2025 (7) TMI 920 - SC - Indian Laws

Supreme Court rejects tenancy claim over secured asset due to insufficient evidence of pre-existing possession rights

The SC set aside the HC order directing restoration of possession to the 1st Respondent who claimed pre-existing tenancy rights over a secured asset. The ... Direction to handback to the 1st Respondent, whose possession was taken by the Appellant - pre-existing tenancy rights - availability of alternative remedy under SARFAESI Act - HELD THAT:- The evidence adduced by 1st Respondent before the DRT with regard to prior tenancy is not convincing. Although 1st Respondent claimed he was a tenant in the secured asset from 1987, he was unable to place on record any rent receipt, tax receipt or electricity bill evidencing continued occupation of the premises prior to issuance of demand notice under section 13(2) of SARFAESI. 1st Respondent has only relied on documents showing deposit of rent with Rent Controller from January 2022 to December 2022, that is, after demand notice was issued by the Appellant. Mere reference to some preexisting tenancy in the sale deed or issuance of letter of attornment by 2nd Respondent (who is also the borrower) unsubstantiated by independent and convincing possessory evidence would not establish a compelling case of preexisting tenancy in favour of 1st Respondent. Given this situation, institution of the ejectment suit by 2nd Respondent may not be a determining factor as the possibility of setting up a sham and collusive suit to defeat the claim of the Appellant cannot be ruled out. High Court failed to consider these relevant aspects and illegally directed restoration of status quo ante. High Court also lost sight of the conduct of the 1st Respondent in failing to take prompt steps to protect his interest in the secured asset. Appellant had on 02.12.2021 published notice of taking symbolic possession of the secured asset in two leading newspapers and also pasted the notice in a conspicuous place on the secured asset. In spite of such publication, 1st Respondent did not bother to intimate the Appellant with regard to his preexisting tenancy rights or approach the DRT - A mandatory order restoring status quo ante necessitates a compelling cast iron case which 1st Respondent has failed to establish. His indifferent conduct and failure to produce rent receipts and/or other evidence regarding continued possession prior to issuance of demand notice under section 13(2) of SARFAESI does not justify a mandatory order. The impugned order passed by the High Court set aside - it is directed to maintain status quo in respect of the secured asset till the disposal of securitization application - appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court include:(a) Whether the High Court was justified in directing restoration of possession of the secured asset to the tenant (1st Respondent) despite the existence of an alternate remedy under the SARFAESI Act;(b) The legal status and protection of tenancy rights claimed by the 1st Respondent under an unregistered tenancy agreement, particularly in light of the SARFAESI Act and the Rent Act;(c) The effect of the statutory scheme under SARFAESI, especially post-amendment provisions, on the rights of lessees/tenants in secured assets;(d) The evidentiary burden on tenants claiming tenancy rights to establish valid occupation prior to issuance of demand notice under Section 13(2) of SARFAESI;(e) Whether the High Court erred in interfering with the recovery measures initiated by the secured creditor under SARFAESI without exhausting statutory remedies;(f) The interplay between SARFAESI Act's non obstante clause and the protections afforded under rent control laws, particularly the West Bengal Premises Tenancy Act, 1997;(g) The propriety of the ejectment suit instituted by the borrower/landlord and its relevance to possession disputes under SARFAESI.2. ISSUE-WISE DETAILED ANALYSIS(a) Jurisdiction of High Court and availability of alternate remedy under SARFAESIThe Court examined the statutory framework of SARFAESI, particularly post the 2016 amendment introducing Section 17(4A), which empowers any person claiming to be a lessee/tenant to challenge recovery measures under Section 13(4) before the Debt Recovery Tribunal (DRT). The DRT's orders are appealable before the Appellate Tribunal under Section 18.The Court noted that the High Court erroneously entertained the tenant's application under Article 227 despite the existence of this efficacious statutory remedy. Reliance on the pre-amendment decision in Harshad Govardhan Sondagar was misplaced, as it was based on a regime where tenants had no statutory remedy before the DRT.The Court emphasized its consistent stance in recent precedents that High Courts should refrain from interfering in SARFAESI matters under Articles 226/227 when alternate remedies exist, thereby preserving the statutory scheme and specialized adjudicatory mechanism.(b) Legal status of tenancy under unregistered agreement and protection under rent lawsThe tenant claimed tenancy rights under an unregistered agreement originally executed with the prior landlord. The Court analyzed the interplay between SARFAESI and rent control laws, referencing key precedents:- Harshad Govardhan Sondagar held that leases created after issuance of Section 13(2) notice without secured creditor's permission are invalid; prior registered leases may subsist, but oral/unregistered leases are limited to one year post-notice.- Vishal N. Kalsaria clarified that SARFAESI does not override rent laws; tenants under rent laws cannot be evicted without due process, and the non obstante clause in SARFAESI applies only to laws operating in the same field.- Bajarang Shyamsunder Agarwal nuanced this by holding that while tenancy rights under rent laws should be respected, the non obstante clause in SARFAESI is broad and can override other laws; tenants under oral/unregistered agreements must prove tenancy through documentary evidence and such tenancy does not extend beyond one year after Section 13(2) notice.- The Court also referred to constitutional and rent law precedents affirming protection of tenancy rights created through unregistered instruments, emphasizing the need for due process before eviction.(c) Evidentiary burden and tenant's conductThe Court found that the 1st Respondent failed to produce convincing evidence of tenancy prior to the issuance of the Section 13(2) demand notice. The tenant could not furnish rent receipts, tax or utility bills evidencing occupation before the demand notice, relying instead on documents post-dating the demand notice.The Court held that mere references in sale deeds or letters of attornment without independent possessory evidence are insufficient to establish tenancy rights capable of restraining SARFAESI action.Furthermore, the tenant's failure to notify the secured creditor of tenancy rights despite public notices of symbolic possession and physical possession taken under statutory authority was deemed indicative of indifference and lack of bona fide claim.(d) Effect of ejectment suit and possible collusionThe Court observed that the ejectment suit filed by the borrower/landlord against the tenant was not determinative of tenancy rights in the SARFAESI context, especially given the possibility of collusion to defeat the secured creditor's claim.(e) Application of law to facts and conclusions on possessionApplying the above principles, the Court concluded that the High Court erred in restoring possession to the tenant without considering the statutory scheme, evidentiary deficiencies, and tenant's conduct. The tenant had not established a compelling case to warrant mandatory restoration of possession.The Court directed status quo to be maintained pending disposal of the tenant's securitization application before the DRT, emphasizing prompt adjudication within two months.3. SIGNIFICANT HOLDINGSThe Court held:'The High Court erroneously relied on Harshad Govardhan Sondagar (supra) to entertain the application. The observations in Harshad Govardhan Sondagar (supra) with regard to absence of statutory remedy available to a lessee/tenant to assail measures under section 13(4) before DRT is based on the preamended law and has no manner of application under the post amendment regime.''It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant.' (citing Vishal N. Kalsaria)'Tenancies created through an oral/unregistered agreement would not continue beyond one year from issuance of notice under section 13(2) of SARFAESI and the tenant upon expiry of the said period shall be deemed to be a 'tenant in sufferance'.' (citing Bajarang Shyamsunder Agarwal)'Mere reference to some preexisting tenancy in the sale deed or issuance of letter of attornment by 2nd Respondent (who is also the borrower) unsubstantiated by independent and convincing possessory evidence would not establish a compelling case of preexisting tenancy in favour of 1st Respondent.''A mandatory order restoring status quo ante necessitates a compelling cast iron case which 1st Respondent has failed to establish.''We allow the appeal and set aside the impugned order passed by the High Court and direct status quo in respect of the secured asset till the disposal of securitization application No.737/2023. The application shall be disposed of within 2 months from the date of communication of this order without granting unnecessary adjournment to either of the parties.'