TaxTMI 
TaxTMI 
TaxTMI 
2015 (11) TMI 1315
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....ge their liability in full within the period of sixty days from the date of notice, the secured creditors have exercised their right under subsection (4) of Section 13 of the SARFAESI Act to take possession of the secured assets of the borrowers. The secured assets, however, consist of the premises under possession of the appellants. The secured creditors have, therefore, made a request under Section 14(1) of the SARFAESI Act to the Chief Metropolitan Magistrate, Mumbai, to take possession of the premises and handover the possession of the premises to the secured creditors in accordance with the provisions of Section 14 of the SARFAESI Act. Threatened by dispossession of the premises under their possession by the Chief Metropolitan Magistrate, Mumbai, under Section 14 of the SARFAESI Act, the appellants have moved this Court in this batch of cases. Their case is that they are not borrowers, but they are lessees of the borrowers and are entitled to remain in possession of the secured assets. A Division Bench of the Bombay High Court in M/s Trade Well, a Proprietorship Firm, Mumbai & Anr. v. Indian Bank & Anr . [2007 CRI. L.J. 2544] has, however, held that when a secured creditor tak....
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....d this right cannot be taken away save by authority of law. He submitted that there is nothing in the provisions of the SARFAESI Act, and in particular Section 13 of the said Act, to show that this right of a lessee to remain in possession of the secured asset during the period of the lease stands extinguished when the secured creditor initiates action under Section 13 of the SARFAESI Act. He submitted that the language of sub -section (13)of Section 13 of the SARFAESI Act, however, shows that no borrower shall, after receipt of notice under sub - section (2) of section13, transfer by way of sale, lease or otherwise any of his secured assets referred to in the notice, without the prior written consent of the secured creditor. He submitted that this provision in .the SARFAESI Act is a clear indication that a lease of a secured asset by the borrower before receipt of a notice by him under sub -section (2) of Section 13 of the SARFAESI Act was not prohibited under the said Act. He submitted that in the absence of any express language in the SARFAESI Act affecting a lease of a secured asset made by the borrower in favour of a lessee, the lease continues to be a valid lease even after t....
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....gly hold in this case that the rights of bonafide lessees under a lease executed prior to receipt of notice under sub -section (2) of Section 13 of the SARFAESI Act by the borrower are not affected by the action of secured creditor under Section 13 of the SARFAESI Act. He relied on the observation of this Court in ICICI Bank Ltd. v. SIDCO Leathers Ltd. and Ors. [JT 2006 (6) SC 274 : 2006 (10) SCC 452] that while enacting a statute, Parliament cannot be presumed to have taken away the right to property which is a constitutional right. ( 4. ) MR . Sundaram next submitted that the view taken by the Bombay High Court in M/s Trade Well (supra) and in the impugned judgment that a third - party such as a lessee can under Section 17 of the SARFAESI Act make an application before the Debts Recovery Tribunal and that in case he succeeds, the Debts Recovery Tribunal can restore possession of the secured assets to the lessee is not at all correct. He referred to the provisions of subsection (3) of Section 17 of the SARFAESI Act to show that the Debts Recovery Tribunal can restore possession of the secured assets only to the borrower and not to the lessee. He submitted that the Debts Recovery ....
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....A of the Transfer of Property Act, it will be a valid lease and will be binding on the secured creditor. He submitted that subsection (3) of Section 65A of the Transfer of Property Act further made it clear that if a contrary intention is expressed in the mortgage -deed, prohibiting the mortgagor from making a lease of the mortgaged property while he is in lawful possession of the same, the mortgagor cannot make a lease and if such lease is made, such lease will not be binding on the mortgagee. According to him, possession of the lessee under the following two categories of leases: (i) leases created prior to the mortgage and (ii) leases created in accordance with Section 65A of the Transfer of Property Act is protected by law, and possession of other persons claiming to be lessees is not protected by law. ( 5. ) MR . Vikas Singh next submitted that subsection (13) of Section 13 of the SARFAESI Act further provides that no borrower shall, after receipt of notice referred to in sub -section (2) of Section 13 of the SARFAESI Act, transfer by way of lease, any of his secured assets referred to in the notice, without prior written consent of the secured creditor. He submitted th....
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....o recover the secured debts without the intervention of courts and tribunals and third -parties claiming to be lessees but not bonafide lessees under leases which are not in accordance with Section 65A of the Transfer of Property Act should not be allowed to frustrate this laudable object of the Act by preventing the secured creditors from taking the possession of the secured assets and realizing the secured debts. In support of this submission, he referred to the observations of this Court in Central Bank of India v. State of Kerala and Others [JT 2009 (3) SC 216 : 2009 (4) SCC 94], Authorised Officer, Indian Overseas Bank and Another v. Ashok Saw Mill [JT 2009 (9) SC 491 : 2009 (8) SCC 366] and United Bank of India v. Satyawati Tondon & Others [JT 2010 (7) SC 651 :2010 (8) SCC 110]. He submitted that the remedy of a bonafide lessee is, therefore, to surrender possession under Section 14 of the SARFAESI Act and to file an application under Section 14(1) of the SARFAESI Act before the Debts Recovery Tribunal and in case he succeeds before the Debts Recovery Tribunal to establish that the lease was created prior to the mortgage and the lease was to the knowledge of the secured credi....
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....ed. In case of an immovable property, a security interest is created in a secured asset by way of a mortgage in favour of the secured creditor. There may be cases where before the mortgage is created in respect of an immovable property, the borrower had already leased out the immovable property in favour of a lessee either as the owner or as a person competent or authorised to transfer the immovable property in accordance with Section 7 of the Transfer of Property Act. If such a lease is made, by virtue of Section 8 of the Transfer of Property Act, the lessee will have the right to enjoy the leased property in accordance with the terms and condition of the lease irrespective of whether a subsequent mortgagee of the immovable property has knowledge of such a lease or not. After the mortgage of an immovable property is created by the borrower in favour of a secured creditor, the right of the borrower to lease a mortgaged property is regulated by Section 65A of the Transfer of Property Act. Section 65 A of the Transfer of Property Act is extracted here in below: "65A. Mortgagor's power to lease. - (1) Subject to the provisions of sub - section (2), a mortgagor, while lawfu....
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.... or the mortgagor made in accordance with the provisions of the Transfer of Property Act. Section 35 of the SARFAESI Act, on which the High Court has placed reliance in the case of M/s Trade Well (supra) as well as in the impugned judgment is reproduced hereinbelow: " 3 5. The provisions of this Act to override other laws. -The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 13.1. Section 35 of the SARFAESI Act, therefore, provides that the provisions of the SARFAESI Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Thus, if there is any provision in the SARFAESI Act and if there is any provision in any other law which is inconsistent therewith, the provision of the SARFAESI Act will have effect and not the provision of any other law. The only section in the SARFAESI Act which confers a statutory right on the secured creditor to take possession of the secured asset and enforce the secured asset for the realization of the secured debt is Section 13. W....
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....rrower fails to discharge his liability in full within the period specified in sub - section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely: (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt. Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt; (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired ....
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....f the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. (9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to subsection (4) unless exercise of such right is agreed upon by the secured creditors representing not less than sixty percent in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor o....
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.... relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more or his officers authorised in this behalf in such manner as may be prescribed. (13) 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." When we read the different provisions of Section 13 of the SARFAESI Act extracted above, we and that sub -section (4) of Section 13 provides that in case the borrower fails to discharge his liability in full within sixty days from the date of notice provided in sub -section (2) of Section 13 of the SARFAESI Act, the secured creditor may take recourse to one or more of the measures mentioned therein to recover his secured debt. One of the measures mentioned in clause (a) in sub - section (4) of Section 13 of the SARFAESI Act is to take possession of the secured assets of the borrower including the right to transfer by way of lease. Where, however, the lawful possession of the secured as....
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....ime is limited conditionally on the happening of some event - by the happening of such event, (c) where the interest of the lessor in the property terminates on, or his power to dispose of the same extends only to, the happening of any event - by the happening of such event, (d) in case the interests of the lessee and the lessor in the whole of the property become vested at the same time in one person in the same right, (e) by express surrender, that is to say, in case the lessee yields up his interest under the lease to the lessor, by mutual agreement between them, (f) by implied surrender, (g) by forfeiture; that is to say, (1) in case the lessee breaks an express condition which provides that, on breach thereof, the lessor may re -enter; or (2) in case the lessee renounces his character as such by setting up a title in a third person or by claiming title in himself; or (3) the lessee is adjudicated an insolvent and the lease provides that the lessor may re -enter on the happening of such event; and in any of these cases the lessor or his transferee gives notice in writing to the lessee of his intention to determine the lease, (h) on the expiration of a notice to determine ....
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.... thereto; and (b) forward such assets 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 subclause (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 pa....
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....n 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. Thus, only if possession of the secured asset is required to be taken under the provisions of the SARFAESI Act, the secured creditor can move the Chief Metropolitan Magistrate or the District Magistrate for assistance to take possession of the secured asset. We have already held that Section 13 of the SARFAESI Act does not provide that the lease in respect of a secured asset will get determined when the secured creditor decides to take the measures in the said section. Hence, possession of the secured asset from a lessee in lawful possession under a valid lease is not required to be taken under the provisions of the SARFAESI Act and the Chief Metropolitan Magistrate or the District Magistrate, therefore, does not have any power under Section 14 of the SARFAESI Act to take possession of the secured asset from such a lessee and hand over the same to the secured creditor. When, therefore, a secured creditor moves the Chief Metropolitan Magistrate or the District Magistrate for assistance to take possession of....
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....l vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. In other words, the transferee of a secured asset will not acquire any right in a secured asset under sub - section (6) of Section 13 of the SARFAESI Act, unless it has been effected after the secured creditor has taken over possession of the secured asset. Thus, for the purpose of transferring the secured asset and for realizing the secured debt, the secured creditor will require the assistance of the Chief Metropolitan Magistrate or the District Magistrate for taking possession of a secured asset from the lessee where the lease stands determined by any of the modes mentioned in Section 111 of the Transfer of Property Act. ( 14. ) WE may now deal with the remedies available to the lessee where he is threatened to be dispossessed by any action taken by the secured creditor under Section 13 of the SARFAESI Act. Sub - rules (1) and (2) of Rule 8 of the Security Interest (Enforcement) Rules, 2002 provide for a possession notice where the secured asset is an immovable property. Sub - rules (1) (2) and (3) of Rule 8 of the Securit....
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....st thereon. Description of the Immovable Property All that part and parcel of the property consisting of Flat No._/Plot No._In Survey No._/City or Town Survey No._/Khasara no._Within the registration Sub - district_and District Bounded; On the North by On the South by On the East by On the West by Authorised Officer (Name of the Institution) Date. Place: it 20.1. A reading of sub - rules (1) and (2) of Rule 8 of the Security Interest (Enforcement) Rules, 2002 would show that the possession notice will have to be affixed on the outer door or at the conspicuous place of the property and also published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorised officer. At this stage, the lessee of an immovable property will have notice of the secured creditor making efforts to take possession of the secured assets of the borrower. When, therefore, a lessee becomes aware of the possession being taken by the secured creditor, in respect of the secured asset in respect of which he is the lessee, from the possession notice which ....
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....reditor. ( 15. ) SUB - section (3) of Section 14 of the SARFAESI Act provides that no act of the Chief Metropolitan Magistrate or the District Magistrate or any officer authorised by the Chief Metropolitan Magistrate or District Magistrate done in pursuance of Section 14 shall be called in question in any court or before any authority. The SARFAESI Act, therefore, attaches finality to the decision of the Chief Metropolitan Magistrate or the District Magistrate and this decision cannot be challenged before any court or any authority. But this Court has repeatedly held that statutory provisions attaching finality to the decision of an authority excluding the power of any other authority or Court to examine such a decision will not be a bar for the High Court or this Court to exercise jurisdiction vested by the Constitution because a statutory provision cannot take away a power vested by the Constitution. To quote, the observations of this Court in Columbia Sportswear Company v. Director of Income Tax, Bangalore [JT 2012 (7) SC 202 : 2012 (11) SCC 224]: "17. Considering the settled position of law that the powers of this Court under Article 136 of the Constitution and the powers of ....
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....er this subsection. (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub - section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder. (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub - section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub - section (4) of section 13 taken by the secured creditors as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may' be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor ....
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....nonadjudicatory process and it removes all fetters on the right of the secured creditor and that the secured creditor is entitled to take recourse to any one or more of the measures specified in Section 13(4) of the SARFAESI Act to recover a secured debt, notwithstanding anything contained in any other law for the time being in force. The High Court has also relied on the aforesaid decision of this Court in the case of Transcore (supra) to record a finding that the scheme of Section 13(4) read with Section 17(3) of the SARFAESI Act shows that if the borrower is dispossessed not in accordance with the provisions of the SARFAESI Act, the Debts Recovery Tribunal is entitled to restore status quo ante. The High Court has also relied on the observations of this Court in Transcore (supra) that the disputes which are sought to be avoided by Rule 8 read with Rule 9 of the Security Interest (Enforcement) Rules, 2002 are those where third party interest is created overnight and third party takes up the defence of being a bona fide purchaser for value without notice. We have perused the aforesaid decision of this Court in Transcore (supra) and we find that in that case, the question whether t....
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....vides that the courts named therein 'shall have jurisdiction to entertain and try any suit or proceeding between a landlord and a tenant relating to the recovery of rent or possession of any premises and to decide any application made under the Act and the applications which are to be decided by the State Government or an officer authorised by it or the Competent Authority. The question of law that we have to consider is whether the appellants as tenants of premises in the State of Maharashtra including Mumbai will have any remedy to move these courts having jurisdiction under Section 33 of the Maharashtra Rent Control Act and obtain the relief of injunction against the secured creditor taking possession of the secured asset from the appellants. The answer to this question is in Section 34 of the SARFAESI Act, which is extracted here in below: "34. Civil court not to have jurisdiction. - No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any acti....
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....e to the conclusion that he is not entitled to the possession of the secured asset for more than an year from the date of the instrument or from the date of delivery of possession in his favour by the landlord. Orders and directions of this Court in the facts of the cases before the Court: ( 19. ) HAVING expressed our opinion on the different questions of law raised in these appeals, we may now pass orders and directions considering the broad facts of the three different categories of the case before us: (i) In Criminal Appeals arising out of Special Leave Petition (Criminal) Nos.9426 of 2012, 9170 of 2012, 9163 of 2012, 9253 of 2012, 9164 of 2012, 9160 of 2012, 379 of 2013, 1467 of 2013, 1782 of 2013, 3575 of 2013, 4062 of 2012, 4063 of 2012, 4053 of 2012, 4068 of 2012, 4119 of 2012, 4129 of 2012, 7835 of 2013, 8365 of 2013, 9217 of 2013, 10346 of 2013,6587 of 2012,6639 of 2012, 6523 of 2012, 6622 of 2012, 7731 of 2012, 7747 of 2012 and 4618 of 2012, the appellants claim that they are in possession of the secured asset under a lease made prior to the mortgage but the Chief Metropolitan Magistrate, Mumbai, has passed orders under Section 14 of the SARFAESI Act for delivery of pos....