Lawful prior lease under SARFAESI survives enforcement action until validly determined, and dispossession requires inquiry into subsistence.

A valid lease created before a mortgage, or a lease made by the mortgagor in compliance with Section 65A before service of notice under Section 13(2) of the SARFAESI Act, is not automatically defeated by enforcement action under Section 13; the lease continues until lawfully determined under Section 111 of the Transfer of Property Act. A lessee in lawful possession is included within the wide language of Section 17, but the Tribunal cannot restore possession to a lessee, so the remedy is not effective for protecting such possession. Rent control proceedings cannot block SARFAESI action, and Section 14 requires inquiry into whether the lease is valid and subsisting before dispossession.

---

---

Issues: (i) whether a valid lease created before the mortgage, or a lease created by the mortgagor in accordance with Section 65A of the Transfer of Property Act, 1882 before receipt of notice under Section 13(2) of the SARFAESI Act, survives action by the secured creditor under Section 13 of the SARFAESI Act; (ii) whether a lessee in lawful possession has a remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal; and (iii) whether proceedings under the Maharashtra Rent Control Act, 1999 or an order under Section 14 of the SARFAESI Act can be used to dispossess such a lessee without examining the validity and subsistence of the lease.

Issue (i): whether a valid lease created before the mortgage, or a lease created by the mortgagor in accordance with Section 65A of the Transfer of Property Act, 1882 before receipt of notice under Section 13(2) of the SARFAESI Act, survives action by the secured creditor under Section 13 of the SARFAESI Act.

Analysis: A lease lawfully created before the mortgage, or one created by a mortgagor in lawful possession in conformity with Section 65A, is binding on the mortgagee. Section 13(13) prohibits transfer by lease after service of notice under Section 13(2) without the secured creditor's written consent, and by virtue of Section 35 that restriction overrides inconsistent provisions of the Transfer of Property Act. However, Section 13 contains no provision that automatically determines a pre-existing valid lease when the secured creditor takes measures under Section 13(4). A lessee's right to enjoy the property continues until the lease is determined in one of the modes recognised by Section 111 of the Transfer of Property Act, and that lawful possession cannot be taken away except by authority of law.

Conclusion: Such a valid pre-notice lease is not extinguished merely because the secured creditor invokes Section 13; the lessee's possession remains protected until the lease is lawfully determined.

Issue (ii): whether a lessee in lawful possession has a remedy under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal.

Analysis: Section 17(1) uses the expression "any person (including borrower)", which is wide enough to include a lessee. But Section 17(3) empowers the Tribunal to restore possession only to the borrower, not to a lessee. Even if the Tribunal finds that the secured creditor's measures were not in accordance with the Act, it cannot grant restoration of possession to a lessee. The statutory remedy therefore does not effectively protect a lessee's lawful possession under a valid lease.

Conclusion: No effective remedy is available to such a lessee under Section 17 of the SARFAESI Act for restoration of possession.

Issue (iii): whether proceedings under the Maharashtra Rent Control Act, 1999 or an order under Section 14 of the SARFAESI Act can be used to dispossess such a lessee without examining the validity and subsistence of the lease.

Analysis: Section 34 of the SARFAESI Act bars injunctions against action taken or proposed under the Act, and the jurisdiction under the rent law is confined to landlord-tenant disputes, not disputes between a secured creditor and a tenant claiming under a borrower. Under Section 14, the Magistrate can assist only where possession is required to be taken under the Act, and must consider whether the person in possession is a lessee under a valid, subsisting lease. If the lease is valid and has not been determined under Section 111 of the Transfer of Property Act, possession cannot be delivered to the secured creditor without hearing the lessee and deciding the validity of the lease.

Conclusion: Rent control jurisdiction cannot restrain SARFAESI action, and Section 14 requires an inquiry into the validity and subsistence of the lease before dispossession.

Final Conclusion: The secured creditor's enforcement powers do not automatically defeat a lawful prior lease, and any attempt to take possession from a lessee must proceed only after examining whether the lease is valid and subsisting under the Transfer of Property Act and after affording a hearing consistent with natural justice.

Ratio Decidendi: A valid lease created before mortgage, or in accordance with Section 65A before notice under Section 13(2), is not nullified by mere invocation of SARFAESI measures; dispossession of the lessee requires lawful determination of the lease under Section 111 and cannot be effected mechanically under Section 14.

---