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TMI Blog2016 (9) TMI 765X X X X Extracts X X X X X X X X Extracts X X X X ..... n favour of Respondent No.2. Merely because Respondent No.2 has mortgaged its leasehold rights in favour of the Petitioner, cannot take away the right of the landlord (the 1st Respondent herein) to terminate the lease, if Respondent No.2 has breached the terms thereof. At the cost of repetition, we must state that whether this termination is valid or otherwise will be the subject matter of the proceedings under the PP Act. We have not opined one way or the other, as to whether the said termination is valid or otherwise and consequently rendering the occupation of the said property unauthorized. That is an issue that will be inquired into by the Estate Officer after hearing all the parties concerned and after allowing the parties to lead their respective evidence. To our mind, in the facts of the present case, there being no conflict between the provisions of the SARFAESI Act and the PP Act, there is no question of the provisions of the SARFAESI Act overriding the provisions of the PP Act. We, therefore, have no hesitation in holding that Respondent No.4 (the Estate Officer) was well within his jurisdiction to issue the impugned SCNs. A mere SCN does not give rise to any cause of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in section 2(e)(2)(v) of the said Act. It is also not in dispute that Respondent No.1 is the owner / landlord of the said property. 4. In a nutshell, in this Petition, the Petitioner has challenged the jurisdiction of Estate Officer (Respondent No.4) to issue the impugned SCNs (both dated 18 February, 2013) on the ground that the Petitioner, being an Asset Reconstruction Company ( ARC ), and having taken possession of the said property under Section 13(4) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act ), could not be evicted under the provisions of the PP Act. To put it simply, it is the case of the Petitioner that the provisions of the SARFAESI Act override the provisions of the PP Act, and therefore, if the 1st Respondent wanted to evict and get possession of the said property from the Petitioner, the same could be done only by approaching the Debt Recovery Tribunal ( DRT ) under Section 17 of the SARFAESI Act. It is in these circumstances, that the termination letter dated 27 September, 2012 as well as the SCNs, both dated 18 February, 2013, have been challenged in the pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ood vested in favour of one Balwant Rai Shelley. Under a Deed of Variation dated 8 February, 1977, the said Balwant Rai Shelley was allowed to use the said garage in the said building for storage of non-hazardous material and the lease rentals were revised in the manner provided therein. (d) On 23 July, 1993, the said Balwant Rai Shelley expired leaving behind his last Will and testament dated 27 January, 1993. Under the said Will, Balwant Rai Shelley gave, devised and bequeathed all his right, title and interest in respect of the said property in favour of his daughter Pramila Ramnikrai Wadhwan. This Will has been probated in 1995. (e) Many years later, in the year 2006 the said Pramila Ramnikrai Wadhwan sought permission of Respondent No.1 to further assign the leasehold rights in respect of the said property in favour of Respondent No.2, which permission was granted by Respondent No.1 by its letter dated 4 September, 2006. Pursuant to the aforesaid permission, by and under a Deed of Assignment dated 22 December, 2006, executed between said Pramila Ramnikrai Wadhwan of the one part and Respondent No.2 of the other part, the said Pramila Ramnikrai Wadhwan assigned and transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 inter alia stating that the said equitable mortgage was created as per the discussion and procedure suggested by the Estate Manager of Respondent No.1, namely, Mr Patil, and that the entire transaction entered into was transparent. (i) Be that as it may, since Respondent No.2 was in arrears of the lease rentals, Respondent No.1 under their demand notice dated 23 March, 2009 called upon Respondent No.2 to make payment of the bills attached to the said letter failing which legal proceedings would be initiated against Respondent No.2. In reply thereto, Respondent No.2 informed Respondent No.1 that it shall shortly comply with the said demand notice and that they had already put a deposit of ₹ 2.05 Crores towards advance rent, with Respondent No.1. (j) Unconnected with the aforesaid demand, on 28 May, 2009 Respondent No.3 addressed a letter to Respondent No.1 and called upon Respondent No.1 to confirm having noted its lien in respect of the said property in their books and sought their co-operation in the matter. Thereafter, Respondent No.3 by and under a Deed of Assignment dated 18 August, 2009 (which was modified by a Deed of Rectification dated 2 February, 2012) along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warded to the Petitioner. (o) In reply to this termination letter, the Petitioner through their Advocates letter dated 10 October, 2012, inter alia contended that in the said lease there was no restriction for creating a mortgage by deposit of title deeds, as well as for the enforcement thereof. In the said letter the Petitioner informed the 1st Respondent that the leasehold rights in the said property would be sold by the Petitioner under the SARFAESI Act. Thereafter, the 1st Respondent, by its letter dated 18 January, 2013, informed the Petitioner that the entire exercise of mortgage and the consequent action of the Petitioner was unauthorized and holding of any auction by the Petitioner to sell the leasehold rights of Respondent No.2 would be illegal and highly objectionable to Respondent No.1. (p) Thereafter, further correspondence ensued between the parties and finally the Petitioner received the said two SCNs, both dated 18 February, 2013, issued by Respondent No.4 (Estate Officer) under the provisions of Sections 4 and 7 of the PP Act. It is in these circumstances that the termination letter dated 27 September, 2012 and these two SCNs are impugned in this Writ Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to the definition of the words security interest [section 2(zf)] to mean the right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and included any mortgage, charge, hypothecation or assignment, other than those specified in Section 31 of the SARFAESI Act. He also placed reliance on Section 17 of the Act which inter alia gives a right to any person aggrieved by any of the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act, to approach the DRT. He submitted that Section 17(3) itself provides that if the DRT, after examining the facts and circumstances, comes to the conclusion that any of the measures referred to in Section 13(4) of the SARFAESI Act are not taken in accordance with the provisions of the Act or the rules framed thereunder, the restoration of possession and or management of the secured assets can be ordered by the DRT. He submitted that Section 17(4) provides that if the DRT declares that the recourse taken by the secured creditor under Section 13(4) was in accordance with the provisions of the SARFAESI Act, then notwithstanding anything contained in any other law for the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to evict the Petitioner from the said property were wholly without jurisdiction. 9. On the other hand, Mr Bharucha, learned Sr. Counsel appearing on behalf of the 1st Respondent, submitted that the question of whether the provisions of the SARFAESI Act override the provisions of the PP Act would arise only if there was anything inconsistent between two Acts. He submitted that this is clear from Section 35 of the SARFAESI Act which inter alia stipulates that the provisions of the SARFAESI Act shall prevail notwithstanding anything inconsistent therewith contained in any other law for the time being in force. He submitted that in the facts of the present case, there was no conflict or inconsistency between the provisions of the PP Act and the provisions of the SARFAESI Act for this Court to hold that the provisions of the SARFAESI Act would override the provisions of the PP Act. 10. Mr Bharucha submitted that admittedly the 1st Respondent is the owner of the said property and and which are the public premises within the meaning of the PP Act. Since, the 2nd Respondent (in whose favour the leasehold rights are created) had breached the terms of the lease, Respondent No.1, as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court had clearly held that even though the landlord had created a mortgage of his property in favour of a bank or financial institution (as defined in the SARFAESI Act), the same cannot destroy the rights of the tenants in the said property, which tenancy was created prior to the mortgage. In other words, the rights of pre-exisisting tenants were unaffected by the provisions of the SARFAESI Act and merely because the landlord had mortgaged its ownership rights, the tenants could not be thrown out of the property by exercising powers under the SARFAESI Act. He submitted that the converse would equally apply, and similarly in the facts of the present case, where admittedly the 1st Respondent had not mortgaged its rights with the Petitioner, the provisions of the SARFAESI Act cannot destroy the rights of the 1st Respondent (as the lessor) to terminate the lease in case the lessee (Respondent No.2) had breached the terms of the lease. Relying upon Sections 2(g), 4, 7 and 15 of the PP Act, Mr Bharucha contended that the PP Act is a self contained code governing the relationship between public undertakings and the occupants of their buildings, to the extent that they provide for evict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary to understand the purpose for which both the enactments, namely the SARFAESI Act and the PP Act, were brought into force. The statements of object and reasons of the SARFAESI Act indicate that the financial sector, being one of the key drivers in India's efforts to achieve success in rapidly developing its economy, did not have a level playing field as compared to other participants in the financial markets of the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions, and unlike international banks, the banks and financial institutions in India did not have the power to take possession of securities and sell them. The Legislature felt that our existing legal framework had not kept pace with the changing commercial practices and financial sector reforms, which resulted in delays in recovery of defaulting loans. This in turn had the effect of mounting levels of non-performing assets of banks and financial institutions. In order to bring the Indian Banking Sector on par with International Standards, the Government set up two Narasimhan Committees and the Andhyarujina Committee for the purposes of examinin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed creditor. On the other hand, the PP Act provides a mechanism for evicting unauthorized persons from public premises. If a statutory authority (as defined under the PP Act) finds that any of its public premises are in unauthorized occupation of any person, that statutory authority can put in motion, proceedings for evicting that person under the provisions of the PP Act. 16. Coming to the facts of the present case, we find considerable force in the arguments of Mr Bharucha that there is no conflict between the provisions of the SARFAESI Act and the PP Act. It is an admitted fact that what has been mortgaged with the Petitioner are only the leasehold rights of Respondent No.2. It is not the case of the Petitioner that the ownership rights of the 1st Respondent in the said property have been mortgaged with the Petitioner. These ownership rights, including the right to terminate the lease, cannot be affected by the provisions of the SARFAESI Act. In the facts of the present case, the 1st Respondent, as a lessor has a right to terminate the lease on the grounds more particularly set out in the said lease deed. Whether that termination is valid or otherwise, is the subject matter o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tenant, which tenancy was created prior in point of time to the mortgage / security being created in favour of the secured creditor. Paragraphs 26 to 30 in the case of Vishal N. Kalsaria (2016) 3 SCC 762 are very instructive in this regard and read as follows: 26. Providing a smooth and efficient recovery procedure to enable the banks to recover the non-performing assets is a laudable object indeed, which needs to be ensured for the development of the economy of the country. What has complicated the matters, however, is the clash of this laudable object with another laudable object, namely, to secure the rights of the tenants under the various Rent Control Acts. The history of these Rent Control Acts can be traced to as far back as the Second World War. At that time, due to the massive inflation and shortage of commodities, not only had the cost of living risen exponentially, the tenants were also often left to the mercy of the landlords as far as evictions or prices of rent were concerned. The Rent Control Acts have been enacted by the different State Legislatures to secure the rights of the weaker sections of the society viz. the tenants. Krishna Iyer, J. aptly obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Control Act operate in completely different fields. While the SARFAESI Act is concerned with non-performing assets of the banks, the Rent Control Act governs the relationship between a tenant and the landlord and specifies the rights and liabilities of each as well as the rules of ejectment with respect to such tenants. The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act. If the contentions of the learned counsel for the respondent Banks are to be accepted, it would render the entire scheme of all Rent Control Acts operating in the country as useless and nugatory. Tenants would be left wholly to the mercy of their landlords and in the fear that the landlord may use the tenanted premises as a security interest while taking a loan from a bank and subsequently default on it. Conversely, a landlord would simply have to give up the tenanted premises as a security interest to the creditor banks while he is still getting rent for the same. In case of default of the loan, the maximum brunt will be borne by the unsuspecting tenant, who would be evicted from the possession of the tenanted property by the Bank under the provisions of the SARFAE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ejectment with respect to such tenants. The Supreme Court, therefore, held that the provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act. Applying this ratio to the facts before us, we have no hesitation in holding that even the provisions of the SARFAESI Act and the PP Act operate in completely different fields. The SARFAESI Act is concerned with non-performing assets of banks whereas the PP Act governs the relationship between the statutory authority (as defined under the PP Act) which owns public premises, on the one hand, and the occupants of those public premises on the other. On the same parity of reasoning as given by the Supreme Court, the provisions of the SARFAESI Act cannot be used to override the provisions of the PP Act. If the contentions of Mr Kamdar were to be accepted, it would render the entire scheme of the PP Act useless and nugatory. We, therefore, have no hesitation in holding that the provisions of the SARFAESI Act cannot destroy the rights of the 1st Respondent (landlord in the present case) who has admittedly not mortgaged its ownership rights in favour of the Petitioner (the secured creditor). In other words, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et or show-cause notice vide Executive Engineer, Bihar State Housing Board v. Ramesh Kumar Singh [(1996) 1 SCC 327 : JT (1995) 8 SC 331] ,Special Director v. Mohd. Ghulam Ghouse [(2004) 3 SCC 440 : 2004 SCC (Cri) 826 : AIR 2004 SC 1467] , Ulagappa v. Divisional Commr., Mysore [(2001) 10 SCC 639] ,State of U.P. v. Brahm Datt Sharma [(1987) 2 SCC 179 : (1987) 3 ATC 319 : AIR 1987 SC 943] , etc. 14. The reason why ordinarily a writ petition should not be entertained against a mere show-cause notice or charge-sheet is that at that stage the writ petition may be held to be premature. A mere charge-sheet or show-cause notice does not give rise to any cause of action, because it does not amount to an adverse order which affects the rights of any party unless the same has been issued by a person having no jurisdiction to do so. It is quite possible that after considering the reply to the show-cause notice or after holding an enquiry the authority concerned may drop the proceedings and/or hold that the charges are not established. It is well settled that a writ petition lies when some right of any party is infringed. A mere showcause notice or charge-sheet does not infringe the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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