SC: Secured creditor cannot take over possession of the secured asset with the lessee under a valid lease


Court :
The Supreme Court of India

Brief :
The appellants who were tenants of different premises in Mumbai had mortgaged the premises to different banks as securities against loans. The appellants defaulted in repayment loans. The respondents issued notices of 60 days period under SARFAESI Act,2002 with intention to enforce rights over the secured assets. The appellants failed to discharge their liability in full within the period of 60 days. The respondents thus exercised their right to take possession of the secured assets. The secured assets however, consisted of the premises under the possession of the appellants. The respondents requested the Chief Metropolitan Magistrate, Mumbai for possession under SARFAESI Act. The appellants moved to the court claiming that they are not borrowers, but they are lessees of the borrowers and are entitled to remain in possession of the secured assets. According to various Bombay High Court judgments, the appellants grieved that they would have to surrender the possession and approach the Debt Recovery Tribunal under SARFAESI Act. Even if any remedy is available under the Act, they will still have to vacate the premises unless the Debt Recovery Tribunal decides in their favour. Therefore, appeals by Special leave were filed under Article 136 of the constitution.

Citation :
Harshad Govardhan Sondagar - Appellant versus International Assets Reconstruction Co. Ltd. & Ors. - Respondents

 IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL No. 736 OF 2014

(Arising out of S.L.P. (Crl.) No.1666 of 2012)

Harshad Govardhan Sondagar

Appellant

 

Versus

 

International Assets Reconstruction Co.Ltd. & Ors.

Respondents

 

Before HON’BLEA. K. Patnaik and V. Gopala Gowda

WITH

CRIMINAL APPEAL No. 737 OF 2014

(Arising out of S.L.P. (Crl.) No.4058 of 2012),

CRIMINAL APPEAL No. 738 OF 2014

(Arising out of S.L.P. (Crl.) No.4052 of 2012),

CRIMINAL APPEAL No. 739 OF 2014

(Arising out of S.L.P. (Crl.) No.4061 of 2012),

CRIMINAL APPEAL No. 740 OF 2014

(Arising out of S.L.P. (Crl.) No.4057 of 2012),

CRIMINAL APPEAL No. 741 OF 2014

(Arising out of S.L.P. (Crl.) No.4066 of 2012),

CRIMINAL APPEAL No. 742 OF 2014

(Arising out of S.L.P. (Crl.) No.4062 of 2012),

CRIMINAL APPEAL No. 743 OF 2014

(Arising out of S.L.P. (Crl.) No.4063 of 2012),

CRIMINAL APPEAL No. 744 OF 2014

(Arising out of S.L.P. (Crl.) No.4053 of 2012),

CRIMINAL APPEAL No. 745 OF 2014

(Arising out of S.L.P. (Crl.) No.4064 of 2012),

CRIMINAL APPEAL No. 746 OF 2014

(Arising out of S.L.P. (Crl.) No.4068 of 2012),

CRIMINAL APPEAL No. 747 OF 2014

(Arising out of S.L.P. (Crl.) No.4111 of 2012),

CRIMINAL APPEAL No. 748 OF 2014

(Arising out of S.L.P. (Crl.) No.4123 of 2012),

CRIMINAL APPEAL No. 749 OF 2014

(Arising out of S.L.P. (Crl.) No.4117 of 2012),

CRIMINAL APPEAL No. 750 OF 2014

(Arising out of S.L.P. (Crl.) No.4115 of 2012),

CRIMINAL APPEAL No. 751 OF 2014

(Arising out of S.L.P. (Crl.) No.4114 of 2012),

CRIMINAL APPEAL No. 752 OF 2014

(Arising out of S.L.P. (Crl.) No.4124 of 2012),

CRIMINAL APPEAL No. 753 OF 2014

(Arising out of S.L.P. (Crl.) No.4119 of 2012),

CRIMINAL APPEAL No. 754 OF 2014

(Arising out of S.L.P. (Crl.) No.4129 of 2012),

CRIMINAL APPEAL No. 755 OF 2014

(Arising out of S.L.P. (Crl.) No.4118 of 2012),

CRIMINAL APPEAL No. 756 OF 2014

(Arising out of S.L.P. (Crl.) No.4130 of 2012),

CRIMINAL APPEAL No. 757 OF 2014

(Arising out of S.L.P. (Crl.) No.4127 of 2012),

CRIMINAL APPEAL No. 758 OF 2014

(Arising out of S.L.P. (Crl.) No.4125 of 2012),

CRIMINAL APPEAL No. 759 OF 2014

(Arising out of S.L.P. (Crl.) No.4120 of 2012),

CRIMINAL APPEAL No. 760 OF 2014

(Arising out of S.L.P. (Crl.) No.4618 of 2012),

CRIMINAL APPEAL No. 761 OF 2014

(Arising out of S.L.P. (Crl.) No.4619 of 2012),

CRIMINAL APPEAL No. 762 OF 2014

(Arising out of S.L.P. (Crl.) No.4620 of 2012),

CRIMINAL APPEAL No. 763 OF 2014

(Arising out of S.L.P. (Crl.) No.6587 of 2012),

CRIMINAL APPEAL No. 764 OF 2014

(Arising out of S.L.P. (Crl.) No.6598 of 2012),

CRIMINAL APPEAL No. 765 OF 2014

(Arising out of S.L.P. (Crl.) No.6522 of 2012),

CRIMINAL APPEAL No. 766 OF 2014

(Arising out of S.L.P. (Crl.) No.6639 of 2012),

CRIMINAL APPEAL No. 767 OF 2014

(Arising out of S.L.P. (Crl.) No.6523 of 2012),

CRIMINAL APPEAL No. 768 OF 2014

(Arising out of S.L.P. (Crl.) No.6612 of 2012),

CRIMINAL APPEAL No. 769 OF 2014

(Arising out of S.L.P. (Crl.) No.6622 of 2012),

CRIMINAL APPEAL No. 770 OF 2014

(Arising out of S.L.P. (Crl.) No.7731 of 2012),

CRIMINAL APPEAL No. 771 OF 2014

(Arising out of S.L.P. (Crl.) No.7733 of 2012),

CRIMINAL APPEAL No. 772 OF 2014

(Arising out of S.L.P. (Crl.) No.7743 of 2012),

CRIMINAL APPEAL No. 773 OF 2014

(Arising out of S.L.P. (Crl.) No.7744 of 2012),

CRIMINAL APPEAL No. 774 OF 2014

(Arising out of S.L.P. (Crl.) No.7745 of 2012),

CRIMINAL APPEAL No. 775 OF 2014

(Arising out of S.L.P. (Crl.) No.7746 of 2012),

CRIMINAL APPEAL No. 776 OF 2014

(Arising out of S.L.P. (Crl.) No.7747 of 2012),

CRIMINAL APPEAL No. 777 OF 2014

(Arising out of S.L.P. (Crl.) No.7749 of 2012),

CRIMINAL APPEAL No. 778 OF 2014

(Arising out of S.L.P. (Crl.) No.9426 of 2012),

CRIMINAL APPEAL No. 779 OF 2014

(Arising out of S.L.P. (Crl.) No.9170 of 2012),

CRIMINAL APPEAL No. 780 OF 2014

(Arising out of S.L.P. (Crl.) No.9163 of 2012),

CRIMINAL APPEAL No. 781 OF 2014

(Arising out of S.L.P. (Crl.) No.9253 of 2012),

CRIMINAL APPEAL No. 782 OF 2014

(Arising out of S.L.P. (Crl.) No.9164 of 2012),

CRIMINAL APPEAL No. 783 OF 2014

(Arising out of S.L.P. (Crl.) No.9160 of 2012),

CRIMINAL APPEAL No. 784 OF 2014

(Arising out of S.L.P. (Crl.) No.614 of 2013),

CRIMINAL APPEAL No. 785 OF 2014

(Arising out of S.L.P. (Crl.) No.379 of 2013),

CRIMINAL APPEAL No. 786 OF 2014

(Arising out of S.L.P. (Crl.) No.1467 of 2013),

CRIMINAL APPEAL No. 787 OF 2014

(Arising out of S.L.P. (Crl.) No.1782 of 2013),

CRIMINAL APPEAL No. 788 OF 2014

(Arising out of S.L.P. (Crl.) No.3575 of 2013),

CRIMINAL APPEAL No. 789 OF 2014

(Arising out of S.L.P. (Crl.) No.3579 of 2013),

CRIMINAL APPEAL No. 790 OF 2014

(Arising out of S.L.P. (Crl.) No.3580 of 2013),

CRIMINAL APPEAL No. 791 OF 2014

(Arising out of S.L.P. (Crl.) No.3581 of 2013),

CRIMINAL APPEAL No. 792 OF 2014

(Arising out of S.L.P. (Crl.) No.4024 of 2013),

CRIMINAL APPEAL No. 793 OF 2014

(Arising out of S.L.P. (Crl.) No.4032 of 2013),

CRIMINAL APPEAL No. 794 OF 2014

(Arising out of S.L.P. (Crl.) No.4030 of 2013),

CRIMINAL APPEAL No. 795 OF 2014

(Arising out of S.L.P. (Crl.) No.4025 of 2013),

CRIMINAL APPEAL No. 796 OF 2014

(Arising out of S.L.P. (Crl.) No.4031 of 2013),

CRIMINAL APPEAL No. 797 OF 2014

(Arising out of S.L.P. (Crl.) No.3715 of 2013),

CRIMINAL APPEAL No. 798 OF 2014

(Arising out of S.L.P. (Crl.) No.3563 of 2013),

CRIMINAL APPEAL Nos. 799-800 OF 2014

(Arising out of S.L.P. (Crl.) Nos.5533-5534 of 2013),

CRIMINAL APPEAL No. 801 OF 2014

(Arising out of S.L.P. (Crl.) No. 2914 of 2013)

(Crl. M. P. No.15167 of 2013),

CRIMINAL APPEAL No. 802 OF 2014

(Arising out of S.L.P. (Crl.) No. 2915 of 2013)

(Crl. M. P. No.16083 of 2013),

CRIMINAL APPEAL No. 803 OF 2014

(Arising out of S.L.P. (Crl.) No.7835 of 2013),

CRIMINAL APPEAL No. 804 OF 2014

(Arising out of S.L.P. (Crl.) No.8365 of 2013),

CRIMINAL APPEAL No. 805 OF 2014

(Arising out of S.L.P. (Crl.) No.9217 of 2013),

CRIMINAL APPEAL No. 806 OF 2014

(Arising out of S.L.P. (Crl.) No.10346 of 2013),

AND

CRIMINAL APPEAL No. 807 OF 2014

(Arising out of S.L.P. (Crl.) No.10502 of 2013),

 

Appellant by :Mr. C.A. Sunderaman

Respondent by :Mr.Vikas Singh

 

Date of Judgement: 03.04.2014

 

 

The facts of the case briefly are as follows:

 

The appellants claim to be tenants of different premises in Mumbai. These premises were mortgaged to different banks as securities for loans advanced by the banks (hereinafter referred to as ‘the secured creditors’). As the borrowers have defaulted in repayment of their secured debts or instalments thereof and their accounts in respect of such debts have been classified by the secured creditors as nonperforming assets, the secured creditors have issued notices of 60 days period under sub-section (2) of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘SARFAESI Act’) to the borrowers saying that they intend to enforce the secured assets in the event of non-payment of the secured debts. Asthe borrowers have failed to discharge their liability infull within the period of sixty days from the date ofnotice, the secured creditors have exercised their rightunder sub-section (4) of Section 13 of the SARFAESIAct to take possession of the secured assets of theborrowers. 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 undertheir possession by the Chief Metropolitan Magistrate,Mumbai, under Section 14 of the SARFAESI Act, theappellants have moved this Court in this batch ofcases. Their case is that they are not borrowers, butthey are lessees of the borrowers and are entitled toremain in possession of the secured assets. A DivisionBench of the Bombay High Court in M/s Trade Well, aProprietorship Firm, Mumbai &Anr. v. Indian Bank &Anr. [2007 CRI. L.J. 2544] has, however, held thatwhen a secured creditor takes measures under subsection(4) of Section 13 of the SARFAESI Act onaccount of failure of the borrower to repay his liabilityand approaches the Chief Metropolitan Magistrate forassistance to take possession of the secured assets,the liability of the borrower having been crystallized,there can be no adjudication by the Chief MetropolitanMagistrate and possession has to be taken by a nonadjudicatoryprocess and there is no question ofpointing out to the Chief Metropolitan Magistrate atthat stage that the person who is to be dispossessed isa tenant. The Division Bench of the Bombay HighCourt has further held in M/s Trade Well (supra) thatthe remedy of the borrower as well as a third-party isto file an application under Section 17 of theSARFAESI Act before the Debts Recovery Tribunal andin case the borrower or a third-party succeeds, theDebts Recovery Tribunal can restore possession of thesecured assets to the borrower or a third-party. Thisview taken by the Bombay High Court in M/s TradeWell(supra) has been followed in the impugnedjudgment dated 20.08.2011 of the High Court passedin the case of International Assets ReconstructionCompany Limited v. Union of India & Ors. Thegrievance of the appellants is that if the impugnedjudgment of the High Court is implemented, theappellants have no option but to surrender possessionto the Chief Metropolitan Magistrate, Mumbai, andmove the Debts Recovery Tribunal under Section 17 ofthe SARFAESI Act. Such a remedy, according to theappellants, is not actually available under Section 17of the SARFAESI Act and if the remedy is available, itis meaningless as they have to move out from thetenanted premises and only in the event the DebtsRecovery Tribunal decides in favour of the appellants,they may come back to the tenanted premises.Aggrieved by the impugned judgment, they have,therefore, filed these appeals by way of special leaveunder Article 136 of the Constitution.

 

To read the full judgement, please find the attached file.

 

Attached File: http://supremecourtofindia.nic.in/outtoday/736.pdf

 

Courtesy By: Hetvi Sheth

Email_id: hetvisheth@gmail.com

 

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on 11 April 2014
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