Business India Builders & Developers Ltd. v. Union Bank Of India & Ors.

Radhakrishnan, A.C.J:— Writ petition was preferred by the appellant herein seeking a declaration that the word “encumbrances” enumerated in Rule 9(9) of Security Interest (Enforcement) Rules 2002 does not include tenancy arrangements with respect to the secured assets sold as per Rule 8 and also for a declaration that the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Enforcements) Rules 2002 does not authorise the eviction of tenants in occupation of secured assets and also for other consequential reliefs. Petitioner has also challenged the notice dated 31-10-2006 received from the bank directing the petitioner to hand over vacant possession of the premises to the bank failing which petitioner was informed that coercive steps would be taken to evict the petitioner from the premises. Learned single Judge found no infirmity in the notice issued by the bank and dismissed the writ petition. Aggrieved by the same this appeal has been preferred.

2. Sri. D. Kishore, counsel appearing for the appellant submitted that the Bank has no legal right to evict the petitioner invoking the provisions of the Securitisation Act as well as the rules framed thereunder without resorting to the provisions of the Kerala Buildings (Lease and Rent Control) Act. Counsel submitted that Rule 9(9) of the Security Interest (Enforcement) Rules, 2002 would not take in tenancy arrangement and the word “free from encumbrances” enumerated in Rule 9(9) means the encumbrances set forth in Rule 9(7). Counsel submitted that the rights of a tenant available under the Kerala Buildings (Lease and Rent Control) Act as well as under the Code of Civil Procedure cannot be set at naught by the Securitisation Act and Rules framed thereunder. Counsel submitted, in any view of the matter the decision of the Division Bench of this Court in Shameem v. City Police Commissioner, 2005 (4) KLT (SN) 70 requires reconsideration since the Bench has not properly considered the effect of Rules 9(7) and 9(9) of the Security Interest (Enforcement) Rules 2002.

3. Sri. A.V Thomas, counsel appearing for the first respondent bank has filed a detailed counter affidavit in writ appeal and narrated various steps taken by the bank for realising the amount from the borrower. Counsel submitted that Anupam, a partnership firm and Anupam Exports (India), a proprietory concern had availed cash credit hypothecation limit, packing credit limit, FDBP etc. from the Mavelikara Branch of the Union Bank of India to the tune of Rs. 35,00,000/-, Rs. 15,00,000/- and Rs. 30,00,000/- respectively. Towards security for due repayment of the loan amounts, an extent of 8.86 Ares (20.500 cents) of land in Survey No. 20/37 and 20/35 of Mavelikara Village (old survey No. 84/3 and 84/2) with the building therein was mortgaged by the partner and proprietor on 12-1-1995 to the bank by deposit of title deeds. The account became non performing asset and the bank initiated proceedings under the Securitisation Act as per notice dated 27-9-2002. Later, the bank filed A. No. 279/03 before the Debts Recovery Tribunal, Ernakulam on 2-9-2003 and the bank after getting permission from the Tribunal, continued proceedings under Securitisation Act. Notice issued by the bank was challenged before this Court and the same was repelled. Ultimately bank had filed I.A 1232/04 before the Tribunal for permission to conduct sale of the securities under the Securitisation Act and the Tribunal vide order dated 21-7-04 accorded sanction to the bank to issue notice under the Act. Based on the notice dated 5-5-2004 the authorized officer went to the property for taking possession on 2-8-04 and the same was obstructed by the persons set up by borrowers. Ultimately the bank sought the assistance of the District Magistrate to take possession of the secured assets and the District Magistrate gave necessary instructions to the police to assist the bank to take possession of the securities on 25-8-04. Accordingly, bank took possession of the securities and published possession notice in various newspapers as provided under Rule 8 of the Security Interest Enforcement Rules, 2002. Later bank published tender notification in various dailies on 19-9-2004. Ultimately bank published a sale notice in various dailies on 6-7-2006 fixing the sale date on 13-7-2006. Later another auction notice was published fixing the date of public auction on 9-8-2006 and the sale was conducted on 9-8-2006 and the property was sold and purchased by the additional 5th respondent.

4. We may at the outset point out that respondents 1 and 2 have produced Annexure-R2 Declaration dated 20-1-1995 executed by the borrower in favour of the Bank. There is a specific clause in Annexure-R2 which reads as follows:

“We hereby agree and undertake not to mortgage, charge, encumber, lease, dispose of or deal with the property mortgaged by me/us/the company to cover the guarantee during the continuance of the said facilities to Anupam by the bank.”

Facts would indicate that contrary to the above mentioned stipulation in Annexure-R2 the petitioner was inducted as a tenant in the premises and now he has taken up the stand that he cannot be evicted under the provisions of the Securitisation Act but only under the provisions of the Kerala Buildings (Lease and Rent Control) Act. Supreme Court in Mardia Chemicals case. (2004 (2) KLT 273: (AIR 2004 SC 237) has upheld the validity of the Securitisation Act and the right to proceed against secured assets.

5. Sections 35 and 37 of the Securitisation Act in our view have got overriding effect over the Kerala Buildings (Lease and Rent Control) Act. The above mentioned provisions are extracted hereunder for easy reference:

35. “The provisions of this Act to override other laws:— The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.

37. Application of other laws not barred:— The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.”

Section 35 specifically states that it would override other laws. Further Sec. 37 states that the provisions of the Securitisation Act shall be in addition to and not in derogation of certain acts mentioned therein. Laws which are not barred but in addition to the Securitisation Act has been enumerated in Section 37. A Division Bench of the Court in Shameem v. City Police Commissioner 2005 (4) KLT (SN) page 70 wherein this Court has taken the view that the Securitisation Act has got overriding effect over other laws and tenant cannot claim possession over the mortgaged property. This Court has also had occasion to consider the question as to whether the provisions of the State Financial Corporation Act would prevail over the provisions of any other laws including the provisions of Kerala Buildings (Lease & Rent Control) Act. A Division Bench of this Court in Antony v. KFC 1999 (1) KLT 890: (AIR 1999 Ker 333) Look the view that the provisions of the State Financial Corporation Act would prevail over the provisions of any other laws including the provisions of the Kerala Buildings (Lease and Rent Control) Act by virtue of Sec. 46-B of the State Financial Corporation Act, 1951. Section 46-B also operates in the same plane compared to Section 35 of the Securitisation Act. The principle laid down in the above mentioned decisions would apply to the facts of this case. We are therefore of the view that the Securitisation Act has got overriding effect over the Kerala Buildings (Lease and Rent Control) Act and parties are governed by the Securitisation Act and not by the Rent Control Act.

6. We are not impressed by the arguments of the counsel for the petitioner that the encumbrance enumerated in Rule 9(9) would not take in the occupation of the tenant. The word encumbrance cannot be given a restricted meaning “Encumbrance” means a liability which burdens the property, for example, lease, mortgage, easement, restriction, covenant, rent, charge etc. Encumbrance which can be carved out of ownership, generally are securities, leases, servitudes, trusts etc. It is generally a burden or charge upon the property. Lease is therefore an encumbrance over the property. In any view the borrower is bound by the terms and conditions stipulated in Annexure R2 dated 20-1-95, by which he had undertaken that he would not lease out the property. Contrary to the said stipulation the tenant was put in possession and therefore by virtue of Securitisation Act there is no necessity of the Bank resorting to the provisions of the Rent Control Act for evicting the tenant. The authorized officer is to deliver the property to the purchaser free from encumbrances in terms of Rule 9(9). Occupants are not to be physically dispossessed at the time of issuing notice under Section 13. The physical possession can be taken by the Bank by following the procedure laid down in Section 14 or after the sale is confirmed. In this connection we may refer to the Bench decision of the Punjab and Haryana High Court in Kalyani Sales Company v. Union of India, AIR 2006 P & H 107. In view of the above mentioned circumstances we find no error in the judgment of the learned single Judge to be interfered by us in this appeal. Writ appeal therefore lacks merit and the same is dismissed.

Appeal dismissed.