Full Judgment Text
1
R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 30 DAY OF NOVEMBER, 2021
PRESENT
THE HON'BLE MR. RITU RAJ AWASTHI, CHIEF JUSTICE
AND
THE HON’BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
WRIT APPEAL NO.1102 OF 2021 (GM-RES)
BETWEEN:
SRI. ABDUL KHADER
S/O ABDUL SAMAD
AGED ABOUT 59 YEARS
R/AT NO.16
ST
GROUND AND 1 FLOOR
TH
DUPLEX HOUSE, 12 CROSS
KANAKANAGAR
R.T.NAGAR POST
BANGALORE - 560 032 ....APPELLANT
(BY SRI AMARESH A. ANGADI, ADVOCATE)
AND:
1. SADATH ALI SIDDIQUI
S/O MOHAMMED NAJBATH ALI SIDDIQUI
AGED ABOUT 57 YEARS
ND ST
NO.15, 2 CROSS, 1 MAIN
MUDDAMMA GARDEN
BENSON TOWN
BANGALORE - 560 046
2
2. BANK OF MAHARASTRA
BRIGADE ROAD BRANCH
NO.55, REST HOUSE ROAD
BRIGADE ROAD
BANGALORE - 560 001
BY ITS MANAGER ….RESPONDENTS
(R2 SERVED AND UNREPRESENTED)
THIS APPEAL IS FILED UNDER SECTION 4 OF KARNATAKA
HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER DATED
17.09.2021 PASSED IN W.P.NO.3628/2021 AND ETC.
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 15.11.2021, COMING ON FOR PRONOUNCEMENT OF
JUDGMENT THIS DAY, SACHIN SHANKAR MAGADUM J.,
DELIVERED THE FOLLOWING:
JUDGMENT
The captioned appeal is filed by the petitioner to the writ
petition assailing the correctness of the order dated
17.09.2021 passed by the learned Single Judge in
W.P.No.3628/2021.
2. The appellant herein approached the writ court
questioning the order dated 05.12.2019 passed by the
authority under the provisions of Section 14 of the
Securitisation and Reconstruction of Financial Assets and
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Enforcement of Securities Interest Act, 2002 (for short 'the
SARFAESI Act'). The writ petition was strongly contested by
the respondent No.2/Bank by specifically contending that the
appellant has an alternate and equally efficacious remedy
under Section 17 of the SARFAESI Act. The learned Single
Judge having examined the rival contentions disposed of the
writ petition reserving liberty to the petitioner to avail
alternative remedy under Section 17 of the SARFAESI Act.
The appellant has questioned the said order before this Court.
3. Learned counsel appearing for the appellant
reiterating the grounds urged in the writ appeal would
vehemently argue and contend before this Court that what
was challenged before the learned Single Judge was an order
passed under Section 14 of the SARFAESI Act which is not
amenable to the jurisdiction of the Debt Recovery Tribunal
under Section 17 of the SARFAESI Act. Placing reliance on
sub-clause (3) of Section 14 of the SARFAESI Act, he would
submit to this Court that the appellant has no remedy of an
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appeal and therefore, has rightly invoked the writ jurisdiction
and this aspect is not dealt by the learned Single Judge.
Learned counsel would further place reliance on Section 65-A
of the Transfer of Property Act, 1882 and would contend
before us that where a secured asset is in possession of a
lessee under a valid lease, the Chief Metropolitan Magistrate
or the District Magistrate have no power to invoke the
provisions of Section 14 of the SARFAESI Act and therefore,
would contend that the impugned order being contrary to the
dictum laid down by the Hon'ble Apex Court in the case of
Harshad Govardhan Sondagar vs. International Assets
1
Reconstruction Company Limited and Others , is liable to
be examined by the writ court and therefore, he would
contend that the learned Single Judge was not justified in
dismissing the writ petition as not maintainable at threshold.
4. In support of his contention, learned counsel for the
appellant has placed reliance on the judgment rendered by the
1
(2014) 6 SCC 1
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Hon'ble Apex Court in the case of Vishal N.Kalsaria vs. Bank
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of India and Others . Relying on this judgment, he would
submit to this Court that where a secured asset is in
possession of a lessee/tenant of borrower, tenant is entitled
for protection against unjust evictions in the light of the
provisions of the Rent Control Act. He would further place
reliance on the judgment rendered by the Hon'ble Apex court
in the case of Chairman, Indore Vikas Pradhikaran vs.
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Pure Industrial Coke & Chemicals Ltd. and Others and
would contend that Article 300-A confers right to property and
on account of action of respondent No.2/Bank, his property
rights are affected and therefore, the appellant is entitled to
seek redressal of his grievances under writ jurisdiction. On
these set of grounds, he would submit to this Court that the
learned Single Judge has not examined all these significant
details and also the judgment of the Hon'ble Apex Court and
therefore, warrants interference at the hands of this Court.
2
(2016) 3 SCC 762
3
(2007) 8 SCC 705
6
5. Heard the learned counsel appearing for the
appellant. Perused the material on record.
6. The respondent No.1 applied for a housing loan of
Rs.1.80 Crores and submitted an application on 18.09.2017.
The respondent No.1 pursuant to sanction of loan, deposited
title deeds by executing an equitable mortgage deed in favour
of the respondent No.2/Bank. This deed was executed on
03.11.2017. Therefore, as on 03.11.2017, a charge was
created over the property in question and the respondent
No.2/Bank by securing deposit of title deed had secured the
assets towards discharge of housing loan of Rs.1.80 Crores.
7. The present appellant is contesting the recovery
proceedings initiated by the respondent No.2/Bank under the
provisions of the SARFAESI Act on the strength of lease
agreement executed on 12.02.2018. The said agreement was
produced by the appellant as Annexure-B to the writ petition.
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8. We have bestowed our anxious consideration to the
recitals of the lease agreement. Under the lease agreement,
the appellant claims that he has paid Rs.14 lakhs to the
respondent No.1 and the lease is for a period of two years
which would commence from 12.02.2018. If this document is
examined, we would find that pursuant to execution of lease,
the appellant claims that he has paid Rs.14 lakhs and
therefore, the respondent No.2/Bank cannot take possession
of the premises by invoking the provisions of Section 14 of the
SARFAESI Act and the action of the secured creditor is hit by
Section 65-A of the Transfer of Property Act.
9. Learned counsel for the appellant has raised two
questions of law before this Court. His contention is that the
action taken under Section 14 of the SARFAESI Act does not
fall within the ambit of Section 17(1) and therefore, in
absence of efficacious remedy, the present appellant who is
the lessee can maintain a writ petition under Articles 226 and
227 of the Constitution of India. The second question that is
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raised by the appellant herein is that the appellant is the
lessee of the premises and therefore, the provisions of the
Rent Act has overriding effect over the SARFAESI Act and
therefore, the question as to whether the appellant is entitled
for protection requires to be adjudicated by the writ Court in
absence of efficacious remedy under the SARFAESI Act.
10. In the light of the arguments canvassed by the
learned counsel for the appellant, the following points would
arise for our consideration:
1) Whether an aggrieved person other than
the principal borrower has a remedy against an
order passed under Section 14 of the SARFAESI
Act by a District Magistrate?
2) Whether the provisions of Rent Act has an
overriding effect over the SARFAESI Act?
Re: Point No.1:
11. The first question raised by this Court that since the
Executive District Magistrate has passed an order under
Section 14 of the SARFAESI Act, the action under Section 14
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does not contemplate any remedy under the SARFAESI Act is
misconceived. The Hon'ble Apex Court in the case of
Kanaiyalal Lalchand Sachdev and Others vs. State of
4
Maharashtra and Others has held that the action under
Section 14 constitutes action taken after stage of Section
13(4) of the SARFAESI Act and therefore, the grievance, if
any, falls within the ambit of Section 17(1) and therefore, the
aggrieved party has a remedy before the competent Tribunal
under Section 17(4A) of the SARFAESI Act.
12. The arguments canvassed by the appellant that
since the impugned order under challenge is passed under
Section 14 of the SARFAESI Act and therefore, the appellant
has no remedy would also not detain us for long in the light of
Section 17(4A) of the SARFAESI Act. Sub-section (4A) of
Section 17 would be relevant to the present lis and therefore,
the same is culled out as under:
(4) If, the Debts Recovery Tribunal declares the
recourse taken by a secured creditor under sub-section
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(2011) 2 SCC 782
10
(4) of section 13, is in accordance with the provisions of
this Act and the rules made thereunder, then,
notwithstanding anything contained in any other law for
the time being in force, the secured creditor shall be
entitled to take recourse to one or more of the
measures specified under sub-section (4) of section 13
to recover his secured debt.
[(4A) Where--
(i) any person, in an application under sub-
section (1), claims any tenancy or leasehold rights upon
the secured asset, the Debt Recovery Tribunal, after
examining the facts of the case and evidence produced
by the parties in relation to such claims shall, for the
purposes of enforcement of security interest, have the
jurisdiction to examine whether lease or tenancy,--
(a) has expired or stood determined; or
(b) is contrary to section 65A of the Transfer of
Property Act, 1882 (4 of 1882); or
(c) is contrary to terms of mortgage; or
(d) is created after the issuance of notice of default
and demand by the Bank under subsection (2) of
section 13 of the Act; and
(ii) the Debt Recovery Tribunal is satisfied that tenancy
right or leasehold rights claimed in secured asset falls
under the sub-clause (a) or sub-clause (b) or sub-
clause (c) or sub-clause (d) of clause (i), then
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notwithstanding anything to the contrary contained in
any other law for the time being in force, the Debt
Recovery Tribunal may pass such order as it deems fit
in accordance with the provisions of this Act.]"
13. The above said sub-section (4A) leaves no manner
of doubt that appellant who is asserting leasehold rights on
the ground that he is a tenant of the premises which is the
subject matter of recovery proceedings under the SARFAESI
Act, has an efficacious remedy under sub-section (4A) of
Section 17 of the SARFAESI Act. Therefore, what emerges
from the above said sub-section (4A) is that the DRT Act and
SARFAESI Act not only facilitate creation of special machinery
for speedy recovery of dues of banks and financial institutions,
but equally provides an adequate remedy to those who are in
possession of the secured assets either as a tenant or under
some other possessory rights.
14. The Hon'ble Apex Court in the case of Hemraj
5
Ratnakar Salian vs. HDFC Bank Ltd. and Others , has
5
AIR 2021 SC 3880
12
declined to grant any relief even though a claim was made
that he was a tenant and therefore, is entitled for protection
under the Maharashtra Rent Control Act. Therefore, on
perusal of the above said sub-section (4A) and the judgment
of the Hon'ble Apex Court, we would sum up the issue by
relegating the appellant to work out his remedies before the
Debt Recovery Tribunal. The question as to whether a lawful
lease was created before the borrower pledged his properties
by depositing title deeds or whether the borrower had secured
the consent of secured creditor while leasing the secured asset
in favour of tenant are all questions to be examined by the
competent Tribunal under Section 17(4A) of the SARFAESI
Act.
15. The Hon'ble Apex Court in the case of United Bank
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of India vs. Satyawati Tondon and Others has come
down heavily on the courts including High Courts entertaining
writ petitions in respect of matters exclusively falling within
6
(2010) 8 SCC 110
13
the domain of SARFAESI Act. The Hon'ble Apex Court at
paragraph 55 has expressed its serious concern that despite
repeated pronouncement, High courts have been entertaining
writ petitions ignoring the availability of statutory remedies
under the DRT Act and SARFEASI Act.
16. Therefore, the contention of the appellant that the
orders under Section 13 of the SARFAESI Act are only
amenable to the appellate jurisdiction under Section 17(1) of
the SARFAESI Act is totally misconceived. The said issue is
dealt by the Hon'ble Apex Court in the judgment cited supra
and therefore, the contention urged by the appellant that
since he has no remedy under the provisions of the SARFAESI
Act, he can maintain a writ petition before this Court under
Articles 226 and 227 of the Constitution of India cannot be
acceded to. Accordingly, point No.1 formulated above is
answered in the affirmative.
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Re: Point No.2:
17. Regarding the second point raised by this Court, it
would be useful for us to cull out Section 26-E of the
SARFAESI Act, which reads as follows:
" 26E. Priority to secured creditors.-
Notwithstanding anything contained in any other law
for the time being in force, after the registration of
security interest, the debts due to any secured
creditor shall be paid in priority over all other debts
and all revenues, taxes, cesses and other rates
payable to the Central Government or State
Government or local authority.
Explanation.-for the purposes of this section, it
is hereby clarified that on or after the commencement
of the Insolvency and Bankruptcy Code, 2016 (31 of
2016), in cases where insolvency or bankruptcy
proceedings are pending in respect of secured assets
of the borrower, priority to secured creditors in
payment of debt shall be subject to the provisions of
that Code."
18. On plain reading of Section 26-E of the SARFAESI
Act, we would find that the secured creditor has precedence
over all other charges. By Amendment Act 44 of 2016 which
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came into effect from 01.09.2016, a new provision was
incorporated into the SARFAESI Act and therefore, under
Section 26-E of the SARFAESI Act, priority in payment has
been statutorily created in favour of the secured creditor over
all other debts including taxes payable to the Central
Government or the State Government on registration of
security interest. The non obstante clause under the provision
makes the intention of the parliament explicit that even
against statutory charges created under the Central Act,
secured creditor shall have the right for priority in payment
and priority to release the debt for bringing the secured asset
for sale. The non obstante clause used in Section 26-E is a
tool by which legislature gives complete predominance to that
provision over all other provisions of law.
19. The present appellant is asserting right on the basis
of the lease agreement. On perusal of the recitals in the lease
deed, it is found that the appellant has paid Rs.14 lakhs and
the lease would commence from 12.02.2018 for a period of
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two years. This lease agreement is executed by the
respondent No.1/landlord after deposit of title deeds by
executing equitable mortgage deed on 03.11.2017. Therefore,
we are unable to understand, under the lease agreement, how
the appellant can assert and claim right under Section 65-A of
the Transfer of Property Act. Even if the appellant had any
such right under Section 65-A of the Transfer of Property Act,
even then in terms of Section 26-E of the SARFAESI Act, the
secured creditor has precedence and first charge over the
secured assets and it is well within the jurisdiction of the Bank
to proceed against the secured assets.
20. A secured creditor in whose favour the security
interest has been created has a priority in sale and payment
over all other charges, if any. The appellant, even otherwise,
cannot agitate his rights against the secured creditor. If he
has paid any amount under the lease agreement, and if there
is a breach on the part of the respondent No.1/landlord, it
would give rise to civil consequences and therefore, the
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appellant has to seek redressal of his grievances before a
competent civil Court. Therefore, in the light of discussion
made supra, point No.2 formulated by this Court that the
provisions of the Rent Act would override the provisions of the
SARFAESI Act is misconceived and the same is answered in
the negative.
21. The judgment cited by the appellant in the case of
Vishal N.Kalsaria (supra) does not come to the aid of the
appellant herein. It is not in dispute that the lease deed is
executed by the respondent No.1/landlord subsequent to
deposit of title deeds in favour of the respondent No.2/Bank.
Therefore, as discussed supra, the question as to whether
there was a valid lease has to be adjudicated under section
17(4A) of the SARFAESI Act. Therefore, in the light of the
provisions of Sections 26-E and 17(4A) of the SARFAESI Act,
an aggrieved person other than the principal borrower can
seek adjudication of his rights, more particularly a tenant can
seek redressal of his grievance as to whether there was a valid
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and lawful tenancy created much prior to principal borrower
depositing the title deeds with the secured creditor. All these
rival contentions can be examined in the light of the provisions
of Section 17(4A) of the SARFAESI Act.
22. For the foregoing reasons, the writ appeal is devoid
of merits and the same is accordingly dismissed.
The pending interlocutory applications, if any, stand
disposed of.
Sd/-
CHIEF JUSTICE
Sd/-
JUDGE
CA