Banks used to take advantage of the provisions of SARFAESI Act, 2002 earlier in taking possession of the ‘secured asset’ even when the tenant was in possession of the property. Absolutely, there is no difficulty in taking the possession of the ‘secured asset’ using the protection and assistance under Section 14 of the Act if the property was actually in possession of the borrower or the guarantor. Courts were looking into the issue of rights of tenants and the bona fides as the owner of the property can play with the Bank with fictitious arrangements. Any person aggrieved, including a Tenant, can approach the Debt Recovery Tribunal under section 17 of the Act. When a tenant approaches the Court or the Tribunal seeking protection of his rights and questioning the action being taken by the Bank using Section 14 of SARFAESI Act, 2002, the Court or the Tribunal used to look into or emphasize as to:
(a). Whether there are bona fides in the contention of the tenant?
(b). If Tenant relies on any agreement with the landlord, the date of the agreement or the date from when the Tenant was in possession of the property.
(c). The knowledge of the Bank in respect of tenancy while sanctioning the loan.
(c). Whether the agreement between the tenant or the landlord registered and legal?
When a tenant files an application under section 17 of the SARFAESI Act, 2002 questioning the action of taking physical possession of the property by the Bank, the interpretation initially was infavour of the Banks in most of the cases unless the tenant establishes a clear case. However, now, the Courts rightly are emphasizing at the laws protecting the rights of the tenants and as to how the Banks are not allowed to take advantage of the provisions of the SARFAESI Act, 2002. Looking at the plight of the tenants, State Governments must have made laws to protect the rights of the tenants and the tenants used to be protected irrespective of the agreement between the landlord and the tenant while if there exist any agreement, the relevant contents like the payment of advance, rent agreed etc. are taken into consideration. The laws infavour of the tenants are called ‘welfare legislation’ and justified time and again irrespective of the criticism by the landlords that they are being harassed and in most of the times, it becomes very difficult to get the tenants vacated. A tenant can ask for fixation of fair rent irrespective of the clauses in the agreement if there is any agreement and the landlord is asked to follow a procedure in evicting the tenant and the landlord is supposed to establish a ground for getting the tenant vacated. If the landlord wants to get a tenant evicted, he has to approach the Tribunal or the Court under the special legislation protecting the rights of the tenants if there is any such legislation; and even if the landlord wins the case against the tenant, the tenant has got a right of Appeal, a writ jurisdiction or revisional jurisdiction can also be invoked thereafter and matters can even go to the Supreme Court. These laws infavour of tenants are often criticized, but, those continue to have the statutory force unless repealed.
Explaining as to how the rights of the tenants are to be protected and the Banks are not allowed to get the tenants evicted without following the due process of law, the High Court of Kerala, in N.P. Pushpangadan & Others Vs. The Federal Bank Ltd (2011 (4) ILR(Ker) 196, 2011 (4) KLT 134 (FB), 2011 (4) KLJ 93, 2011 (4) KHC 40), was pleased to explain the issues and held as follows:
“22. An owner of a building wish to get his tenant evicted. A particular owner may have so many tenants under him. In view of the provisions of the Kerala Buildings (Lease and Rent Control) Act, a landlord can get an order of eviction only if the grounds enumerated in the Rent Control Act are established. An unscrupulous landlord may apply under Section 133 of the Code of Criminal Procedure and get an order for demolition of the building, even without notice to the tenants. The tenants may, sometimes, be successful in resisting such illegal action, by approaching the civil court. If it were to be held that the Securitisation Act overrides the Kerala Buildings (Lease and Rent Control) Act, a landlord who has let out his building to several tenants and wants to get them evicted can easily manipulate things to achieve that object without recourse to the machinery provided under the Rent Control Act. He can take a loan from a bank on mortgaging the tenanted building, deliberately commit default in repaying the loan and allow the measures under Section 13(4) and 14 of the Securitisation Act to be taken by the secured creditor. The tenants can thus be easily evicted summarily, either before the sale or after sale under the Securitisation Act. If a sale takes place, the landlord can also manage to have it purchased in the name of his confidant. In such cases, how could the civil court or the High Court or the authorities under the Securitisation Act protect the interests of the tenants, if the interpretation of the law is as stated above? If that is the interpretation of law, we would be creating two categories of tenants in respect of tenanted buildings; namely (a) those who are governed by the Kerala Buildings (Lease and Rent Control) Act but whose landlord has not taken any loan and created security interest in respect of the tenanted building and (b) those who are not entitled to the protection of the Rent Control Act only for the reason that the landlord has created a security interest in respect of the building and proceedings under the Securitisation Act have been taken. The Securitisation Act, in our view, does not create such a situation denying the rights of tenants under the Kerala Buildings (Lease and Rent Control) Act.”
On the same point, the High Court of Madras in Indian Bank Vs. M/s Nippon Enterprises South (2011 (2) CTC 474, 2011 (2) LW 521, 2011 AIR (Mad) 238), was pleased to observe as follows:
“36. Under Section 13(4) of the SARFAESI Act, the secured creditor can take possession of the secured assets of the borrower. There can be no difficulty in taking such possession of the secured assets either under Section 13(4) or under Section 14 of the SARFAESI Act, if the secured asset is in the possession of the borrower or guarantor, as the case may be. SARFAESI Act entitles the creditor to take possession of the secured assets either by issuing possession notice under Section 13(4) or by making application to the Chief Metropolitan Magistrate/District Magistrate to take physical possession under Section 14. Though the function of Chief Metropolitan Magistrate/District Magistrate is only ministerial, the provision of Section 14 confers drastic power to take possession even by use of force. The difficulty arises only in cases where the possession of the property is in the hands of the tenant (lessee). The SARFAESI Act does not contain any specific provision enabling the secured creditor to take possession from the hands of a tenant (lessee). On the other hand, the TN Rent Control Act contemplates that a tenant is entitled in law to continue to be in possession unless he is evicted under the provisions of the said Act. SARFAESI Act being mainly procedural and the TN Rent Control Act being exclusively dealing with the substantive right of tenants, both the Acts operate on different fields. Only in the event the SARFAESI Act contains a provision to enable the bank to take possession of a secured asset from a lessee, then only it can be held that there is conflict between the SARFAESI Act and the TN Rent Control Act in which case, the TN Rent Control Act should give way for the SARFAESI Act to have overriding effect. However, there is no such provision in the SARFAESI Act enabling the bank to take possession from the lessee, though the Act speaks of the right of the bank to take possession of the secured asset. Moreover, right from Section 13(2) till exhausting the provision of appeal, the bank deals only with the borrower/guarantor and the lessee is nowhere in the picture, as the Act does not require the bank to involve the lessee/tenant as well in the proceedings. Thus, we do not find any overlapping or inconsistency between these two Acts. When there is no such overlapping or repugnancy between these two provisions in respect of taking possession from the lessee, it has to be held that physical possession of the secured assets from the lessee/tenant can be taken only by invoking the provisions of the TN Rent Control Act.”
It is a different case if it is clearly proved that a person claiming to be a tenant and the agreement with the land-lord is fictitious though it is very difficult to establish mala fides on the part of the Bank.
If the legal proposition is allowed to be settled in the near future that the Banks can not override the provisions of the laws made by State Governments in the interests of the tenants and Banks can not evict the tenants using Section 14 of SARFAESI Act, 2002, then, both the interests of the Banks and also the borrowers are to be looked-into carefully. The Banks can sell the secured assets by following the due procedure and there is no need for the Banks to take physical possession of the property before selling the properties in auction. There were some conflicting judgments as to the responsibilities of the Banks in taking physical possession of the property even after confirmation of sale infavour of the bidder and the need of Banks to take physical possession of the properties while conducting the auction. However, as I think, it is settled that the Banks can auction the property under the provisions of SARFAESI Act, 2002 without taking actual possession of the property and there is no responsibility on the part of the Bank in getting the physical possession of secured asset even when the auction sale is concluded and the price is received unless it is agreed otherwise at the time of Auction. But, the interesting issue is like:
What happens to the value of the property if it is sold without taking actual possession of the property?
When a Bank sells the property in Public Auction or other permitted means without actually taking the physical possession of the property, the Bank may get lesser price for the property as the bidder has to take the risk of getting the tenant vacated. The Banks can justify selling the property for a lesser price in view of the compulsions and the legal position. The borrower or the guarantor who has mortgaged the property with the Bank may have a different and serious contention in this regard. When the property is sold for a lesser price in view of the risk involved in getting the tenant vacated, the Borrower may not agree to that contention and may seriously contend that the property is undervalued and sold for a lesser price. The Borrower has every right to raise these kinds of arguments as the balance sale consideration after adjustments, should go to the borrower or the guarantor as the case may be. Again, if the sale consideration is not sufficient to meet the liability, the Bank may initiate further proceedings against the borrower for the remaining.
It all depends upon the facts of that particular case like the outstanding amount, the value of the property and the contention of the borrower or the owner of the property and there may not be any hard-and-fast rule on these complicated issues under SARFAESI Act, 2002.
The borrower or the guarantor can not speak for the tenant and it is for the tenant to ask for the protection of his rights when the Bank initiates steps to take physical possession of the property. The responsibilities of the owner of the property in normal circumstances may be different and in normal circumstances, the owner may be duty bound to ensure that no third party disturbs the tenant.
Note: the views expressed are my personal and do not represent anyone or organization.
V.DURGA RAO, Advocate, Madras High Court.