Court’s Decision
The Supreme Court allowed the appeal filed by PNB Housing Finance Ltd. and set aside the Calcutta High Court’s direction restoring possession of a secured asset to the tenant. The Court held that a mandatory order restoring status quo ante could only be passed if a compelling, cast-iron case was made out. It found the alleged tenant had failed to produce convincing evidence of a valid tenancy existing prior to issuance of demand notice under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). The Court directed maintenance of status quo till the disposal of the securitisation application before the DRT.
Facts
The case revolves around a dispute over possession of a commercial property situated at Allenby Road, Kolkata, which was mortgaged as a secured asset. The first respondent claimed to be a tenant of the premises since 1987 under an unregistered agreement for five years. After expiry, he allegedly continued as a monthly tenant. The second respondent, who became owner of the premises in 2007, acknowledged this tenancy via a letter of attornment.
In 2017, the second respondent took a loan from PNB Housing Finance Ltd., and the account eventually turned into a non-performing asset. A demand notice under Section 13(2) of SARFAESI was issued in July 2021. Despite service, no payment was made. On 2 December 2021, symbolic possession was taken. Later, physical possession was obtained through the District Magistrate’s assistance on 2 August 2023.
Only after this, the first respondent approached the DRT under Section 17 of SARFAESI, challenging the measures taken. The DRT rejected interim relief, noting absence of a registered lease and lack of prior intimation to the lender. The High Court, however, entertained a revision under Article 227 of the Constitution and directed restoration of possession to the respondent, observing that a doctor could not be evicted without due process.
Issues
- Whether the High Court could have interfered under Article 227 of the Constitution in presence of an alternate remedy under Section 18 of SARFAESI?
- Whether a tenant under an unregistered lease deed has any right to possession when the secured creditor takes over the asset under SARFAESI?
- Whether the High Court’s direction to restore possession amounted to an unjustified mandatory order?
Petitioner’s Arguments
PNB Housing Finance contended that the High Court should not have entertained the writ petition under Article 227 when a statutory appeal under Section 18 of SARFAESI was available. It further argued that the respondent had failed to establish his tenancy through credible evidence such as rent receipts, tax records, or electricity bills from a time prior to the issuance of the demand notice. The Bank also submitted that tenancy claims under unregistered agreements are not protected under SARFAESI unless established with overwhelming evidence.
Respondent’s Arguments
The alleged tenant claimed that he had been inducted as a tenant under an unregistered lease deed in 1987, and continued as a monthly tenant thereafter. He submitted that the tenancy was valid and protected under the West Bengal Premises Tenancy Act, 1997, which permits a tenant to remain in possession until eviction through due process. He further relied on Supreme Court precedents affirming that rights under rent laws are not overridden by SARFAESI’s provisions.
Analysis of the Law
The Court examined the statutory framework under SARFAESI, especially Section 13(4), Section 17(4A) (introduced in 2016), and Section 18. It emphasized that post-2016, any person claiming tenancy can challenge the possession measures before the DRT, which is empowered to restore possession. The statutory remedy, thus, excludes High Court interference unless there is manifest injustice.
The Court also dissected various precedents on SARFAESI and tenancy, including Harshad Govardhan Sondagar, Vishal N. Kalsaria, and Bajarang Shyamsunder Agarwal. It emphasized that tenancy under an unregistered lease does not survive beyond one year from the date of demand notice under SARFAESI unless supported by substantial evidence. It further clarified that rights under rent laws are not extinguished, but must be balanced against the lender’s right to enforce security.
Precedent Analysis
- Harshad Govardhan Sondagar v. International Assets Reconstruction Co. (2014): Held that SARFAESI does not invalidate registered leases prior to demand notice but does override post-notice leases without lender’s consent.
- Vishal N. Kalsaria v. Bank of India (2016): Held that rent control laws operate in a separate field and SARFAESI cannot be used to evict tenants arbitrarily.
- Bajarang Shyamsunder Agarwal v. Central Bank of India (2019): Overruled the narrow interpretation of SARFAESI’s non-obstante clause and held tenants under unregistered leases must prove their status through receipts; else, they become tenants in sufferance after one year of notice.
- V. Dhanapal Chettiar v. Yesodai Ammal (1979) and Anthony v. K.C. Ittoop (2000): Affirmed that tenants continue to be protected under rent laws even after expiry of lease if statute so permits.
The Court reconciled these judgments to note that while rent laws provide protection, such protection must be evidenced and cannot defeat the rights of secured creditors.
Court’s Reasoning
The Court found that the first respondent had failed to substantiate his tenancy with any contemporaneous evidence such as rent receipts, electricity bills, or tax documents from before the issuance of the SARFAESI notice. The only evidence presented related to rent deposited with the Rent Controller in 2022, after proceedings had commenced. This, according to the Court, was insufficient to establish a valid pre-existing tenancy.
It further noted the respondent’s delay in asserting his rights and his failure to take timely steps when the symbolic possession was published in newspapers in 2021. The Court held that these omissions weakened his claim.
The High Court’s interference, despite the availability of statutory remedies, was found to be erroneous. Its reliance on Harshad Govardhan Sondagar was misplaced as that judgment was based on pre-amendment law.
Conclusion
The Supreme Court allowed the appeal, set aside the High Court’s order, and directed status quo to be maintained over the secured asset until the DRT decides the securitisation application. It also directed the DRT to dispose of the matter within two months without granting unnecessary adjournments.
Implications
This judgment reinforces the statutory scheme of SARFAESI post-2016, emphasizing that High Court interference is discouraged when statutory remedies are available. It clarifies the rights of tenants under unregistered leases vis-à-vis SARFAESI actions and reasserts that a tenant must furnish strong, pre-existing evidence of tenancy to protect possession.
FAQs
1. Can a tenant under an unregistered lease resist eviction under SARFAESI?
Only if the tenant produces compelling evidence such as rent receipts, tax bills, or utility documents showing continued possession prior to the demand notice. Unregistered tenancies are not protected beyond one year from such notice.
2. Can High Courts interfere under Article 227 when DRT remedies are available under SARFAESI?
No. The Supreme Court has reiterated that High Courts should not interfere in SARFAESI proceedings when adequate statutory remedies exist under Sections 17 and 18.
3. What happens if a tenant fails to respond to SARFAESI notices?
Failure to promptly respond or furnish tenancy evidence can weaken the tenant’s claim. Courts are unlikely to restore possession unless there is a clear, provable tenancy predating the lender’s enforcement steps.
