No person is entitled to protection of Rent Act against SARFAESI proceedings if he is tenant in sufferance: SC

Read judgment: HEMRAJ RATNAKAR SALIAN vs. HDFC BANK LTD

Pankaj Bajpai

New Delhi, August 18, 2021: The Supreme Court has ruled that the tenant is not entitled to possession of the secured asset for more than the period prescribed under the provisions of the Transfer of Property Act, in the absence of a registered instrument. 

While dismissing the appeal, a Division Bench of Justice S Abdul Nazeer and Justice Krishna Murari observed that a tenant is not entitled to protection of Rent Act by simply relying upon an unregistered instrument or an oral agreement accompanied by delivery of possession. 

The observation came pursuant to an appeal challenging the orders passed by the Chief Metropolitan Magistrate, Esplanade, Mumbai, rejecting the Application filed by the appellant for restraining HDFC Bank (first respondent) from taking possession of the property in the appellant’s possession. 

Going by the background of the case, the HDFC Bank had granted financial facility to respondents 2 and 3 (the Borrowers) of Rs. 5,50,00,000 and in turn the borrowers mortgaged a secured asset in favour of the Bank with an intention to secure the credit facility. 

Later, the accounts of the Borrowers were declared as non-performing assets (NPA), which led to issuance of notice u/s 13 (2) of the SARFAESI Act. 

It was therefore the case of the appellant that he was a tenant of the Secured Asset on a monthly rent of Rs.20,000/- since June 12, 2012 with an increase of 5% every year and hence the HDFC Bank could not take the possession of the property in appellant’s possession. 

After going through the contentions, Justice Nazeer found that there is a serious doubt as to the bona fide of the tenant, as there is no good or sufficient evidence to establish the tenancy of the appellant. 

According to the appellant, he is a tenant of the Secured Asset. However, the documents produced in support of his claim are xerox copies of the rent receipts and the first xerox copy of the rent receipt is of May 12, 2013 which is after the date of creation of the mortgage, noted the Division Bench. 

Justice Nazeer further found that the Borrowers have not claimed that any tenant is staying at the Secured Asset. Also, at the time of grant of financial facility, third party valuers had also confirmed that the Borrowers were staying at the Secured Asset. 

The appellant has pleaded tenancy from June 12, 2012 to Dec 17, 2018, which is not supported by any registered instrument. Further, even according to the appellant, he is a “tenant-in-sufferance” and therefore, he is not entitled to any protection of the Rent Act, added the Bench. 

The Apex Court therefore concluded that even if the tenancy has been claimed to be renewed in terms of Section 13(13) of the SARFAESI Act, the Borrower would be required to seek consent of the secured creditor for transfer of the Secured Asset by way of sale, lease or otherwise, after issuance of the notice u/s 13(2) of the SARFAESI Act. 

Since no such consent has been sought by the Borrower in the present case prior to issuance of a notice u/s 13(2) of the SARFAESI Act, the Top Court dismissed the appeal seeking tenancy relief.