Securitisation act
Querist :
Anonymous
(Querist) 22 December 2011
This query is : Resolved
Whether a bonafide tenant in possession of mortgaged property can be dispossessed of the same under the provisions of the securitisation act by virtue of section14
Raj Kumar Makkad
(Expert) 22 December 2011
Though the object of SARFAESI Act, 2002 is very good aiming at reducing ‘Non-Performing Assets” (NPA), the Constitutional Courts had to interpret the provisions of the Act dealing with many complicated issues and keeping in view the interests of the borrowers. Many issues under the provisions of SARFAESI Act, 2002 are settled now, however, the issue of eviction of Tenant using the authority or the power under Section 14 remains very significant. Many states have special laws protecting the interests of the Tenants and it has a very great object despite criticism. There need not be any written agreement or registered Lease Deed etc. for availing the protection under Tenant Protect Laws and depending upon the provisions of the law in that particular state. Even the express provisions of the Agreement or the Lease Deed can be ignored if the clauses in that particular agreement or the Deed goes against the express provisions of the Tenant Protection Laws in a particular state and the provisions of the Tenant Protection Law will prevail. In the light of the object of the SARFAESI Act, 2002 and the object of Tenant Protection Laws in a particular State, the issue of eviction of Tenant under Section 14 of SARFAESI Act, 2002 occupies significance. There can be complications if the Bank is asked to approach the Rent Control Courts to evict the Tenant. Again, there can serious issues if the Bank is allowed to proceed against the Tenant under Section 14 of the SARFAESI Act, 2002 without having any regard to the Lease Agreement, Understanding or the Lease Deed. The complications with the eviction of Tenant by the Bank in the course of its action under the provisions of SARFAESI Act, 2002 are, in brief, as follows:
If the Bank is not allowed to proceed against the Tenant under Section 14 to take physical possession of the property, then, the ‘Secured Asset’ may not fetch good value when it goes for auction. It can be detrimental to the interests of the borrowers and also can be detrimental to the interests of the Banks too in some cases. The bidders may definitely discount the risk of eviction while bidding for the property in auction. If the property is not fetching the market value, then, it may provide a right to the borrower or the owner of the property to challenge the auction too.
If the Bank is asked to approach Rent Control Courts or Rent Control Tribunal under the special State law dealing with the protection of Tenants, then, it would be interesting to see as to the grounds available to the Bank to ask for eviction of Tenants from the ‘Secured Asset’.
From Tenants point of view, he or she may suffer an irreparable loss due to the action of the Bank under SARFAESI Act, 2002 and the Tenant may find it difficult to proceed against the owner of the property in getting the Advance amount back or in claiming the damages. There is a justification from Tenants point of view and it will be definitely difficult for the Tenant to vacate the premises immediately as against their plans. Who will compensate the Tenant in genuine cases?
We can not also rule-out the possibility of fictitious arrangements or Agreements if the protection is provided to the Tenants and it is held that the Banks can not take physical possession of the ‘Secured Asset’ under Section 14. We know many cases pending before Rent Control Courts or Tribunal for years. In many cases, Tenants used to approach Debt Recovery Tribunal now under section 17 as soon as they come to the knowledge of SARFAESI proceedings. The DRT, in my opinion, may rule in favour of Bank in many of these cases and the Tenant is carefully been scrutinized.
There can be many complications when it comes to eviction of Tenant by the Bank while it proceeds against the ‘Secured Asset’ under the provisions of SARFAESI Act, 2002. The issue is not simple and it is complicated requiring a special law as otherwise, we would be seeing many judgments on this issue expressing different views and it will take some time to see a settled legal position in this regard. After many judgments or views, now the issues like cause of action to file an appeal under section 17, the remedy against the order of Magistrate Court under Section 14 and the powers of DRT under Section 17 etc. are settled. Likewise, in the absence of any special law or attention by the law-makers with regard to eviction of Tenants under SARFAESI Act, 2002, there be will many more judgments on this issue and it may take some time to see a settled legal position in this regard. I was always thinking of this complicated issue under the provisions of the SARFAESI Act, 2002 and I am happy to note a judgment of Madras High Court dealing with this particular issue in the light of all related legislations. A detailed observation of Madras High Court in W.P.Nos.23850 & 27432 of 2010, between Indian Bank Adyar Branch Vs. M/s Nippon Enterprises South, CDJ 2011 MHC 1482 is as follows:
“25. Point no.(ii): The contention of the tenant is that its right to continue to be in possession of the property in question as lessee is protected by the TN Rent Control Act. Hence, under Section 13(4) of the SARFAESI Act, only symbolic possession could be taken and not actual/physical possession. It is the further contention that the SARFAESI Act cannot extinguish the right accrued to a tenant under the provisions of the TN Rent Control Act. On the other hand, it is the contention of the bank that the SARFAESI Act has got overriding effect over the TN Rent Control Act in view of the provisions of Section 35 and therefore the rights said to have been accrued in favour of the tenant under the TN Rent Control Act cannot be enforced as against the bank while the bank invokes the provisions of the SARFAESI Act.
26. The question is, therefore, as to whether the SARFAESI Act has got overriding effect over the TN Rent Control Act. Section 35 of SARFAESI Act reads as under:-
"35. The provisions of this Act to override other laws.--The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law."
prabhakar singh
(Expert) 23 December 2011
Legislation of center shall prevail over state legislation.
