In a landmark judgement, the Supreme Court held that a tenant cannot be evicted from the property, when the owner fails to repay the lender bank.

The SARFAESI Act 2002(Securitisation And Reconstruction of Final Assets and enforcement of Security Interest), empowers banks and financial institutions to recover their non performing assets (NPAs) without the intervention of the court.

The Rent control Act by the Government of India was an attempt to eliminate the exploitation of tenants by the landlords.

In the instant case, the property was mortgaged by the owner to Bank of India. When he failed to repay the loan, the bank filed a petition before the CMM(Central Metropolitan Magistrate) , Mumbai, under section 14 of SARFAESI Act seeking possession of the property, which was allowed by the Court.

The tenant on receiving a notice from the owner filed a rent suit before the Court of small causes, which was pleased to pass an order of injunction. The CMM in turn, dismissed the petition and held that when action is taken under SARFAESI Act, intentional injunction under rent control Act is void of merits.

This was escalated to Supreme Court, which opined as stated above. The bank had submitted that any encroachment on SARFAESI Act should not be permitted. This was enacted by the parliament under Entry 45 of list I of the constitution of India. It is a special Act, with a special purpose and procedure laid down for the recovery of the secured asset of the debtor by the bank to recover the amount due to it. Any encroachment would defect the laudable object of the Act. They also said that since the tenancy deed has not been registered, the proof of tenancy has not been established.

Their lordships said that any arbitrary act to evict under SARFAESI would render a valid rent control statuette enacted by the state legislature in exercise of its legislative power, useless.

As regards non registration of the tenancy they said that, if the 2 parties are executing their rights and liabilities in the name of a landlord /tenant and if regular rent is paid, non registration of deed will not matter.

It held that once a tenancy is created, a tenant can be evicted only after observing the due process of law. Any action under SARFEASI Act, will be in contradiction to the statutory rights of protection given to the tenant. The Supreme Court observed that a non obstacle clause (Sec 35 of SARFAESI) cannot be used to bull doze the statutory rights conferred on the tenant by the Rent control Act.

The petitioner was Vishal Kalsaira and the respondent bank was Bank of India. The judgement was pronounced by a division bench of Mr.V. Gopal Gowda and Amirtava Roy.

Courtesy: website of Supreme Court

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