 1
is a party respondent, Learned CJM passed order dated 18.02.2020 to take physical possession of secured asset. Learned CJM appointed the
Advocate Commissioner to take physical possession after serving a notice of 30 days. Accordingly, Advocate Commissioner served notice dated
01.07.2020 upon borrower as well as applicants and other occupants.
17. Secondly, the said application filed under Section 14 of the SARFAESI Act 2002 was duly supported by affidavit filed in compliance of proviso (I)
to Sub Section (1) of Section 14 of the SARFAESI Act 2002. It is specifically stated in the said application that applicants are tenants over the
property in question. The documents regarding creation of equitable mortgage, demand notice issued under Section 13(2) of the SARFAESI Act 2002
and proof of service of demand notice were placed before Learned Chief Judicial Magistrate. Therefore, Learned Chief Judicial Magistrate has
passed order in compliance of mandatory provision of SARFAESI Act 2002.
Issue No. (ii)
18. Insofar as question as to whether applicants are tenants in the property in question is concerned, it's an undisputed fact that applicants are carrying
on their money lending business in the property in question. The applicants have proved on record that they were inducted as tenants from 01.04.2013
in the property in question vide lease agreement Annexure A/1 dated 14.03.2013. The applicants have also placed on record rent receipt, payment of
electricity charges and professional tax paid by them. Moreover, their right as tenant is also acknowledged by the defendant No.1 Bank in its letter
dated 22.03.2019 wherein it is specifically admitted that applicants are tenants over the property in question. The relevant para of said letter dated
22.03.2019 is being reproduced as under:
You being one of the tenants of the security property, you are requested to remit the rent payable to the borrower to the A/c
Number:10297600003354, Name Thomas Mathew Mattathil, Branch: Tiruvalla, Bank: The Federal Bank Ltd, IFSC Code: FDRL0001029,
from the month of April, 2019 onwards, till further instruction from the Federal Bank Ltd.
19. Defendant No.1 Bank further directed vide letter dated 03.05.2019 to pay the rent/fee being paid for occupancy of the property in question
payable to landlord directly to defendant No.1 Bank. The relevant para of the said letter is reproduced as under:
You are hereby further directed to pay the rent/fee being paid for occupancy of the aforesaid portion of building payable to the landlord
Sri.Thomas Mathew Mattathil into the A/c Number 10297600003354 Name Thomas Mathew Mattathil, Branch: Tiruvalla, Bank: The
Federal Bank Ltd, IFSC Code: FDRL0001029, from the month of June, 2019 onwards, till further instruction from the Federal Bank Ltd.
20. Thus perusal of the above said letters clearly prove on record that tenancy right of the applicants has been acknowledged by the defendant No.1
Bank. Hence, it is proved on record that applicants are tenants over the property in question.
Issue No. (iii)& (iv)
21. Now the question arises whether the said tenancy of the applicants is legal and requires to be protected. It is an admitted fact on the part of the
applicants that they were inducted as tenants over the property in question for the first time on 01.04.2013 vide agreement for lease dated 14.03.2013.
The defendant No.2 availed loan from defendant No.1 Bank on 17.01.2013; and created equitable mortgage on
08.01.2013 by deposit of Title Deed No.2473 of 2008 dated 20.09.2008 of SRO, Pathanamthitta in favour of defendant No.1 Bank over the property in
question. Thus, the defendant No.2 has leased the property in question on 14.03.2013 in favour of applicants after creation of equitable mortgage in
favour of defendant No.1 on 08.01.2013.
22. Though, the defendant No.1 Bank has acknowledged the possession of the applicants as tenant over property in question; however, directed the
applicants to produce the subsisting lease agreement if any executed by defendant No.2 in favour of applicants. The said fact is clearly evident from
notice dated 03.05.2019 which is reproduced as under:
You being found as one of the occupants of the security property, you are hereby requested to produce the copy of subsisting lease
agreement, if any executed between you and Mr. Thomas Mathew within seven days from date of receipt of this notice before Authorised
officer, the Federal Bank Limited, LCRD Kottayam Division, Thekkumkal Building, T.B. Road, Kottayam-686001.
23. It is further pertinent to note here that the defendant No.1 bank directed the applicants to produce the subsisting valid lease agreement; and in
case, they fail to produce lease deed and/or fail to pay the rent into the loan account, bank will proceed to take physical possession of secured asset.
The relevant para of the notice dated 03.05.2019 is reproduced as under:
If you fail to produce the lease deed as directed above and/or on your failure to pay the rent payable into the loan account, please take
notice that Bank will proceed for taking physical possession by evicting through proceedings under Section 14 of the Securitisation Act
through Chief Judicial Magistrate's Court at the earliest.
24. The SARFAESI Act, 2002 has been amended by Amendment Act of 2016 incorporating special provision of Section 17(4A) conferring jurisdiction
upon Debt Recovery Tribunal to examine fact whether lease or tenancy has expired or stood determined or is contrary to term of mortgage or is
created after issuance of notice of default and demand by the bank under Sub-Section (2) of Section 13 of the Act. Sub Section 13 of Section 13 of
the SARFAESI Act 2002 provides that, ""no borrower shall, after receipt of notice 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.
25. Section 17(4-A) of the SARFAESI Act 2002 provides that where any person, in an application under sub-section (1), claims any tenancy or lease
hold rights upon the secured asset, the Debt Recovery Tribunal, after examining the facts of the case and evidence produced by the parties in relation
to such claim shall, for the purpose of enforcement of security interest, have the jurisdiction to examine whether lease or tenancy, has expired or stood
determined; or is contrary to Section 65-A of the Transfer of Property Act 1882; or is contrary to terms of mortgage, or is created after the issuance
of notice of default and demand by the Bank under Sub-Section (2) of Section 13 of the Act; and the Debt Recovery Tribunal is satisfied that tenancy
right or lease hold rights claimed in the secured asset falls under the sub-clause (a) or sub-clause (b) or to the contrary contained in any other law for
the time being in force, the Debt Recovery Tribunal may pass such order as it deems fit in accordance with the provisions of this Act.
26. It would be relevant here to refer to Section 65A of the Transfer of Property Act 1882 which provides the Mortgagor’s power to lease.â€
(1) Subject to the provisions of Sub-Section (2), a mortgagor, while lawfully in possession of the mortgaged property, shall have power to
make leases thereof which shall be binding on the mortgagee.
(2)(a) Every such lease shall be such as would be made in the ordinary course of management of the property concerned, and in
accordance with any local law, custom or usage,
(b) Every such lease shall reserve the best rent that can reasonably be obtained, and no premium shall be paid or promised and no rent
shall be payable in advance,
(c) No such lease shall contain a covenant for renewal,
(d) Every such lease shall take effect from a date not later than six months from the date on which it is made,
(e) In the case of a 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 therein specified.
27. Hon'ble Apex Court in case of Bajarang Shyamsunder Agarwal Versus Central Bank of India 2019(9) SCC 94 held that:
25. In our view, the objective of SARFAESI Act, coupled with the T.P. Act and the Rent Act are required to be reconciled herein in the
following manner:
a) If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant’s possession cannot be disturbed by
the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for
determination of leases. As the existence of a prior existing lease inevitably affects the risk undertaken by the bank while providing the
loan, it is expected of Banks/Creditors to have conducted a standard due diligence in this regard. Where the bank has proceeded to accept
such a property as mortgage, it will be presumed that it has consented to the risk that comes as a consequence of the existing tenancy. In
such a situation, the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings.
b) If a tenancy under law comes into existence after the creation of a mortgage, but prior to the issuance of notice under Section 13(2) of
the SARFAESI Act, it has to satisfy the conditions of Section 65A of the T.P. Act.
c) In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be
supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered
instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for
more than the period prescribed under Section 107 of the T.P. Act.
28. It is proved on record that applicants are tenant who entered into an agreement for lease by way of unregistered lease agreement dated
14.03.2013 for a period of eleven months after the equitable mortgage was created by defendant No.2 in favour of defendant No.1 Bank on
08.01.2013. Though the applicants are continuing as tenant on monthly basis after expiry of eleven months on 28.02.2014; however, defendant No.2
has not taken prior permission of the defendant No.1 to continue the lease after receipt of demand notice issued upon him under Section 13(2) of the
SARFAESI Act 2002.
29. It is further pertinent to mention here that defendant No.1 served notice dated 22.03.2019 and 03.05.2019 upon applicants to prove their tenancy
by producing a valid lease deed and remit the rent directly in the account of defendant No.1 maintained by defendant No.2. Thereafter, though the
applicants are remitting the monthly rent to defendant No.1 bank and continuing in possession of the property in question till date; however, the
applicants have failed to produce any valid lease agreement with the defendant No.1 bank in pursuance of notice issued upon them and even not
produced any such agreement on record of the present Securitisation Application except the initial eleven month lease agreement dated 14.03.2013.
30. Therefore, in view of the above, the lease having been created after the mortgage created by defendant No.2 in favour of defendant No.1 Bank
and it being a case of building where no lease tenure could exceed beyond a period of three years, the lease is contrary to mandatory provision of
Section 65A of the Transfer of Property Act 1882. Accordingly, in view of law laid down by Hon'ble Apex Court in case of Bajarang Shyamsunder
Agarwal Versus Central Bank of India (supra), the applicants have no right to continue in possession of the same as tenant beyond a period of one
month from the date of receipt of notice from defendant No.1 Bank. The mere acceptance of monthly rent on behalf of defendant No.2 by the
defendant No.1 Bank does not amount to waiver of the notice to quit.
31. Therefore, in view of the facts and circumstances of the present case and law applicable thereon, Section 13 (13) SARFAESI Act specifically
bars entering into such lease after issuance of demand notice under Section 13(2) of the SARFAESI Act 2002. As the notice under Section 13 (2)
SARFAESI Act has been issued on 25.05.2018, subsequent reckoning of the tenancy is barred. The applicant occupying the premises, when the
tenancy has been determined, can only be treated as a tenant in sufferance. The applicants do not have any legal rights to continue as lessee without
consent of the secured creditor.
32. The present Securitisation Application is dismissed being devoid of merit with no order as to cost.
Note: This order of mine consists of twenty pages and each page has been checked and signed by me.
