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CaseIQ

CANARA BANK v. SACHIN SHYAM

Kerala High Court

Dec 19, 2022

Judgment

CaseIQ

Smart Summary (Beta)

Factual and Procedural Background

The petitioner, Canara Bank, a secured creditor, initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) against the first respondent who had availed a loan. The petitioner brought an item of property to sale, in which the third respondent claimed to be a tenant. The property was subsequently purchased by the fourth respondent. The petitioner filed an application under Section 14 of the SARFAESI Act seeking vacant possession of the property. The Chief Judicial Magistrate, Alappuzha, rejected this application, holding that the tenant’s rights could not be defeated by the SARFAESI Act, particularly since the tenancy was created prior to the mortgage. The petitioner challenged this order before the High Court under Article 226 of the Constitution of India.

Legal Issues Presented

Whether the Chief Judicial Magistrate erred in considering the rights of the tenant while deciding an application under Section 14 of the SARFAESI Act.
Whether an application under Section 14 of the SARFAESI Act is maintainable to obtain possession of secured assets notwithstanding claims of tenancy rights.
The scope of powers exercisable by the Magistrate under Section 14 of the SARFAESI Act and whether adjudication of tenancy disputes falls within such scope.

Arguments of the Parties

Petitioner’s Arguments

The learned Magistrate exceeded the scope of Section 14 by adjudicating tenancy rights, which are outside the purview of an enquiry under that section.
The application under Section 14 was maintainable as the petitioner had not obtained physical possession of the secured asset.
There were no documents proving the third respondent as a bona fide tenant.
Recovery proceedings were being obstructed by collusive action between the borrower and the third respondent.
Reliance was placed on Supreme Court judgments to contend that absence of a registered tenancy agreement negates tenancy claims beyond the period prescribed under the Transfer of Property Act.
Even after sale of the asset to the fourth respondent, the petitioner retained rights as secured creditor under Section 14 of the SARFAESI Act.

Third Respondent’s Arguments

The Chief Judicial Magistrate committed no error in rejecting the application under Section 14.
The notices under Sections 13(2) and 13(4) of the SARFAESI Act had been issued properly.
The sale was in "as is where is" condition.
The tenancy rights of the third respondent, established since 1976 through municipal and other records, are protected under Rent Control Laws and cannot be defeated by Section 14 proceedings.
The earlier order permitting possession was rightly recalled.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. & Ors; (2014) 6 SCC 1	Tenancy rights and application of SARFAESI Act provisions	Supported argument that absence of registered tenancy weakens tenant's claim under SARFAESI Act
Bajarang Shyamsundar Agarwal v. Central Bank of India; (2019) 9 SCC 94	Tenancy claims and limitation under Transfer of Property Act	Affirmed that absence of registered agreement limits tenant's possession rights
Hemraj Ratnakar Salian v. HDFC Bank Ltd. & Ors; 2021 SCC Online SC 611	Rights of secured creditor post sale of secured asset	Confirmed secured creditor's right to possession even after sale to third party
Kottakkal Co-Operative Urban Bank v. T. Balakrishnan & Anr.; CDJ 2008 Ker HC 262	Requirement of registered agreement for tenancy claims	Used to argue tenant's lack of entitlement without registered document
ITC Limited v. Blue Coast Hotels Ltd & Others (2018) 15 SCC 99	Secured creditor's right to take possession after transfer of title	Supported petitioner's claim to possession despite sale of asset
Balkrishna Rama Tarle Dead Thr. LRS & Anr. v. Phoenix ARC Private Limited & Ors; 2022 (5) KLT OnLine 1150 (SC)	Scope of Section 14 SARFAESI Act powers of Magistrate as ministerial, not adjudicatory	Key authority for quashing the Magistrate's order and directing fresh consideration
R.D. Jain & Co. v. Capital First Ltd., Civil Appeal No. 175/2022 dated 27.07.2022	Clarification on powers under Section 14 SARFAESI Act	Followed in Balkrishna Rama Tarle judgment to emphasize ministerial nature of Section 14 proceedings

Court's Reasoning and Analysis

The Court examined the scope of Section 14 of the SARFAESI Act, emphasizing that the powers of the Chief Judicial Magistrate under this provision are purely ministerial and do not involve adjudication of disputes between the secured creditor and tenants or borrowers. The Court referred extensively to the recent Supreme Court decision in Balkrishna Rama Tarle, which held that tenancy rights and disputes should be resolved through separate legal processes, such as eviction proceedings before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act, rather than in Section 14 applications. The Magistrate's order was found to have improperly delved into tenancy rights, which is beyond the permissible scope of Section 14. The Court also noted that the petitioner had complied with the procedural requirements under Section 14 and that the absence of a registered tenancy agreement undermined the third respondent's claim to possession beyond the statutory period under the Transfer of Property Act. Further, the Court highlighted that the secured creditor retains the right to possession even after sale of the asset to a third party, as per established Supreme Court precedent. Consequently, the impugned order was set aside, and the matter was remanded for fresh consideration strictly in accordance with the law.

Holding and Implications

The Court held that the order passed by the Chief Judicial Magistrate (Ext.P7) is quashed. The petitioner's application under Section 14 of the SARFAESI Act was maintainable and the Magistrate erred by adjudicating tenancy rights, which are outside the scope of Section 14. The case was remanded to the Chief Judicial Magistrate, Alappuzha, to pass fresh orders within two months, adhering to the Supreme Court's authoritative guidance in Balkrishna Rama Tarle and related judgments.

The direct effect of this decision is the restoration of the petitioner's right to possession of the secured asset subject to proper compliance with Section 14 procedures. No new precedent was set; rather, the Court reinforced the established legal position that tenancy disputes cannot be determined in Section 14 proceedings and must be addressed through separate eviction proceedings under the SARFAESI Act.

Show all summary ...

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT

THE HONOURABLE MR. JUSTICE GOPINATH P.

MONDAY, THE 19^TH DAY OF DECEMBER 2022 / 28TH AGRAHAYANA, 1944

WP(C) NO. 28054 OF 2021

PETITIONER:

CANARA BANK

MULLAKKAL, ALAPPUZHA BRANCH, VSV BUILDING, IRON BRIDGE

(PO), MULLAKKAL, ALAPPUZHA DISTRICT, KERALA, PIN-

688011, REPRESENTED BY ITS AUTHORISED OFFICER.

BY ADVS.

K.V.ANIL

M.J.RAJASREE

ANIRUDH KADAVIL

RESPONDENT/S:

1 SACHIN SHYAM

PROPRIETOR, M/S. SKILDERZ DEVELOPERS, S/O. SRI.SHYAM RAJU, ARJUNAM, THIRUVAMPADY JUNCTION P.O., ALAPPUZHA-

688002.

2 SHYAM RAJU,

S/O. SRI. PADMANABHAN, ARJUNAM, THIRUVAMPADY JUNCTION P.O., ALAPPUZHA-688002.

3 SAJIKUMAR T.M.,

AGED 46 YEARS

S/O. LATE THANKAPPAN, MACHINGAPARAMBU, PAZHAVEEDU P.O., ALAPPUZHA-688009.

4 RAJEEV R.,

S/O. SRI. RAJAN K., POOJA, RAJ BHAVAN, EAST OF KOMALAPURAM, SOUTH ARYAD, ALAPPUZHA-688521.

BY ADVS.

K.S.HARIHARAPUTHRAN

C.C.ANOOP

BHANU THILAK

THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON

19.12.2022, THE COURT ON THE SAME DAY DELIVERED THE

FOLLOWING:

'C.R.'

J U D G M E N T

The petitioner is a Banking Company constituted under the Banking Companies (Acquisition & Transfer of Undertakings) Act, 1970. It has approached this Court being aggrieved by Ext.P7 order of the Chief Judicial Magistrate Court, Alappuzha, in proceedings under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter referred to as the 'SARFAESI' Act) Act.

2. The petitioner, a secured creditor in respect of a loan availed by the 1^strespondent, brought to sale an item of property in which the 3^rdrespondent claims to be a tenant under the provisions of the SARFAESI Act. The property was purchased by the 4^threspondent. The application filed by the petitioner under Section 14 of the SARFAESI Act for obtaining vacant possession of the property has been rejected by the learned Magistrate finding inter alia the rights of the tenant cannot be defeated by the provisions in the SARFAESI Act. The learned Magistrate has concluded that the tenancy was created much before the creation of the mortgage, and therefore such tenants cannot be evicted by reporting to proceedings under Section 14 of the

SARFAESI Act.

3. The learned counsel appearing for the petitioner submits that the learned Magistrate has travelled beyond the scope of Section 14 of the SARFAESI Act and has decided matters outside the purview of an enquiry under Section 14. It is submitted that the application under Section 14 of the SARFAESI Act was filed as the petitioner had not obtained physical possession of the secured asset. It is submitted that the application under Section 14 was maintainable and that there were no documents whatsoever to establish that the 3^rdrespondent was a bonafide tenant. It is submitted that the recovery proceedings initiated by the petitioner Bank have been thwarted by collusive action between the original borrower and the 3rd respondent. The learned counsel placed reliance on the judgments of the Supreme Court in

Harshad Govardhan Sondagar v. International Assets Reconstruction Co.Ltd. & Ors; (2014) 6 SCC 1, Bajarang Shyamsundar Agarwal v. Central Bank of India; (2019) 9 SCC 94, Hemraj Ratnakar Salian v. HDFC Bank Ltd. & Ors. 2021 SCC Online SC 611 and the judgment of this Court in The Kottakkal Co-Operative Urban Bank v. T. Balakrishnan & Anr.; CDJ 2008 Ker HC 262, to contend that, in the absence of a registered agreement, the 3rd respondent could not claim any

right as a tenant. It is also pointed out that, even after the sale of the asset in favour of the 4th respondent, the petitioner continued to be a secured creditor entitled to exercise the rights of a secured creditor u/s.14 of the SARFAESI Act in the light of the law laid down in ITC Limited v. Blue Coast Hotels Ltd & Others in (2018) 15 SCC

99.

4. The learned counsel appearing for the 3rd respondent would contend that the learned Chief Judicial Magistrate has committed no error and the order of the learned Magistrate cannot be interfered with by this Court in the exercise of jurisdiction under Article 226 of the Constitution of India. It is submitted that the notice u/s.13 (2) of the SARFAESI Act was issued on 24.1.2020, followed by Ext.P2 notice u/s.13(4) on 16.10.2020. It is submitted that the sale notice published by the Bank on 24.3.2021 clearly shows that the asset was sold in 'as is where is' condition. It is submitted that Ext.P5 is the initial order passed by the learned Chief Judicial Magistrate, Alappuzha permitting the application filed u/s.14 of the SARFAESI Act. It is submitted that this order was subsequently recalled through Ext.P7 order dated 11.11.2021, at the instance of the 3rd respondent. It is submitted that there are documents such as municipal records etc., which would establish that the 3rd respondent is a tenant in respect of

the secured asset from the year 1976 and the rights of the 3rd respondent to continue in occupation stands protected by the Rent Control Laws which cannot be defeated by filing an application u/s.14 of the SARFAESI Act.

5. Having heard Sri. Anirudh Kadavil, the learned counsel appearing for the petitioner and Sri. Hariharaputhran, the learned counsel appearing for the 3rd respondent, I am of the view that the petitioner is entitled to succeed. The question as to whether the Magistrate is required to consider the right of tenants in an application filed u/s.14 of the SARFAESI Act came up for consideration before the Supreme Court in Balkrishna Rama Tarle Dead Thr. LRS & Anr. v. Phoenix ARC Private Limited & Ors; 2022 (5) KLT OnLine 1150 (SC) (judgment dated 26.9.2022 in S.L.P.No.16013/2022). The facts of that case show that the secured creditor had preferred an application u/s.14 of the SARFAESI Act before the designated authority u/s. 14 of that Act. The petitioner in the Special Leave Petition claimed to be a tenant in respect of some parts of the secured asset in question and claimed that he could not be evicted without following the legal process for eviction. The tenant also relied on an order obtained by him in a Civil Suit filed by him against one of the borrowers, where an order restraining his dispossession

from the premises in question came to be issued. The designated authority inter alia held that the possession of the secured asset could be taken only upon termination of the tenancy right of the petitioner in the Special Leave Petition. This order of the designated authority was set aside by the High Court of Judicature at Bombay in W.P. (C)No.9749/2021. That order of the Division Bench was challenged before the Supreme Court by filing S.L.P.No.16013/2022. On a consideration of the matter, and following the judgment in R.D. Jain & Co. v. Capital First Ltd. in Civil Appeal No. 175/2022 dated 27.07.2022) the Supreme Court held as follows:-

"Thus, the powers exercisable by CMM/DM under Section 14 of the SARFAESI Act are ministerial step and Section 14 does not involve any adjudicatory process qua points raised by the borrowers against the secured creditor taking possession of the secured assets. In that view of the matter once all the requirements under Section 14 of the SARFAESI Act are complied with/satisfied by the secured creditor, it is the duty cast upon the CMM/DM to assist the secured creditor in obtaining the possession as well as the documents related to the secured assets even with the help of any officer subordinate to him and/or with the help of an advocate appointed as Advocate Commissioner. At that stage, the CMM/DM is not required to adjudicate the dispute between the borrower and the secured creditor and/or between any other third party and the secured creditor with respect to the secured assets and the aggrieved party to be relegated to raise objections in the proceedings under Section 17 of the SARFAESI Act, before Debts Recovery Tribunal. Under the circumstances in the present case no error has been committed by the High Court in setting aside the order dated 27.08.2021 passed by the designated authority keeping the application pending till the secured creditor initiates the legal

proceedings for eviction of the tenant cannot get the possession in an application under Section 14 of the SARFAESI Act. The High Court has rightly directed the designated authority to proceed further with the application under Section 14 of the SARFAESI Act, and to dispose of the same in accordance with the provisions of Section 14 of the SARFAESI Act."

In the light of the law laid down by the Supreme Court in Balkrishna Rama Tarle (supra), Ext.P7 order of the learned Chief Judicial Magistrate, Alappuzha cannot be sustained. Even in the facts of this case, the 3rd respondent has no case that any proceeding initiated by the petitioner u/s.14 of the SARFAESI Act had been challenged by the 3rd respondent in proceedings before the Debts Recovery Tribunal u/s.17 of the SARFAESI Act. Still further it must be noticed that, in the light of the law laid down by the Supreme Court in Bajarang Shyamsundar Agarwal (supra), the absence of a registered document will establish that the tenant is not entitled to possession of secured asset for a period exceeding the limit prescribed u/s.107 of the Transfer Property Act. It is also evident on a reading of Ext.P7 order that the learned Magistrate travelled far outside the scope of enquiry u/s.14 of the SARFAESI Act. Moreover, it is clear from the judgment in ITC Limited (supra) that the creditor has the right to take actual possession of the secured asset even after transfer of title to an auction purchaser. For all these reasons, I am of the opinion that Ext.P7 order

is liable to be set aside in exercise of jurisdiction under Article 226 of the Constitution of India. Therefore, Ext.P7 is quashed. M.C. No.54/2021 will stand restored to the file of the Chief Judicial Magistrate, Alappuzha who shall pass fresh orders in the matter, taking into consideration the law laid down by the Supreme Court in

Balkrishna Rama Tarle (supra) and also in the light of the observations contained in this judgment. The learned Chief Judicial Magistrate shall pass fresh orders as directed above within a period of two months from the date of receipt of a certified copy of this judgment. The registry shall communicate a copy of this judgment to the learned Chief Judicial Magistrate, Alappuzha, for compliance.

Sd/-

GOPINATH P.

JUDGE

acd

RATNAKAR SALIAN VS. HDFC BANK LTD. & ORS. IN CRIMINAL APPEAL NO.(S). 843-844 OF

2021 DATED 17.8.2021 OF SUPREME COURT OF

INDIA.