2015 (10) TMI 2445 - HC - Indian Laws

Challenging order under Section 14 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Petitioner contends that Respondent defaulted in payment of instalments of loan and same was classified as NPA - Notice issued under section 13(2) of SARFAESI Act but neither borrowers nor guarantors replied to same nor repaid the amount - Affidavit filed made a false statement that neither is there any third party in possession nor is there any lease created in respect of premises and further incorrect fact is that there was no suit or legal proceeding pending in respect of secured assets Overriding effect of SARFAESI Act would not enable Respondent No. 4 Bank to obtain assistance of learned Chief Metropolitan Magistrate in taking possession of secured assets and even if rent is paid annually, this is not a lease covered by first part of Section 107 of Transfer of Property Act, 1882 and lease of more than one year which is unregistered, is void. Respondent contends that petition is not a bonafide proceeding, is a collusive action, inasmuch as deed of mortgage executed would indicate as to how registered mortgage was created and by same signatories and same parties dealing with Petitioners Petitioners have been put up by them in order to defeat rights of Bank and particularly order and protection under Section 14 After promulgation of Maharashtra Rent Control Act by virtue of Section 55, an agreement for tenancy is to be registered and compulsorily - No false statement on oath was made by Respondent No. 4 Bank as it may be dealing with Petitioners as a client constituent, but it does not mean that Bank is aware of status of Petitioners in respect of premise. Held That - If lease is not valid, possession is not lawful, then, there is no justification for interference in extra ordinary, discretionary and equitable jurisdiction of Court and merely because person in possession claims to be a lessee does not mean that he should be protected - Section 107 clearly states that a lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made only by a registered instrument - It is undisputed that agreement which is relied upon is unregistered, but rent is claimed to be payable yearly, then, this Act would clearly fall within the mischief - Omission in given facts and circumstances was not fatal and claim of tenancy is prima facie doubtful - Action of Bank in the present case determines the tenancy - Tenancy was not known to Bank, a third party in the absence of registration of the instrument thus cannot be held guilty of suppression Decided in favour of Respondent.

Summary

Issues Involved:
1. Validity of the tenancy claim by the Petitioners.
2. Alleged false statements by the Respondent Bank in the application under Section 14 of the SARFAESI Act.
3. Applicability of the SARFAESI Act vis-a-vis the Maharashtra Rent Control Act.
4. Jurisdiction of the Chief Metropolitan Magistrate under Section 14 of the SARFAESI Act.

Detailed Analysis:

1. Validity of the Tenancy Claim by the Petitioners:
The Petitioners claimed tenancy rights over the disputed property based on an unregistered tenancy agreement dated 1st September 2000. The rent was initially set at Rs. 60,000 annually and later increased to Rs. 1,20,000. The Petitioners relied on the fact that they have been in continuous possession and have been paying rent, utility charges, and maintaining other compliance documents. However, the Court found that the tenancy agreement, being unregistered, does not meet the requirements of Section 107 of the Transfer of Property Act, 1882, which mandates that leases from year to year or for any term exceeding one year must be registered. The Court concluded that the unregistered agreement cannot be considered valid for claiming tenancy rights, especially when the rent is paid annually.

2. Alleged False Statements by the Respondent Bank:
The Petitioners alleged that the Respondent Bank made false statements in its affidavit to the Chief Metropolitan Magistrate, claiming there were no third-party interests or pending litigation concerning the secured asset. The Court found that the Bank may not have been aware of the Petitioners' possession due to the unregistered nature of the tenancy agreement. The Court held that the Bank's omission was not fatal to its application under Section 14 of the SARFAESI Act, as the tenancy claim itself was prima facie doubtful.

3. Applicability of the SARFAESI Act vis-a-vis the Maharashtra Rent Control Act:
The Petitioners argued that their tenancy was protected under the Maharashtra Rent Control Act, 1999, and that the SARFAESI Act should not override such protection. The Court referred to the Supreme Court's judgment in Harshad Govardhan Sondagar vs. International Assets Reconstruction Company Limited, which clarified that a valid lease protected by rent control legislation cannot be overridden by the SARFAESI Act. However, the Court noted that in this case, the tenancy agreement was unregistered, and therefore, the protection under the Maharashtra Rent Control Act does not apply. The Court concluded that the SARFAESI Act takes precedence in this scenario.

4. Jurisdiction of the Chief Metropolitan Magistrate under Section 14 of the SARFAESI Act:
The Petitioners contended that the Chief Metropolitan Magistrate should have given them notice before passing the order under Section 14 of the SARFAESI Act. The Court held that the Magistrate's jurisdiction under Section 14 does not require notice to third parties unless there is a valid and lawful tenancy. Given that the tenancy agreement was unregistered and thus invalid, the Magistrate was not obliged to provide notice to the Petitioners. The Court upheld the order of the Chief Metropolitan Magistrate, allowing the Bank to take possession of the secured assets.

Conclusion:
The Court dismissed the Writ Petition, finding no merit in the Petitioners' claims. The tenancy agreement was unregistered and thus invalid, and the Bank's application under Section 14 of the SARFAESI Act was upheld. The Court refused to stay the order, emphasizing the need for the Bank to recover the outstanding debt.