TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 765
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....cel of land admeasuring approximately 1036.71 sq. mtrs. bearing plot No.26 (old RR No.1245) and cadestral Survey No. 10/384 of Colaba division together with the building standing thereon consisting of ground + four floors, two garages and a pump-house (hereinafter referred to as "said property"). At the outset, we must mention here that it is not in dispute before us that the 1st Respondent is a "statutory authority" as defined in section 2(fa)(iv) of the PP Act and the said property are "public premises" as defined in section 2(e)(2)(v) of the said Act. It is also not in dispute that Respondent No.1 is the owner / landlord of the said property. 4. In a nutshell, in this Petition, the Petitioner has challenged the jurisdiction of Estate Officer (Respondent No.4) to issue the impugned SCNs (both dated 18 February, 2013) on the ground that the Petitioner, being an Asset Reconstruction Company ("ARC"), and having taken possession of the said property under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the "SARFAESI Act"), could not be evicted under the provisions of the PP Act. To put it simply, it....
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....art, demised unto the said Rao Bahadur Dadasahib A. Surve, the said property for a period of 99 years. It is the case of the Petitioner that under the terms of said lease, there was no prohibition for creation of a mortgage by deposit of a title deeds. The only restriction was for creating a mortgage by way of an under-lease. (c) Thereafter, pursuant to diverse assignments which were duly permitted by the predecessors of Respondent No.1, the leasehold rights in respect of the said property stood vested in favour of one Balwant Rai Shelley. Under a Deed of Variation dated 8 February, 1977, the said Balwant Rai Shelley was allowed to use the said garage in the said building for storage of non-hazardous material and the lease rentals were revised in the manner provided therein. (d) On 23 July, 1993, the said Balwant Rai Shelley expired leaving behind his last Will and testament dated 27 January, 1993. Under the said Will, Balwant Rai Shelley gave, devised and bequeathed all his right, title and interest in respect of the said property in favour of his daughter Pramila Ramnikrai Wadhwan. This Will has been probated in 1995. (e) Many years later, in the year 2006 the said Pramila ....
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....(h) In reply thereto, Respondent No.3, by its letter dated 28 February, 2009 inter alia made a reference to the meeting held on 10 October, 2006 and stated that pursuant to the said meeting, Respondent No.3 was advised that a valid mortgage by way of deposit of title- deeds could be created without the consent of Respondent No.1. It is in these circumstances, that the mortgage was created. Thereafter, another letter dated 1 March, 2009 was addressed by Respondent No.2 to Respondent No.1 inter alia stating that the said equitable mortgage was created as per the discussion and procedure suggested by the Estate Manager of Respondent No.1, namely, Mr Patil, and that the entire transaction entered into was transparent. (i) Be that as it may, since Respondent No.2 was in arrears of the lease rentals, Respondent No.1 under their demand notice dated 23 March, 2009 called upon Respondent No.2 to make payment of the bills attached to the said letter failing which legal proceedings would be initiated against Respondent No.2. In reply thereto, Respondent No.2 informed Respondent No.1 that it shall shortly comply with the said demand notice and that they had already put a deposit of Rs. 2.05 ....
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....ependent of this, since Respondent No.2 had not complied with the requisitions of Respondent No.1, by their letter dated 17 September, 2012, Respondent No.1 informed Respondent No.2 (with a copy marked to the Petitioner) that Respondent No.1 had sealed the said property. Thereafter, Respondent No.1 through their Advocates letter dated 27 September, 2012, terminated the said lease for the reasons more particularly set out therein. A copy of this termination letter was also forwarded to the Petitioner. (o) In reply to this termination letter, the Petitioner through their Advocates letter dated 10 October, 2012, inter alia contended that in the said lease there was no restriction for creating a mortgage by deposit of title deeds, as well as for the enforcement thereof. In the said letter the Petitioner informed the 1st Respondent that the leasehold rights in the said property would be sold by the Petitioner under the SARFAESI Act. Thereafter, the 1st Respondent, by its letter dated 18 January, 2013, informed the Petitioner that the entire exercise of mortgage and the consequent action of the Petitioner was unauthorized and holding of any auction by the Petitioner to sell the leaseho....
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....ioner from the said property (the possession of which was with the Petitioner pursuant to the measures taken under the SARFAESI Act), the same could be done by the 1st Respondent only by approaching the DRT under Section 17 of the SARFAESI Act. The Petitioner having taken measures under the provisions of the SARFAESI Act, could not be evicted by the 1st Respondent by taking recourse to the provisions of the PP Act, was the submission. In this regard, Mr Kamdar drew our attention to the definition of the words "security interest" [section 2(zf)] to mean the right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and included any mortgage, charge, hypothecation or assignment, other than those specified in Section 31 of the SARFAESI Act. He also placed reliance on Section 17 of the Act which inter alia gives a right to any person aggrieved by any of the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act, to approach the DRT. He submitted that Section 17(3) itself provides that if the DRT, after examining the facts and circumstances, comes to the conclusion that any of the measures referred to in Section 13(4....
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.... (iv) Transcore Vs. Union of India & Anr. (2008) 1 SCC 125 (v) Vishal N. Kalsaria Vs. Bank of India & Ors. (2016) 3 SCC 762 (vi) Madras Petrochem Ltd. & Anr. Vs. Board for Industrial and Financial Reconstruction & Ors. (2016) 1 SCC 1 8. Relying on the aforesaid decisions, Mr Kamdar submitted that the provisions of the SARFAESI Act would override the provisions of the PP Act and consequently the issuance of the SCNs by Respondent No.4 seeking to evict the Petitioner from the said property were wholly without jurisdiction. 9. On the other hand, Mr Bharucha, learned Sr. Counsel appearing on behalf of the 1st Respondent, submitted that the question of whether the provisions of the SARFAESI Act override the provisions of the PP Act would arise only if there was anything inconsistent between two Acts. He submitted that this is clear from Section 35 of the SARFAESI Act which inter alia stipulates that the provisions of the SARFAESI Act shall prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force. He submitted that in the facts of the present case, there was no conflict or inconsistency between the provisions of the PP Act and t....
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....t Respondent No.2 suffered, if it is found that Respondent No.2 had committed breaches of the terms of the said lease, was the submission of Mr Bharucha. In support of this proposition, Mr Bharucha relied upon the decisions of the Supreme Court in the case of Harshad Govardhan Sondagar Vs International Assets Reconstruction Co. Ltd & Anr. (2014) 6 SCC 1 and Vishal N. Kalsaria. (2016) 3 SCC 762 He submitted that in these cases, the Supreme Court had clearly held that even though the landlord had created a mortgage of his property in favour of a bank or financial institution (as defined in the SARFAESI Act), the same cannot destroy the rights of the tenants in the said property, which tenancy was created prior to the mortgage. In other words, the rights of pre-exisisting tenants were unaffected by the provisions of the SARFAESI Act and merely because the landlord had mortgaged its ownership rights, the tenants could not be thrown out of the property by exercising powers under the SARFAESI Act. He submitted that the converse would equally apply, and similarly in the facts of the present case, where admittedly the 1st Respondent had not mortgaged its rights with the Petitioner, the pro....
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....e impugned SCNs, and therefore, the challenge to the same was premature at this stage. For all the aforesaid reasons, Mr Bharucha submitted that there is no merit in this Writ Petition and the same ought to be dismissed with costs. 13. We have heard the learned Advocates at length and perused the papers and proceedings in the Writ Petition along with the annexures thereto. Before we deal with the rival contentions, it would be necessary to understand the purpose for which both the enactments, namely the SARFAESI Act and the PP Act, were brought into force. The statements of object and reasons of the SARFAESI Act indicate that the financial sector, being one of the key drivers in India's efforts to achieve success in rapidly developing its economy, did not have a level playing field as compared to other participants in the financial markets of the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions, and unlike international banks, the banks and financial institutions in India did not have the power to take possession of securities and sell them. The Legislature felt that our existing legal framework had not....
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....5. Having noted the purposes of the two Acts, it is quite clear that both operate in different fields. As far as the SARFAESI Act is concerned, it provides a mechanism for a secured creditor to recover its secured debt by selling the securities without the intervention of the Court. It does not, in any way, destroy the rights that were created in favour of a third party prior to the security being created in favour of the secured creditor. On the other hand, the PP Act provides a mechanism for evicting unauthorized persons from public premises. If a statutory authority (as defined under the PP Act) finds that any of its public premises are in unauthorized occupation of any person, that statutory authority can put in motion, proceedings for evicting that person under the provisions of the PP Act. 16. Coming to the facts of the present case, we find considerable force in the arguments of Mr Bharucha that there is no conflict between the provisions of the SARFAESI Act and the PP Act. It is an admitted fact that what has been mortgaged with the Petitioner are only the leasehold rights of Respondent No.2. It is not the case of the Petitioner that the ownership rights of the 1st Respond....
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....ion to issue impugned show cause notices. 17. The proposition that the SARFAESI Act does not destroy the pre- existing rights that were created prior to the creation of the mortgage/ security is clearly laid down by the Supreme Court in the cases of Harshad Govardhan Sondagar (2014) 6 SCC 1 and Vishal N. Kalsaria. (2016) 3 SCC 762 Both these decisions take the view that the SARFAESI Act does not destroy the rights of the tenant, which tenancy was created prior in point of time to the mortgage / security being created in favour of the secured creditor. Paragraphs 26 to 30 in the case of Vishal N. Kalsaria(2016) 3 SCC 762 are very instructive in this regard and read as follows: "26. Providing a smooth and efficient recovery procedure to enable the banks to recover the non-performing assets is a laudable object indeed, which needs to be ensured for the development of the economy of the country. What has complicated the matters, however, is the clash of this laudable object with another laudable object, namely, to secure the rights of the tenants under the various Rent Control Acts. The history of these Rent Control Acts can be traced to as far back as the Second World War. At that ....
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....ing the non-performing asset on the one hand, and protecting the right of the blameless tenant on the other. The Rent Control Act being a social welfare legislation, must be construed as such. A landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Control Act, more so when the two legislations, that is the SARFAESI Act and the Rent Control Act operate in completely different fields. While the SARFAESI Act is concerned with non-performing assets of the banks, the Rent Control Act governs the relationship between a tenant and the landlord and specifies the rights and liabilities of each as well as the rules of ejectment with respect to such tenants. The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act. If the contentions of the learned counsel for the respondent Banks are to be accepted, it would render the entire scheme of all Rent Control Acts operating in the country as useless and nugatory. Tenants would be left wholly to the mercy of their landlords and in the fear that the landlord may use the tenanted premises as a security interest while taking a loan from a bank and subsequently defaul....
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....aragraph 29) held that the two legislations, namely, the SARFAESI Act and the Rent Control Act operate in completely different fields. While the SARFAESI Act is concerned with nonperforming assets of the banks, the Rent Control Act governed the relationship between a tenant and the landlord and specified the rights and liabilities of each, as well as the rights of ejectment with respect to such tenants. The Supreme Court, therefore, held that the provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act. Applying this ratio to the facts before us, we have no hesitation in holding that even the provisions of the SARFAESI Act and the PP Act operate in completely different fields. The SARFAESI Act is concerned with non-performing assets of banks whereas the PP Act governs the relationship between the statutory authority (as defined under the PP Act) which owns public premises, on the one hand, and the occupants of those public premises on the other. On the same parity of reasoning as given by the Supreme Court, the provisions of the SARFAESI Act cannot be used to override the provisions of the PP Act. If the contentions of Mr Kamdar were to be ac....
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....it Petition has been deprecated time and again as clearly spelt out by the Supreme Court in the case of Kunisetty Satyanarayana. (2006) 12 SCC 28 : AIR 2007 Supreme Court 906(1) Paragraphs 13 to 16 (SCC Report) of this decision read thus: "13. It is well settled by a series of decisions of this Court that ordinarily no writ lies against a charge-sheet or show-cause notice vide Executive Engineer, Bihar State Housing Board v. Ramesh Kumar Singh [(1996) 1 SCC 327 : JT (1995) 8 SC 331] ,Special Director v. Mohd. Ghulam Ghouse [(2004) 3 SCC 440 : 2004 SCC (Cri) 826 : AIR 2004 SC 1467] , Ulagappa v. Divisional Commr., Mysore [(2001) 10 SCC 639] ,State of U.P. v. Brahm Datt Sharma [(1987) 2 SCC 179 : (1987) 3 ATC 319 : AIR 1987 SC 943], etc. 14. The reason why ordinarily a writ petition should not be entertained against a mere show-cause notice or charge-sheet is that at that stage the writ petition may be held to be premature. A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so. It is quite p....