Loan on property occupied by third party (tenant)

There is nothing preventing the banker from mortgaging the property, let out to somebody. The tenant can only occupy the property as per his rights, during the subsistance of the tenancy, as per registered documents.

I differ with the opinion of Shri Raju OF. Normally, no bank will grant a loan to the landlord of flat occupied by a tenant as it poses difficulty for the bank to TAKE POSSESSION of  the flat under SeRFAESI Act for eventual sale for recovery of its dues due to the account becoming "NON PERFORMAING ASSET"

Dear Mr.S.G.,

The answer given by Mr.Raju is not misleading. He has answered to the point. There is no law which prohibits the bank from funding a property which is occupied by tenants. The bank can fund the property occupied by the tenants and indirectly it means that they have endorsed the tenancy and they cannot evict the tenants under SARFAESI Act. If at all the bank wants to evict the tenants it has to be done only by following the law of tenancy.

Yes no bank will lend money since possession is not possible so how they will recover money.

It is better not to answer queries on unknown subjects, please.

what do you mean. Pl clarify

Dear sir

I request not mis guide while answering . NO provision prenvents bank for mortgaging asset  occupaid by tenant. However in case of default , it would be difficult for banks to sell the same either through Court/DRT or under sarfaesi act  . 

In Banking, whenever one talks of law, practice is always there alongwith law. All the books on banking available are titled "BANKING LAW & PRACTICE". While considering banking matters, Practice weighs as much as law. To quote Law permits A cheque coseed Account Payee only"  oR "Not Negotiable"to be credited in others accounts but in practice, no bank would do that. Can anyone quote a single loan having been sanctioned by any bank against any immovable property which is wholly occupied by tenants for years together.

Thanks everyone for ur precious input, Sir this is the fact the corrupt bank officers has sanction loan by keeping flat as a collateral security inspite of knowing the tenants are staying for years in the said flat. And now the bank people are harrasing the tenant to vacate the flat under the sarfasei act. The landlord has abscond. Please suggest as what to do.......

Bank can not take possession.

For accademic purpose I would state that, I am handling a case in which IDBI Bank had granted Rs.10 crores against a property worth Rs.30 crores, which was already let-out to another software company, several years back.

In another case handled by me, Bank of India had granted Rs.4 crores against discounting of lease-rental of a property already leased to another company.

I hope the issue is clear now.

Raju Sir,  Do we have any merits in this case.

Dear Mr.Rupal,

Pls go through the following judgement. This will clarify your doubts.

"DATED : 23.02.2007

C O R A M :

THE HONOURABLE MR.A.P.SHAH, THE CHIEF JUSTICE

AND

THE HONOURABLE MR. JUSTICE K. CHANDRU

W.P.No. 10355 of 2005

&

W.P. M.P.No.11251 of 2005

M/s Sree Lakshmi Products represented

by its Partner S. Lakshmi Prabha

1790, Trichy Road, Ramanathapauram,

Coimbatore-45. ... Petitioner.

     Vs.

State Bank of India represented

by Branch Manager, Red Fields Branch

Race Course, Coimbatore-18. ... Respondent

PRAYER : Petition filed under Article 226 of the Constitution of India praying
for the issuance of a writ of mandamus, forbearing the respondent from evicting
the petitioner from the property South of East West Government Road, North of
Sree Lakshmi Foundry Land, East of Common Pathway of the companies and West of
M/s Lakshmi Machine Works Limited in S.F.No.189/2 Uthupalayam village, Palladam
Taluk, Coimbatore District except by due process of law.

-----------

   For petitioner :: Mr.M.S. Krishnan for M/s Sarvabhauman Associates

                For respondent :: Mr. Sethuraman

-----------

    O R D E R

(Order of the Court was made by The Hon'ble The Chief Justice)

The petitioner has filed this petition for a mandamus forbearing the respondent
from evicting the petitioner from the leasehold premises in its possession
except by due process of law. The principal contention raised by the petitioner
is that the petitioner being a tenant and in physical possession of a portion of
the building situated in S.F.No.189/2, Uthupalayam Village, Palladam Taluk,
Coimbatore District, by virtue of a lease deed dated 05.04.2003, duly executed
by the principal borrower and the mortgager of the property M/s. Sree Lakshmi
Foundry, is fully protected under the Tamil Nadu Lease and Rent Control Act and
cannot be dispossessed without taking recourse to the provisions of the said
Act. We need not narrate detailed facts, but it is suffice to state that M/s.
Sree Lakshmi Foundry, who is the principal borrower had availed of some loans
from the respondent-State Bank of India after mortgaging the land and building
comprised in S.F.No.189/2 by executing a memorandum of mortgage in favour of the
respondent  bank. On the failure of the borrower to pay back the loan, the
respondent  bank had invoked the provisions of the Securitisation and Re-
construction of Financial Assets and Enforcement of Security Interest Act, 2002
(hereinafter referred to as 'SARFAESI Act) and had taken symbolic possession of
the entire property on 29.11.2003. It is the case of the petitioner that a
portion of the aforesaid property was originally leased to the petitioner under
a lease deed dated 10.09.1986 and the lease was renewed by a subsequent lease
deed dated 05.04.2003. The petitioner claims that an advance of Rs.2 lakhs was
originally paid in cash and it was increased to Rs.4 lakhs at the time of the
renewal of the lease which was also paid in cash. It is the further case of the
petitioner that the respondent recognised the petitioner's tenancy and addressed
a letter dated 29.11.2003 asking the petitioner to pay the rent. Accordingly the
petitioner paid the rent in March 2005 by a demand draft and there are no
arrears. The petitioner has alleged that on 14.03.2005 the officials of the
respondent  bank attempted to take forcible possession of the premises and in
fact, the rear door was sealed by them. On 15.03.2005 the petitioner therefore
lodged a complaint before the Soolur Police Station. In short, the contention of
the petitioner is that a tenant cannot be dispossessed in pursuance of recovery
proceedings against the borrower under the SARFAESI Act and therefore, even if
the landlord of the petitioner is indebted to the respondent  bank, the
respondent has to take possession only by due process of law and it cannot mis-
use its powers and try to take forcible possession.

2. Mr.M.S.Krishnan, learned counsel appearing for the petitioner strenuously
contended that where the owner of a leased asset mortgages such asset to a bank
in order to procure a loan, the bank can stake claim under Section 13(4) of the
SARFAESI Act only to residuary right which continue to vest in the owner after
the lease came into existence, which alone was offered as security to the bank.
Learned counsel contended that there is nothing in the said Act to indicate that
the legislature intended to take away the right of a tenant in the property. He
contended that the right to property is a constitutional right and deprivation
of such a right existing in favour of a person cannot be presumed in construing
a statute. He contended that SARFAESI Act is enacted for the enforcement of
security interests and not for its enlargement. He contended that such an
interpretation to Section 13(4) would be unconstitutional. He contended that the
State Legislature has enacted the Tamil Nadu Lease and Rent Control Act which is
a beneficial legislature meant to protect the tenants from arbitrary eviction.
In effect Rent Control Act overrides certain provisions of the Transfer of
Property Act which governs the rights, duties and obligations of landlords and
tenants. He contended that this special right conferred under the Rent Control
Act cannot be taken away except by a positive and express mandate in any later
enactment. He relied upon a decision of the Supreme Court in Krishnan Singh Rana
Vs. Haryana State Industrial Development Corporation, (2000) M.L.J. (Supp.) 63
(SC) where a two Judge Bench of the Supreme Court held that a corporation while
proceeding under Section 29 of the State Financial Corporations Act, 1951 could
not evict a tenant. He also placed reliance on the decision of the Supreme Court
in C.B. Gautam Vs. Union of India, (1993) 1 SCC 78 where the Supreme Court
quashed the expression 'free from all encumbrances' in Section 269 -UD of the
Income-tax Act, 1961 as being violative of Article 14 of the Constitution.

3. In reply, Mr.S.Sethuraman, learned counsel appearing for the respondent 
bank submitted that unregistered lease deeds relied upon by the petitioner are
sham documents which have been created only with a view to defeat the legitimate
claim of the respondent  bank. He submitted that in Mardia Chemicals Limited
Vs. Union of India, 2004 (4) SCC 311 the Supreme Court has held that in cases
where a secured creditor has taken action under Section 13(4) it would be open
for the borrower to file an application under Section 17 of the SARFAESI Act.
Therefore, the remedy available to the petitioner is to approach DRT and the
petitioner cannot invoke the extraordinary jurisdiction of this Court under
Article 226 of the Constitution of India. He further submitted that in Transcore
Vs. Union of India reported in (2006) 5 CTC 753 a two Judge Bench of the Supreme
Court has held that under Section 13(4) the bank is entitled to take physical
possession of the secured assets and in case a borrower or a person claiming
through him is dispossessed, the remedy of such person is to approach DRT under
Section 17 of the Act. He submitted that in Transcore the Supreme Court has also
ruled that the provisions of SARFAESI Act shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the time being in
force and by virtue of Section 13(4) read with Section 13(6) the mortgaged
assets shall vest with the bank free from all encumbrances. He also placed
reliance on the decision of the Kerala High Court in S.Shameem Vs The City
Police Commissioner and others ( CDJ 2005 Kerala High Court 638) where a
Division Bench of the Kerala High Court has held that the provisions of the
SARFAESI Act effectively nullify rights normally admissible even to a tenant.
Lastly he referred to a decision of the Division Bench of the Delhi High Court
in Sanjeev Bansal Vs. Oman International Bank SAOG and Another [IV (2006) BC
299(DB) -Delhi High Court] where it was held that no lessee can claim any
protection in proceedings under SARFAESI Act unless his tenancy is as per the
requirements of Section 65-A of the Transfer of Property Act.

4. The SARFAESI Act is enacted to regulate securities and re-construction of
financial assets and enforcement of security interest and for matters connected
therewith. The Act enables the banks and FI to realise long term assets, manage
problems of liquidity, asset liability mis-match and to improve recovery of
debts by exercising powers to take possession of securities, sell them and
thereby reduce non-performing assets by adopting measures for recovery and re-
construction. The Act further provides for setting up of asset re-construction
companies which are empowered to take possession of secured assets of the
borrower including the right to transfer by way of lease, assignment or sale.
The said Act also empowers the said asset re-construction companies to take over
the management of the business of the borrower. The constitutional validity of
the said Act has been upheld in the case of Mardia Chemicals Limited Vs. Union
of India (cited supra). In the judgment in Mardia Chemicals the Supreme Court
held that, in cases where the secured creditor has taken action under Section
13(4), it would be open to the borrower to file an appeal (application) under
Section 17 of the Act. In the said judgment, the Court further observed that if
the borrower, after service of notice under Section 13(2) of the Act, raises any
objection or places facts for consideration of the secured creditor, such reply
to the notice must be considered by the bank/FI with due application of mind and
reasons for not accepting the objections briefly must be given to the borrower.
In the said judgment, it is further held that the reasons so communicated shall
only be for the purposes of information/knowledge of the borrower and such
reasons will not give him any right to approach the tribunal under Section 17 of
the Act.

5. In Transcore Vs. Union of India (cited supra) the Supreme Court upon
critical examination of the provisions of the SARFAESI Act and the DRT Act, 1993
observed in paragraphs 23 and 25as follows:-

"Para  23: Reading the scheme of Section 13(2) with Section 13(4), it is clear
that the notice under Section 13(2) is not a mere show cause notice and it
constitutes an action taken by the bank/FI for the purposes of the NPA Act.
Section 13(6) inter alia provides that any transfer of secured asset after
taking possession or after taking over of management of the business, under
Section 13(4), by the bank/FI shall vest in the transferee all rights in
relation to the secured assets as if the transfer has been made by the owner of
such secured asset. Therefore, Section 13(6) inter alia provides that once the
bank/FI takes possession of the secured asset, then the rights, title and
interest in that asset can be dealt with by the bank/FI as if it is the owner of
such an asset. In other words, the asset will vest in the bank/FI free of all
encumbrances and the secured creditor would be entitled to give a clear title to
the transferee in respect thereof. Section 13(7)refers to recovery of all costs,
charges and expenses incurred by the bank/FI for taking action under Section
13(4). Section 13(7) provides for priority in the matter of recovery of dues
from the borrower. It inter alia provides for payment of surplus to the person
entitled thereto. Section 13(8) inter alia states that if the dues of the
secured creditor together with all costs, charges and expenses incurred are
tendered to the secured creditor before the date fixed for sale/transfer the
secured asset shall not be sold or transferred by the bank/FI to the asset
reconstruction company and no further steps shall be taken in that regard.
Section 13(9) inter alia states that where a financial asset is funded by more
than one bank/FI or in case of joint financing by a consortium, no single
secured creditor from that consortium shall be entitled to exercise right under
Section 13(4) unless exercise of such right is agreed upon by all the secured
creditors. Section 13(9) provides for one more instance when permission of DRT
may be required under the First Proviso to Section 19(1) of the DRT Act. The
agreement between the secured creditors in such cases is required to be placed
before the DRT not as a fetter on the rights of the secured creditors but out of
abundant caution. Generally, such agreements are complex in measure,
particularly because rights of each of the secured creditor in the consortium
may be required to be looked into. However, if before the DRT, all the secured
creditors in such consortium enter into an agreement under Section 13(9) then no
such further inquiry is required to be made by the DRT. In such cases, the DRT
has only to see that all the secured creditors in the consortium are represented
under the agreement. The point to be noted is that the scheme of the NPA Act
does not deal with disputes between the secured creditors and the borrower. On
the contrary, the NPA Act deals with the rights of the secured creditors inter
se. The reason is that the NPA Act proceeds on the basis that the liability of
the borrower has crystalized and that his account is classified as non-
performing asset in the hands of the bank/FI. Section 13(9) also deals with pari
passu charge of the workers under Section 529-A of the Companies Act, 1956,
apart from banks and financial institutions, who are secured creditors. Section
13(10) inter alia states that where the dues of the secured creditor are not
fully satisfied by the sale proceeds of the secured assets, the secured creditor
may file an Application to DRT under Section 17 of the NPA Act for recovery of
balance amount from the borrower. Section 13(10), therefore, shows that the
bank/FI is not only free to move under NPA Act with or without leave of DRT but
having invoked NPA Act, liberty is given statutorily to the secured creditors
(banks/FIs.) to move the DRT under the DRT Act once again for recovery of the
balance in cases where the action taken under Section 13(4) of the NPA Act does
not result in full liquidation of recovery of the debts due to the secured
creditors. Section 13(10) fortifies our view that the remedies for recovery of
debts under the DRT Act and the NPA Act are complementary to each other.
Further, Section 13(10) shows that the first Proviso to Section 19(1) of DRT Act
is an enabling provision and that the said provision cannot be read as a
condition precedent to taking recourse to NPA Act. Section 13(11) of the NPA Act
inter alia states that, without prejudice to the rights conferred on the secured
creditor under Section 13, the secured creditor shall be entitled to proceed
against the guarantor/pledgor; that the secured creditor shall be entitled to
sell the pledged assets without taking recourse under Section 13(4) against the
principal borrower in relation to the secured assets under the NPA Act. Section
13(3) states that, no borrower shall, after receipt of notice under Section
13(2), transfer by way of sale, lease or otherwise any of his secured assets
referred to in the notice, without prior written consent of the secured
creditor. Thus, Section 13(13) further fortifies our view that notice under
Section 13(2) is not merely a show cause notice. In fact, Section 13(13)
indicates that the notice under Section 13(2) in effect operates as an
attachment/injunction restraining the borrower from disposing of the secured
assets and, therefore, such a notice, which in the present case is dated
06.01.2003, is not a mere show cause notice but it is an action taken under the
provision of the NPA Act.  Para  25: In our view, Section 17(4) shows that the
secured creditor is free to take recourse to any of the measures under Section
13(4) notwithstanding anything contained in any other law for the time being in
force, e.g., for the sake of argument, if in the given case the measures
undertaken by the secured creditor under Section 13(4) comes in conflict with,
let us say the provision under the State land revenue law, then notwithstanding
such conflict, the provision of Section 13(4) shall override the local law. This
position also stands clarified by Section 35 of the NPA Act which states that
the provisions of NPA Act shall override all other laws which are inconsistent
with the NPA Act. Section 35 is also important from another angle. As stated
above, the NPA Act is not inherently or impliedly inconsistent with the DRT Act
in terms of remedies for enforcement of securities. Section 35 gives an
overriding effect to the NPA Act with all other laws if such other laws are
inconsistent with the NPA Act. As far as the present case is concerned, the
remedies are complimentary to each other and, therefore, the doctrine of
election has no application to the present case." (emphasis supplied)

6. In Transcore one of the questions which fell for the consideration of the
Supreme Court was whether recourse to take possession of the secured assets of
the borrower in terms of Section 13(4) of the SARFAESI Act comprehends the power
to take actual possession of the immovable property. The argument on behalf of
the borrower was that if physical possession is taken on expiry of 60 days, the
remedy of application under Section 17 of the Act by the borrower would become
illusory and meaningless as the borrower or the person in possession would be
dispossessed even before adjudication of the objections by the tribunal. It was
argued that actual physical possession of immovable assets can be taken under
Rule 8(3) of the Security Interest (Enforcement) Rules, 2003, in cases where
there is a vacant plot or property which is lying unattended, but where the
immovable property is in actual possession of any person, person in possession
cannot be dispossessed by virtue of notice under Rule 8(1); that actual
possession is to be delivered only after the confirmation of the sale under Rule
9(6) read with Appendix V under which the authorised officer is empowered to
deliver the property to the purchaser free from all encumbrances in terms of
Rule 9(9) of the Rules. The Court categorically rejected this argument and held
as follows: "Para  54: The word possession is a relative concept. It is not an
absolute concept. The dichotomy between symbolic and physical possession does
not find place in the Act. As stated above, there is conceptual distinction
between securities by which the creditor obtains ownership of or interest in the
property concerned(mortgages) and securities where the creditor obtains neither
an interest in nor possession of the property but the property is appropriated
to the satisfaction of the debt(charges). Basically, the NPA Act deals with the
former type of securities under which the secured creditor, namely, the bank/FI
obtains interest in the property concerned. It is for this reason that the NPA
Act ousts the intervention of the Courts/Tribunals. Para  55: Keeping the above
conceptual aspect in mind, we find that Section 13(4) of the NPA Act proceeds on
the basis that the borrower, who is under a liability, has failed to discharge
his liability within the period prescribed under Section13(2), which enables the
secured creditor to take recourse to one of the measures, namely, taking
possession of the secured assets including the right to transfer by way of
lease, assignment or sale for realising the secured assets. Section 13(4-A)
refers to the word "possession" simpliciter. There is no dichotomy in Sub-
section (4-A) as pleaded on behalf of the borrowers. Under Rule 8 of the 2002
Rules, the authorised officer is empowered to take possession by delivering the
possession notice prepared a nearly as possible in Appendix IV to the 2002
Rules. That notice is required to be affixed on the property. Rule 8 deals with
sale of immovable secured assets. Appendix IV prescribes the form of possession
notice. It inter alia states that notice is given to the borrower who has failed
to repay the amount informing him and the public that the bank/FI has taken
possession of the property under Section 13(4) with Rule 9 of the 2002 Rules.
Rule 9 relates to time of sale, issue of sale certificate and delivery of
possession. Rule 9(6) states that on confirmation of sale, if the terms of
payment are complied with, the authorised officer shall issue a sale certificate
in favour of the purchaser in the form given in Appendix V to the 2002 Rules.
Rule 9(9) states that the authorised officer shall deliver the property to the
buyer free from all encumbrances known to the secured creditor or not known to
the secured creditor (Emphasis supplied). Section 14 of the NPA Act states that
where the possession of any secured asset is required to be taken by the secured
creditor or if any of the secured asset is required to be sold or transferred,
the secured creditor may, for the purpose of taking possession, request in
writing to the District Magistrate to take possession thereof. Section 17(1) of
NPA Act refers to right of appeal. Section 17(3) states that if the DRT as an
Appellate Authority after examining the facts and circumstances of the case
comes to the conclusion that any of the measure under Section 13(4) taken by the
secured creditor are not in accordance with the provisions of the Act, it may by
order declare that the recourse taken to any one or more measures is invalid,
and consequently, restore possession to the borrower and can also restore
management of the business of the borrower. Therefore, the scheme of Section
13(4) read with Section 17(3) shows that if the borrower is dispossessed, not in
accordance with the provisions of the Act, then the DRT is entitled to put the
clock back by restoring the status quo ante. Therefore, it cannot be said that
if possession is taken before the confirmation of sale, the rights of the
borrower to get the dispute adjudicated upon is defeated by the authorised
officer taking possession. As stated above, the NPA Act provides for recovery of
possession by non-adjudicatory process, therefore, to say that the rights of the
borrower would be defeated without adjudication would be erroneous. Rule 8,
undoubtedly, refers to sale of immovable secured asset. However, Rule 8(4)
indicates that where possession is taken by the authorised officer before
issuance of sale certificate under Rule 9, the authorised officer shall take
steps for preservation and protection of secured assets till they are sold or
otherwise disposed of. Under Section13(8), if the dues of the secured creditor
together with all costs, charges and expenses incurred by him are tendered to
the creditor before the date fixed for sale or transfer, the asset shall not be
sold or transferred. The costs, charges and expenses referred to in Section
13(8) will include costs, charges and expenses which the authorised officer
incurs for preserving and protecting the secured assets till they are sold or
disposed of in terms of Rule 8(4). Thus, Rule 8 deals with the stage anterior to
the issuance of sale certificate and delivery of possession under Rule 9. Till
the time of issuance of sale certificate, the authorised officer is like a Court
receiver under Order XL, Rule 1, Code of Civil Procedure, 1908. The Court
receiver can take symbolic possession and in appropriate cases where the Court
receiver finds that a third party interest is likely to be created overnight, he
can take actual possession even prior to the decree. The authorised officer
under Rule 8 has greater powers than even a Court receiver as security interest
in the property is already created in favour of the banks/FIs. That interest
needs to be protected. Therefore, Rule 8 provides that till issuance of the sale
certificate under Rule 9, the authorised officer shall take such steps as he
deems fit to preserve the secured asset. It is well settled that third party
interests are created overnight and in very many cases those third parties take
up the defence of being a bona fide purchaser for value without notice. It is
these types of disputes which are sought to be avoided by Rule 8 read with Rule
9 of the 2002 Rules. In the circumstances, the drawing of dichotomy between
symbolic and actual possession does not find place in the scheme of the NPA Act
read with the 2002 Rules" (emphasis supplied)

7. In S.Shameem Vs The City Police Commissioner and others ( cited supra) a
Division Bench of Kerala High Court has held that in respect of the transactions
governed by SARFAESI Act, the overriding provisions effectively nullify the
rights normally admissible even to a tenant as available under the Rent Control
laws. In paragraphs 13 and 14 the Bench observed as follows:

  " Under Section 13(4) of Securitisation Act, in case the borrower fails to
discharge his liability, the secured creditor is authorised to take recourse to
the measures stipulated by the Section. This is in recognition of the provisions
of the Act that any security interest created in favour of the secured creditor
may be enforced without the intervention of the Court or Tribunal. Thus, a
creditor is entitled to take possession of the secured assets of the borrower
including the right to transfer by way of lease,assignment or sale for realising
the secured asset. The right also includes taking over management of the secured
assets by right to transfer by way of lease, assignment or sale. The appointment
of a person to manage the secured assets, the possession of which has been taken
over by the secured creditor is also contemplated. Sub-section (6) also lays
down that any transfer of secured asset after taking possession thereof shall
vest in the transferee all rights in, or in relation to, the secured asset
transferred as if the transfer had been made by the owner of such secured
assset.

The only circumstance that the guarantor (third respondent herein) was the
owner of the secured asset need not saddle him with any disability. In any case,
the Act does not provide for any such restriction. By the operation of the
Section, the transfer brings with it all the proprietary rights that are usually
available in respect of the holding. Although it is contended by Sri Jayakumar
that so far as a tenanted premises, to which provisions of the Kerala Buildings
(Lease and Rent Control) Act applies, the tenancy could have been terminable
only in the manner authorised by the said law, we do not think the above
argument can have any relevance in view of Section 35 of Securitisation Act. The
provisions of the Securitisation Act shall have effect notwithstanding anything
in consistent therewith contained in any other law for the time being in force.
In respect of transactions governed by the said Act, the overriding provisions
effectively nullify the rights normally admissible even to a tenant, as
available under the Rent Control Act, as it can be only subservient to a later
Central enactment. (emphasis supplied)

8. In Sanjeev Bansal Vs. Oman International Bank SAOG and Another (cited supra)
a similar contention was raised by the petitioner therein that he being a tenant
and in physical possession of the mortgaged property is protected under the
provisions of the Delhi Rent Control Act and cannot be dispossessed without
taking recourse to the provisions of the Delhi Rent Control Act. Repelling this
contention the Court held that the protection afforded by the Rent Control Act
to a tenant is from the landlord of the premises and the landlord of the
premises cannot recover possession from the tenant unless he takes recourse to
any of the grounds as available to him under Rent Control Act and the right of
the tenant is fully protected notwithstanding anything contrary contained in any
other law or contract. This protection is however not available against the
mortgagee who seeks to enforce his right under the SARFAESI Act against the
principal borrower who had mortgaged the property in question by duly and
validly executing the memorandum of mortgage in favour of the mortgagee. The
Court further held that Section 65-A of the Transfer of Property Act clearly
mandates that the duration of lease to be executed by the mortgager cannot
exceed 3 years. The Court therefore concluded in paragraph  6 as follows:
"Manifestly the said unregistered lease was created for the alleged unlimited
period through unregistered lease deed in complete contravention of Section 65A
of the Transfer of Property Act. As per the said provision of Section 65A, the
lessee can enjoy the protection if the lease is created by the mortgagor in
conformity with the mandate of requirements laid down in Section 65A of TP Act
and not otherwise. Neither the mortgagor nor the lessee can defeat the right of
mortgagee and no lessee can claim any protection unless his tenancy is as per
the requirements of Section 65A of Transfer of Property Act."

9. On a plain reading of the observations made in Transcore case it is clear
that the bank/FI is entitled to take actual possession of the secured assets
from the borrower or from any other person in terms of Section 13(4) of the
SARFAESI Act. Any transfer of secured assets after taking possession of the same
by the bank/FI shall vest in the transferee all rights in relation to the
secured assets as if the transfer has been made by the owner of such secured
assets. Any party aggrieved by such dispossession will have to take recourse to
approaching the DRT under Section 17(4) of the SARFAESI Act. If the party is
dispossessed, not in accordance with the provisions of the Act, then the DRT is
entitled to put the clock back by restoring the status quo ante. By virtue of
Section 17(4) read with Section 35 of the SARFAESI Act, if in a given case the
measures undertaken by the secured creditor under Section 13(4) come in conflict
with the provisions of any State law, then notwithstanding to such conflict, the
provisions of Section 13(4) shall override the local law. Section 13(13) of the
SARFAESI Act operates as an attachment/injunction restraining the borrower from
disposing of the secured assets and therefore, any tenancy created after such
notice would be null and void. Any tenancy created by the mortgager after the
mortgage in contravention of Section 65-A would not be binding on the bank/FI,
and in any event such tenancy rights shall stand determined once action under
Section 13(4) has been taken by the bank/FI. When the petitioner is claiming a
tenancy prior to the creation of mortgage and such tenancy is disputed by the
bank the remedy of the petitioner is to approach DRT by way of an application
under Section 17 of the SARFAESI Act to establish its rights.

10. In our opinion, the decision in Krishnan Singh Rana Vs. Haryana State
Industrial Development Corporation (cited supra) is not of much help to
Mr.Krishan as the scheme of the SARFAESI Act is entirely different from that of
the State Financial Corporations Act. The other decision cited by Mr.Krishan in
C.B. Gautam Vs. Union of India (cited supra) is also equally inapplicable to the
case in hand.

11. In the result, the writ petition is dismissed with liberty to the
petitioner to approach the DRT for appropriate reliefs. If the petitioner files
an application before the DRT within two weeks from the date of receipt of a
copy of this order, then the DRT shall consider the petitioner's application on
its own merits without raising any objection on the ground of limitation.
Consequently, the connected W.P.M.P. is closed.

vbs/sm

To

The Branch Manager,

State Bank of India,

Red Fields Branch,

Race Course,

Coimbatore  18.