Remedies Available To Tenant When SARFAESI Proceedings Are Initiated During Validity Of His Tenancy: Allahabad HC Explains

The Allahabad High Court has explained the remedies available to a tenant in case proceedings are initiated under Section 14 of the SARFAESI Act during the validity of his tenancy.

In that context, the Bench of Justice Siddhartha Varma and Justice Shekhar B. Saraf explained that two of the following remedies can be availed:

"a. A tenant, on becoming aware of the proceedings initiated under Section 14 of SARFAESI Act, may approach the authorized officer empowered by the DM/CMM, to take possession of the secured asset. The authorized officer, on receipt of such an application, will then file an affidavit and submit the application for determination of tenancy rights before the DM/CMM. On receipt of such an application, the DM/ CMM will provide an opportunity to the tenant to present his case, and then determine the validity of tenancy in accordance with the law. In case, the DM/CMM concludes that the tenant has a valid lease, in accordance with the law, he may not pass an order under Section 14 of SARFAESI Act, delivering the possession of asset in question to the secured creditor.

Or,

b. A tenant can surrender possession of the secured asset, of which he claims to be the leaseholder. The lease, in such a case, will be determined in accordance with Section 111 of the TPA 1882."

Senior Counsel Rahul Sripat appeared for the petitioner, while Senior Counsel Shashi Nandan appeared for the respondents.

In this case, a writ petition was filed by M/s Trilokchand Fabrication Pvt. Ltd., urging the court to quash an order which suspended proceedings under Section 14 of the SARFAESI Act due to a Civil Court's temporary injunction obtained by Respondent No. 8.

The backdrop of the case involved a defaulted loan by M/s JN Robotics Automation Pvt. Ltd. and its directors, leading to the auction of their mortgaged property. The petitioner, the auction purchaser, faced hindrances due to the injunction order.

The petitioner argued against the injunction's legality, emphasizing their non-involvement in the civil suit and its lack of binding effect on them. They contended that SARFAESI Act objectives should not be thwarted by injunctions obtained by alleged illegal occupants.

Respondent No. 8, claiming tenancy rights, challenged the writ petition's maintainability under Section 17 of the SARFAESI Act and defended the injunction order's validity, asserting it did not contravene SARFAESI Act provisions. The petitioner and Respondent No. 8 presented conflicting claims, with the former highlighting their rights as a bona fide auction purchaser and the latter asserting possession rights based on a lease and the Civil Court order.

The Court made the following observations:

a) As mandated by Section 107 of the TPA 1882 and Section 17 of the IRA, 1908, the lease of an immovable property, beyond the period of one year can only be created by a registered instrument. An oral agreement, accompanied by the delivery of possession, cannot create a lease beyond the prescribed period under Section 107 of the TPA 1882. An unregistered lease, cannot be taken into consideration by the courts, given the bar placed under Section 49 of the IRA, 1908. 

b) A tenancy where no period has been fixed, or a tenancy which is deemed to be a month-to-month tenancy, cannot entitle a tenant to seek possession of a secured asset beyond a period of one year when proceedings have been initiated under Section 14 of the SARFAESI Act.

c) If a tenant intends to claim the possession of a secured asset when proceedings have been initiated under Section 14 of the SARFAESI Act it must necessarily be done by way of a registered instrument executed in his favour. 

d) When a tenant becomes aware, that proceedings have been initiated under Section 14 of the SARFAESI Act he can either approach the concerned officer authorised by the DM/CMM to take possession of the secured asset, or surrender the possession of the secured asset. The authorised officer, in a case where, the tenant, resists surrendering the possession of a secured asset, will file an application accompanied by an affidavit containing the necessary details before the DM/CMM. The DM/CMM on receipt of such an application, will determine the rights of the tenant in accordance with the law. If the DM/CMM comes to the conclusion that the tenant has a valid lease entitling him to possession of the secured asset, he will not pass an order delivering the possession of the secured asset to the creditor. 

e) Even if a tenant approaches the DRT, under Section 17 of the SARFAESI Act, the DRT cannot restore possession of the secured asset to the tenant. The DRT is only empowered to restore possession of the secured asset to the borrower, and not anyone else.

f) Section 34 of the SARFAESI Act, read in conjunction with Section 9 of the CPC 1908 places a bar on the institution of civil suits regarding matters which a DRT or Appellate Tribunal has been empowered to deal with under the SARFAESI Act. Furthermore, no civil court, can entertain a suit or proceeding, if an aggrieved person has grievance against any measures taken under Section 13(4) of the SARFAESI Act.

g) The availability of an alternative efficacious remedy would normally act as a bar against entertaining a writ petitioner. Nevertheless, under certain exceptional circumstances, a writ petition can be entertained even if an alternative efficacious remedy is available. These circumstances being – a) where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed; b) violation of the principles of natural justice; and c) where the vires of an Act is challenged.

h) The writ of certiorari can only be exercised under extremely limited circumstances and not every error of law would warrant the issuance of the writ of certiorari. However, where a lower court/tribunal has failed to exercise its jurisdiction, the same would call for issuance of the writ of certiorari by the High Court.

Subsequently, the impugned order was set aside and the writ of certiorari was issued.

Appearances:

Petitioners: Senior Counsel Rahul Sripat, Counsels Ishir Sripat, Saurabh Patel

Respondents: Senior Counsel Shashi Nandan, Counsels Sanjai Singh, Udayan Nandan

Cause Title: M/s Trilokchand Fabrication Pvt Ltd vs State of UP & Ors.

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