SARFAESI Act cannot override Rent Control Laws; Tenants cannot be evicted using provisions of SARFAESI Act: Supreme Court

A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant. A non obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze the statutory rights vested on the tenants under the Rent Control Act, the Court said.

In a significant ruling, Supreme Court of India has held that the provisions of the SARFAESI Act cannot override the provisions of the Rent Control Act. Apex Court Bench comprising of Justices V. Gopala Gowda and Amitava Roy, in Vishal N. Kalsaria vs. Bank of India, said that non obstante clause as in section 35 of the SARFAESI Act cannot be used to bulldoze the statutory rights vested on the tenants under the Rent Control Act.

Context

The Appellants were the tenants occupying the property mortgaged in the Bank. Since the landlord defaulted payment of dues, the Bank proceeded under SARFAESI Act, and the Magistrate allowed the application of the bank seeking possession of the mortgaged properties which are in actual possession of the Appellant. The Appellants approached Small causes court and the court passed an interim injunction against obstructing the possession of the appellant over the suit premises during the pendency of the suit. The Appellants, as interveners, then filed an application as an intervener to stay the execution of the order of Magistrate which was refused. Relying on 'Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd.', the Magistrate held that when the secured creditor takes action under Section 13 or 14 of the SARFAESI Act to recover the possession of the secured interest and recover the loan amount by selling the same in public auction, then it is not open for the Court to grant an injunction under Section 33 of the Rent Control Act. The Magistrate also held that order passed in Rent suit cannot be said to be binding upon bank. The tenants approached Supreme Court.

SARFESI Act cannot override Rent Control Laws

The Apex Court held that a landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Control Act, more so when the two legislations, that is the SARFAESI Act and the Rent Control Act operate in completely different fields.

Rejecting the contention of the Bank that the SARFESI Act override provisions of Rent Control Act, the Court said that if it were to be accepted, it would render the entire scheme of all Rent Control Acts operating in the country as useless and nugatory since tenants would be left wholly to the mercy of their landlords and in the fear that the landlord may use the tenanted premises as a security interest while taking a loan from a bank and subsequently default on it.

A landlord would simply have to give up the tenanted premises as a security interest to the creditor banks while he is still getting rent for the same. In case of default of the loan, the maximum brunt will be borne by the unsuspecting tenant, who would be evicted from the possession of the tenanted property by the Bank under the provisions of the SARFAESI Act. Under no circumstances can this be permitted, the Bench said.

Harshad Govardhan Sondagar case misinterpreted

The Court also said that decision in Harshad Govardhan Sondagar case cannot be understood to have held that the provisions of the SARFAESI Act override the provisions of the Rent Control Act, and that the Banks are at liberty to evict the tenants residing in the tenanted premises which have been offered as collateral securities for loans on which default has been done by the debtor/landlord. The Court said 'Random sentences have been picked up from the judgment and used, without any attempt to understand the true purport of the judgment in its entirety'

In Harshad Govardhan Sondagar case, (Read Live Law report here) the Apex Court had held that where, however, the lawful possession of the secured asset is not with the borrower, but with the lessee under a valid lease, the secured creditor cannot take over possession of the secured asset until the lawful possession of the lessee gets determined.

Tenant can only be evicted under Rent Control Laws.

The Court also observed that tenant can be evicted only after following the due process of law, as prescribed under the provisions of the Rent Control Act. A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to stultifying the statutory rights of protection given to the tenant, the Bench said.

The Court also said that in view of the Rent Control Act, the onus to get such a deed registered is on the landlord and hence neither the landlord nor the banks can be permitted to exploit the fact of non-registration of the tenancy deed against the tenant.

Section 35 SARFESI Act only extends to Laws operating in same field.

A non obstante clause (Section 35 of the SARFAESI Act) cannot be used to bulldoze the statutory rights vested on the tenants under the Rent Control Act. The expression 'any other law for the time being in force' as appearing in Section 35 of the SARFAESI Act cannot mean to extend to each and every law enacted by the Central and State legislatures and It can only extend to the laws operating in the same field, the Court held.