Case Law Details
Moideen Koya Vs Pegasus Assets Reconstruction Co. Pvt. Ltd. (Kerala High Court)
Kerala High Court has ruled that multiple tenants, even with separate lease agreements, can file a joint application before the Debts Recovery Tribunal (DRT) under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. This decision came in the case of Moideen Koya Vs Pegasus Assets Reconstruction Co. Pvt. Ltd., where the petitioners challenged an order from the Registrar of DRT-1, Ernakulam, which had declined to register their consolidated application on the grounds that it was filed by four tenants jointly. The petitioners, all tenants of the same secured asset, had sought to challenge a dispossession notice issued by an Advocate Commissioner.
The High Court deemed the DRT Registry’s dismissal of the consolidated application as legally unsustainable. The Court observed that the SARFAESI Act, particularly Section 17(1), uses the broad term “any person (including borrower)” to describe who may apply to the DRT if aggrieved by measures taken under Section 13(4). This inclusive language, the Court reasoned, extends beyond just borrowers to encompass third parties like tenants whose possessory or leasehold rights are impacted by a secured creditor’s actions. The Court further noted that neither the SARFAESI Act nor Rule 13A of the Security Interest (Enforcement) Rules, 2002, contains any explicit prohibition against multiple aggrieved persons filing a single, consolidated application. This absence of prohibition, according to the Court, suggests a legislative intent not to bar joint applications, aligning with the general legal principle that procedural rules should facilitate, rather than obstruct, access to justice. The DRT, as a specialized forum, is expected to maintain flexibility in procedural matters to ensure that legitimate grievances are heard on their merits.
The High Court emphasized that when multiple tenants challenge the same action of a secured creditor, such as taking possession or auctioning a property, their grievances stem from a common cause of action, irrespective of individual lease agreement differences. The insistence on separate filings by the DRT Registry was deemed an overly rigid interpretation, unsupported by the statutory framework. To buttress its reasoning, the Court referred to the Supreme Court’s judgment in Mardia Chemicals Ltd. v. Union of India [(2004) 4 SCC 311]. This landmark ruling underscored that tribunals should avoid hyper-technical objections that obstruct substantive justice. The Supreme Court had clarified that proceedings under Section 17 of the SARFAESI Act are not appellate in nature but rather initial actions, akin to filing a civil suit, allowing an aggrieved party to raise grievances against actions taken by a party to the contract. This interpretation reinforces the notion that procedural formalities should not impede the pursuit of justice.
The Kerala High Court highlighted that rejecting a consolidated application also contradicts the legislative intent of the SARFAESI Act, which aims for expeditious dispute resolution. Requiring individual applications from each tenant would lead to repetitive pleadings, potential for conflicting interim orders, and unnecessary delays, thereby defeating the purpose of a summary adjudication mechanism under Section 17. The Court reiterated the legal maxim that procedural law should be a servant to justice, not an obstruction. In light of these considerations, the High Court set aside the Registrar’s order, directing the DRT Registrar to formally number the application. Furthermore, the Debts Recovery Tribunal was instructed to consider the petitioners’ case on its merits and pass orders in accordance with the law. An interim order previously passed by the High Court was extended for six weeks to allow the petitioners to seek appropriate relief from the concerned Tribunal. This judgment from the Kerala High Court clarifies a crucial procedural aspect under the SARFAESI Act, ensuring that common grievances of multiple parties, especially tenants, can be collectively addressed, promoting efficiency and upholding the broader principles of natural justice.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioners challenge Ext.P8 order passed by the Registrar of the Debts Recovery Tribunal 1, Ernakulam, declining to register the application preferred by the petitioners against the notice of dispossession served by the Advocate Commissioner on 05.06.2024. The Registry objected to the same on the ground that a consolidated Securitisation Application has been filed by four tenants.
2. It is to be noticed that all four applicants are tenants of the borrower occupying the secured asset. The dismissal of a consolidated application filed by multiple tenants, regarding the same cause of action, challenging the enforcement measures of the secured creditor under Section 17 of the SARFAESI Act, on the sole ground that separate applications must be filed by each tenant, is legally unsustainable, for multiple reasons.
3. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) provides a comprehensive framework for creditors to enforce security interests while also establishing safeguards for aggrieved parties, including tenants. Section 17(1) explicitly states that “any person (including borrower)” aggrieved by measures under Section 13(4) may apply to the Debts Recovery Tribunal (DRT). The use of the term “any person” is broad and inclusive, encompassing not just borrowers but also third parties like tenants whose possessory or leasehold rights are affected by the secured creditor’s actions.
4. Rule 13A of the Security Interest (Enforcement) Rules, 2002, read with Appendix X, prescribes the procedural format for such applications. Crucially, neither the Act nor the Rules contains any express prohibition against multiple aggrieved persons filing a single, consolidated application. The absence of such a prohibition suggests that the legislature did not intend to bar joint applications. This interpretation aligns with the general legal principle that procedural rules should facilitate, rather than obstruct, access to justice. The DRT, as a specialised forum, is expected to exercise flexibility in procedural matters to ensure that legitimate grievances are heard on merits.
5. When multiple tenants challenge the same secured creditor’s action, such as the taking of possession or auction of a property, their grievances arise from a common cause of action, even if their lease agreements differ. The insistence on separate filings is an overly rigid interpretation unsupported by the Act or Rules.
6. It is profitable to refer to the judgment of the Supreme Court, in Mardia Chemicals Ltd. v. Union of India [(2004) 4 SCC 311], which emphasised that tribunals should avoid hyper-technical objections that obstruct substantive justice. The relevant paragraphs are extracted hereunder:-
“59. We may like to observe that proceedings under Section 17 of the Act, in fact are not appellate proceedings. It seems to be a misnomer. In fact it is the initial action which is brought before a Forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. It is the stage of initial proceeding like filing a suit in civil court. As a matter of fact proceedings under Section 17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the bar under Section 34 of the Act in the present case. We may refer to a decision of this Court reported in (1974) 2 SCC p. 393 Smt. Ganga Bai Vs. Vijay Kumar and Ors. , where in respect of original and appellate proceedings a distinction has been drawn as follows:-
“…… There is a basic distinction between the right of suit and the right of appeal. There is an inherent right in every person to bring a suit of civil nature and unless one’s choice. It is no answer to a suit, howsoever frivolous to claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no one and therefore an appeal for its maintainability must have the clear authority of law. That explains why the right of appeal is described as a creature of statute.”
7. Furthermore, the DRT’s rejection of a consolidated application contradicts the legislative intent behind SARFAESI, which seeks expeditious resolution of disputes. Requiring each tenant to file a separate application would lead to repetitive pleadings, conflicting interim orders, and unnecessary delays— outcomes that defeat the purpose of a summary adjudication mechanism under Section 17. Procedural rules should be interpreted to facilitate dispute resolution while ensuring timely and diligent pursuit of legal remedies. Procedural law is not to be tyrant but a servant, not an obstruction but an aid to justice.
8. Under such circumstances, Ext.P8 is set aside, and there will be a direction to the Registrar to number the application. The Debts Recovery Tribunal shall consider the case of the petitioners on merits, and orders shall be passed in accordance with law. The interim passed by this Court will continue for six weeks to enable the petitioners to seek appropriate relief from the Tribunal concerned.
The original petition is allowed as above.
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