WHETHER TENANCY CAN BE A GROUND TO OBSTRUCT THE POSESSION OF SECURED PROPERTY BY SECURED CREDITOR?

INTRODUCTION

    In the financial landscape the secured creditors used to counter with many difficulties and obstacles in taking possession of the secured asset when the borrowers used to default in payment of lending amount to lender/Secured creditor. Therefore, the SARFAESI Act came into existence to speed up the recovery and empowering the creditors. However, on many occasions the Secured Creditors still facing complexities in dealing with the borrower and the involvement of the Third Party like Tenant, Co-owners, legal hires and so on.

    In context of the Tenant when tenant holding the possession of the secured assets The Hon’ble Supreme Court of the India cleared its take in the case of Balkrishna Rama Tarle Dead Thr LRS & Anr. Versus Phoenix ARC Private Limited & Ors.( SLP No. 16013 of 2022 ) let’s take closure look at this Case:

PARTIES INVOLVED

PETITIONER(S): Balkrishna Rama Tarle Dead Thr LRS & Anr is the tenant at the borrower’s property who want to save his tenancy rights and filed Special Leave Petition.

RESPONDENT(S): Phoenix ARC Private Limited & Ors is the secured creditor to borrower who want to exercise his rights to take possession of the secured asset.

FACTS OF THE CASE:

• That the Religare Finvest ltd. Sanctioned a loan of Rs 6 crores in favour of the borrowers and the said loan was secured by a registered mortgage created by borrowers in favour of Religare Finvest ltd in respect of the property (Secured assets)
• Thereafter the Borrowers committed Defaults in repayment of the said loan which led to Religare Classifying borrowers account as NPA (Non-Performing Asset)
• Thareafter Religare issued Notice dated 13.04.2018 under 13(2) SARFASI Act, intimating the Borrowers to pay the Outstanding amount due upon him.
• That thereafter, by a Deed of Assignment dated 29.09.2028, Religare assigned all its right, title, interest, and benefit under the said loan agreement to respondent no.1 herein i.e. Phoenix ARC Private Limited & Ors (herein after referred as Secured Creditor)
• Thus, Phoenix ARC Private Limited & Ors Stepped into the Shoes of the Religare in that capacity issued a notice dated 21.05.2019 u/s 13(2) SARFASI Act to borrowers calling upon borrowers to make payment of a sum of Rs. 5,83,22,866/- (Rupees Five Crore Eighty-three Lacs Twenty-two Thousand Eight hundred sixty-six Rupees) after that the Secured Creditor took symbolic possession of the secured assets under Section 13(4) of the SARFAESI Act.
• The same was intimated to the borrowers vide their letter dated 21.09.2019 and a public Notice was also issued by the secured creditor in two newspapers in compliance with the provisions of the Security Interest (Enforcement) Rules, 2002.
• That Thereafter, the Secured creditor filed an application under section 14 of the SARFASI Act seeking assistance of District Magistrate, Nasik herein Respondent no. 3, for taking physical possession of the secured assets.
• Then the Bal krishna Rama Trale Dead thr Lrs (Petitioner herein- original respondent no.2) claimed to be a tenant in respect of the ground floor plus first floor showroom along with service station on a part of the secured assets sought to intervene in the said proceedings filed under section 14 of the SARFASI Act
• The Petitioner placed reliance upon an order dated 20.04.2018 passed in Regular Civil suit No. 58/2018 filed by him against one of the borrowers, whereby one of the borrowers was restrained from dis-possessing him from the said premises.
• That neither the Borrower(s) nor the petitioner(s) instituted any proceedings before the Debt Recovery Tribunal (DRT) under section 17 of the SARFAESI Act against the steps taken under section 13 of the SARFAESI Act.
• That thereafter the Additional District Magistrate, Nashik (Designated Authority) passes the order dated 27.08.2021 and declined to assist the secured creditor in taking possession of the secured assets and kept said application pending by observing that after termination of the tenancy rights of Bal krishna Rama Trale Dead thr Lrs (Petitioner) by the Finance Company by following due procedure of law the further orders regarding possession of the mortgage property will be decided.
• Feeling aggrieved and dissatisfied with the order passed by the ADM, Nashik the secured creditor filed writ petition before the High Court and,
• The High Court passed the impugned judgement and order to set aside order dated 27.08.2021 passed by the ADM by observing that such order is beyond the scope and ambit of the powers to be exercised under Section 14 of the SARFAESI Act in accordance with the provisions of section 14 of the SARFAESI Act.
• Feeling aggrieved and dissatisfied with the impugned judgement and order passed by the High Court, the third party- petitioner(s) claiming to be tenant in some of the secured assets have preferred the SLP before the Hon’ble Supreme Court of India 
• ARGUMENTS
• The Ld. Sr. Adv. Shri Vinay Navare, appearing on behalf of the petitioners has submitted that in the facts and circumstances of the case and when the petitioners claimed to be the tenant of the original landlord with respect to some of the secured assets of which the possession was sought and when the original writ petitioner stepped into the shoes of the original landlord as rightly observed by the designated authority- Additional District Magistrate unless the secured creditor who stepped into the shoes of the original landlord initiates the legal proceedings for eviction of the tenant cannot get the possession in an application under Section 14 of the SARFAESI Act.
• He also summited that the High Court ought to have appreciated that the tenancy was subsisting and continuing since prior to the mortgage of the property and therefore, their rights are to be protected and unless and until the proceedings are initiated for eviction of the tenant, the secured creditor who will be in the shoes of the original landlord, cannot get the possession in an application under section 14 of the SARFAESI Act. Reliance is placed upon the decisions of this Court in the cases of Harshad Govardhan Sondagar Vs. International Assets Reconstruction Company Limited and Ors.; (2014) 6 SCC 1 and Vishal N. Kalsaria Vs. Bank of India and Ors.; (2016) 3 SCC 762.

LEGAL ISSUES:

  That while exercising the powers under Section 14 of the SARFAESI Act, the District Magistrate/designated authority could have passed such an order that unless and until the secured creditor terminates the tenancy rights of the third person by following due procedure of law and further orders regarding possession of the mortgaged property then and then only an application under Section 14 of the SARFAESI Act will be decided?

• OBSERVATION BY COURT
• That after the Fair reading of the Section 14 of the SARFAESI Act the Hon’ble Supreme court observed that, the secured creditor is obliged to approach the District Magistrate/Chief Metropolitan Magistrate by way of a written application requesting for taking possession of the secured assets and documents relating thereto and for being forwarded to it (secured creditor) for further action.
• As soon as such an application is received, the CMM/DM is expected to pass an order after verification of compliance of all formalities by the secured creditor referred to in the proviso in Section 14(1) of the SARFAESI Act and after being satisfied in that regard, to take possession of the secured assets and documents relating thereto and to forward the same to the secured creditor at the earliest opportunity
• Court also observed that, the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets.
• In that view of the matter once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets even with the help of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner. At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor and/or between any other third party and the secured creditor with respect to the secured assets and the aggrieved party to be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act, before Debts Recovery Tribunal.
• By hearing the submissions of the petitioner’s advocate relying upon the decision of this court in the case of Vishal N. Kalsaria (supra) court observed that . In the said decision, the question before this Court was of conflict of claim under the Maharashtra Rent Control Act, 1999 and the provisions of the SARFAESI Act, and which law will prevail. The scope and ambit of the powers to be exercised under Section 14 of the SARFAESI Act were not directly in question before this Court. Even as observed and held by this Court in the aforesaid decision, a judgment cannot be interpreted and applied to fact situations by reading it as a statute. One cannot pick up a word or sentence from a judgment to construe that it is the ratio decidendi on the relevant aspects of the case.
• Court also by hearing the submissions of the petitioner’s advocate relying upon the decision of this court in the case of Harshad Govardhan Sondagar (supra) court that in the aforesaid case is the DM/CMM has to give a notice and opportunity of hearing to the person in possession of the secured assets claiming to be a “Class (1) or (2)” lessee of mortgagor/borrower, as well as to secured creditor, consistent with principles of natural justice, and then take a decision. In the said decision, it is not observed that the DM/CMM has to adjudicate the rights between the parties.
• CONCLUSION

After going through the Facts, Arguments, legal issues and observations the court came to its conclusion that no error has been committed by the High Court in setting aside the order dated 27.08.2021 passed by the designated authority/Additional District Magistrate, Nasik, keeping the application pending till the secured creditor initiates the legal proceedings for eviction of the tenant cannot get the possession in an application under section 14 of the SARFAESI Act. The High Court has rightly directed the designated authority to proceed further with the application under Section 14 of the SARFAESI Act, and to dispose of the same in accordance with the provisions of Section 14 of the SARFAESI Act.