Whether a tenancy created prior to creation of secured interest of premises can be ended with the help of Sarfaesi Act?
This is a moot question which covers in it the legal formulas from two common legisalations viz 1] the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act and 2] the Building Lease and Rent Control Act. Of course we know that a Bank or other financial institution which comes within the definition of securitisation company can exercise its rights strongly by the help of the Sarfaesi Act which is a landmark legislation. This legislation will help those companies to secure the financial assistance granted to others and enforce the security interest.
Now the question is what is to be done when a landlord creates a tenancy in a building which was mortgaged to the Bank. Here the Bank has full-fledged rights to evict the tenant as the tenancy was created after securing the building to the Bank for advance granted by it. But what if the building was already occupied by tenants before creation of mortgage rights. This moot question was answered by the Full Bench of Honourable High Court of Kerala in Pushpangadan N P and others versus Federal Bank Limited and others in 2011. In this case the the tenants contended that since they were already occupying the premises at the time of creation of mortgage their tenancy right would not be affected by any of the measures taken under Section 13 of the Securitisation Act. They also contended that their leasehold rights could only be terminated by invoking the provisions of Rent Control Act.
There are certain provisions in the Sarfesi which helps the secured creditors to exercise their rights to enforce security interest created over properties. They are sections 13,14, 34 and 35. Section 14 gives power to the secured creditors to take possession of the properties if the borrower fails to discharge his liabilities in full. This power can be exercised without the intervention of the Court. Section 14 gives power to move application before concerned authorities to get assistance in taking possession of properties. Section 34 excludes the jurisdiction of Civil Courts and Section 35 says that the provisions of Sarfesi Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force. When we analyse the provisions of Sarfesi along with the objects and reasons of the statute we may feel that it is the prime legislation and it will not have any threat from any other law in the world. But it may be noted that the object of the Sarfaesi Act is only the speedy recovery of the debt due to the secured creditor. It is pertinent to analyse the provision of Section 37 of Sarfesi Act. It states that the provisions of Sarfesi Act and the rules made thereunder shall be in addition to, and not in derogation of any other law for the time being in force. When we take the provisions of Rent Control Act and Sarfesi, there is nothing inconsistent therewith contained in both. So Section 35 is not having much relevance there.
Now we can take the case of tenancy created before creation of security interest. An unscrupulous landlord may take a loan and makes default purposefully to get the property taken over by the Bank and then get the tenants evicted by the Bank. Then he may choose his own person to participate in auction sale of the property and buy the same. So it should not be the case that the genuine tenants and their rights are not protected only because the landlord created security interest of the premises with the Bank.
Thus the Court held that the Sarfesi Act has no overriding effect over the provisions of Rent Control Act. A tenant inducted in the premises before the creation of security interest cannot be summarily evicted using the provisions of Sarfesi. There is nothing repugnant in both the laws. Both are operating in different fields. It cannot be held that Rent Control law is void because of repugnancy to Sarfesi Act.