2016 (1) TMI 904 - SC - Indian Laws

Eviction of tenant from mortgaged property - validity of lease - Whether a protected tenant under The Maharashtra Rent Control Act, 1999 can be treated as a lessee, and whether the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) will override the provisions of the Rent Control Act. How can the right of the protected tenant be preserved in cases where the debtor-landlord secures a loan by offering the very same property as a security interest either to Banks or Financial Institutions. Held that - As far as granting leasehold rights being created after the property has been mortgaged to the bank, the consent of the creditor needs to be taken - We have already taken this view in the case of Harshad Govardhan Sondagar 2015 (11) TMI 1315 - SUPREME COURT . We have not stated anything to the effect that the tenancy created after mortgaging the property must necessarily be registered under the provisions of the Registration Act and the Stamp Act. It is a settled position of law that once tenancy is created, a tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant. A non obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze the statutory rights vested on the tenants under the Rent Control Act. The expression any other law for the time being in force as appearing in Section 35 of the SARFAESI Act cannot mean to extend to each and every law enacted by the Central and State legislatures. It can only extend to the laws operating in the same field. If the interpretation of the provisions of SARFAESI Act as submitted by the learned senior counsel appearing on behalf of the Banks is accepted, it would not only tantamount to violation of rule of law, but would also render a valid Rent Control statute enacted by the State Legislature in exercise of its legislative power under Article 246 (2) of the Constitution of India useless and nugatory. The Constitution of India envisages a federal feature, which has been held to be a basic feature of the Constitution. In view of the above legal position, if we accept the legal submissions made on behalf of the Banks to hold that the provisions of SARFAESI Act override the provisions of the various Rent Control Acts to allow a Bank to evict a tenant from the tenanted premise, which has become a secured asset of the Bank after the default on loan by the landlord and dispense with the procedure laid down under the provisions of the various Rent Control Acts and the law laid down by this Court in catena of cases, then the legislative powers of the state legislatures are denuded which would amount to subverting the law enacted by the State Legislature. Surely, such a situation was not contemplated by the Parliament while enacting the SARFAESI Act and therefore the interpretation sought to be made by the learned counsel appearing on behalf of the Banks cannot be accepted by this Court as the same is wholly untenable in law. Appeals allowed - Decided against the Banks.

Summary

Issues Involved:
1. Whether a 'protected tenant' under The Maharashtra Rent Control Act, 1999 can be treated as a lessee.
2. Whether the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) override the provisions of the Rent Control Act.
3. How the right of the 'protected tenant' can be preserved when the debtor-landlord secures a loan by offering the property as a security interest.

Detailed Analysis:

1. Whether a 'protected tenant' under The Maharashtra Rent Control Act, 1999 can be treated as a lessee.
The Court examined whether a 'protected tenant' under the Maharashtra Rent Control Act, 1999 (Rent Control Act) could be considered a lessee. The Rent Control Act was enacted to consolidate various rent control laws and to protect tenants from arbitrary evictions and unfair rent increases. The Court emphasized that the Rent Control Act is a social welfare legislation designed to protect tenants, especially in the context of housing shortages and inflation. The Court noted that the relationship between a landlord and a tenant can be established through delivery of possession and payment of rent, even in the absence of a registered lease deed.

2. Whether the provisions of The SARFAESI Act override the provisions of the Rent Control Act.
The Court analyzed the SARFAESI Act, which was enacted to enable banks and financial institutions to recover non-performing assets without court intervention. The SARFAESI Act contains a non obstante clause (Section 35) stating that its provisions will override other laws. However, the Court held that this clause cannot be used to override the protections provided to tenants under the Rent Control Act. The Court emphasized that the two Acts operate in different spheres: the SARFAESI Act deals with asset recovery by banks, while the Rent Control Act governs landlord-tenant relationships and tenant protections. The Court reiterated that a tenant can only be evicted through due process of law as prescribed under the Rent Control Act.

3. How the right of the 'protected tenant' can be preserved when the debtor-landlord secures a loan by offering the property as a security interest.
The Court considered the situation where a landlord secures a loan by mortgaging a property that is occupied by a tenant. The Court referred to its previous decision in Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. & Ors., which held that the rights of tenants under valid leases created before the receipt of a notice under Section 13(2) of the SARFAESI Act are protected. The Court clarified that tenants must produce evidence of their tenancy, such as a registered lease deed or proof of possession and payment of rent. The Court held that tenants cannot be evicted by banks using the SARFAESI Act without following the due process of law under the Rent Control Act.

Conclusion:
The Court concluded that the provisions of the SARFAESI Act do not override the protections provided to tenants under the Rent Control Act. Tenants cannot be arbitrarily evicted by banks using the SARFAESI Act. The impugned judgments and orders of the High Court and Chief Metropolitan Magistrate were set aside, and the appeals were allowed. The Court directed that the amounts deposited as rent should be adjusted towards the debts of the landlords. The decision ensures the protection of tenants' rights while allowing banks to recover their dues through lawful means.