Allahabad High Court
Agme Marketing Private Limited And ... vs Canara Bank And 9 Others on 31 July, 2019
Author: Yashwant Varma
Bench: Yashwant Varma
HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R Reserved on: 24 July 2019 Delivered on: 31 July 2019 Court No. - 6 Case :- WRIT - C No. - 16516 of 2019 Petitioner :- Agme Marketing Private Limited And Another Respondent :- Canara Bank And 9 Others Counsel for Petitioner :- Rakesh Pande Counsel for Respondent :- C.S.C.,Kartikeya Saran,Arvind Srivastava Hon'ble Yashwant Varma,J.
Heard Sri Rakesh Pande, learned Senior Counsel in support of the petition, Sri Arvind Srivastava, learned counsel has appeared for the Canara Bank while Sri Kartikeya Saran addressed submissions on behalf of the eighth respondent (the "auction purchaser"). The third and fourth respondents (the "original borrowers") although duly served as evidenced from the Affidavit of Service filed in these proceedings have not appeared. Learned Standing Counsel appeared for the respondent Nos. 5 to 7.
The petitioners claim to be tenants "holding over" pursuant to a lease deed executed by the original borrowers on 4 April 2012. They assail the order dated 21 February 2019 passed by the Debt Recovery Tribunal1 in proceedings instituted by Canara Bank2 referable to Section 14 of the SARFAESI Act, 20023. Challenge is also laid to the order dated 3 May 2019 as passed by the Debt Recovery Appellate Tribunal4 upholding the decision rendered by the DRT. The challenge before the Tribunal was to the initiation of action under Section 13 of the 2002 Act by the Bank. The petitioners assert that since they were tenants holding over under a valid lease executed in their favour by the original borrowers, in the absence of a valid termination of that tenancy the Bank could not divest them of possession. Both the D.R.T. as well as the D.R.A.T. have negatived the objections raised holding that the lease did not fulfill the conditions imposed by Section 65A of the Transfer of Property Act, 18825 and consequently the petitioners were not entitled to retain possession of the premises in question. Before proceeding to notice the rival submissions advanced, it would be appropriate to set out the following essential facts.
The original borrowers were extended various credit facilities by the Bank. In order to secure repayment of the loans and credit facilities so sanctioned, they created an equitable mortgage in favour of the Bank insofar as the premises in question are concerned on 24 March 2004. On 4 April 2012, the original borrowers are stated to have executed a "Rent Agreement" in favour of the petitioners. The premises in question [which shall hereinafter and for the sake of brevity be referred to as the "secured asset"] was let out to the petitioners at a yearly rate of 24,00,000/- and on a monthly rent of Rs.2,00,000/-. Admittedly, the Rent Agreement is an unregistered instrument. The tenure of the lease was set out in Clause 1, which reads thus:
"NOW THIS DEED WITNESSETH AS FOLLOWS:
1. In pursuance of the said agreement and in consideration of rent hereby granted and the lessee's covenants hereinafter mentioned, the Lessor hereby demise unto the lessee the demise premises, to hold the demise premises unto the lessee for a period of 3 years commencing from the 4th day of April, 2012, at a yearly rent of 24 lakhs for which it is due, the first of such yearly rent shall be paid on every 1st week of the month in installment out of 12 equal installment which is Rs. 2 lakh. And the subsequent rent shall be paid on in the above described manner of every succeeding year regularly."
Clause 7 of the Rent Agreement has an important bearing on the questions which have been raised for the consideration of the Court and therefore is extracted herein below:
"7. That this rent agreement is valid for 3 years but the Lessee or their assigned shall have the right to continue the possession of the demise property until, the cancellation of rent agreement or unless the Lessee shall pay the all costs & expenses of the construction or renovation of the structure of the property which made by the Lessee on depreciated value of the cost of construction."
The Rent Agreement recites that the premises had been established by the original borrowers for the purposes of processing and treatment of raw hides and tanned leather. The Rent Agreement conferred a right on the petitioners here to use the property as well as the plant and machinery installed thereon for the purposes of manufacturing articles and the tanning of raw hides. The Rent Agreement also conferred a right on the petitioners to construct and renovate structures existing within the premises in question. It is significant to note that although a monthly rent was reserved, it did not contain any condition of re-entry. The issue of cancellation of the Rent Agreement was governed by Clause 7 exclusively.
On 26 May 2012, the loan account of the original borrowers was declared to be a Non Performing Asset (N.P.A.). Consequent thereto the Bank invoked the provisions of the 2002 Act and issued a notice under Section 13(2) of that Act on 9 October 2012. Symbolic possession of the mortgaged premises is stated to have been taken on 24 January 2013. The application of the Bank under Section 14 is was allowed on 2 November 2017. Since the State respondents were unable to deliver possession, the Bank instituted Writ Petition No. 38518 of 20186 before this Court. In that writ petition, the petitioners here moved an application seeking impleadment. The petition itself was disposed of on 17 December 2018. The Division Bench while disposing of the petition issued a direction calling upon the District Collector and other police authorities to provide necessary aid to the Bank to enable it to take possession of the secured asset as expeditiously as possible. Dealing with the impleadment application which had been made by the petitioners here, the Division Bench observed thus:
"At this juncture, an impleadment application has been filed with regard to the Arazi no. 471 by the AGME Marketing Private Limited and another stating therein that they are the tenants of the property vide agreement dated 04.04.2012 with the owner and, therefore, unless they are evicted in accordance with law, no proceeding for taking over possession can be initiated by the District Magistrate and, therefore, they are necessary party to be impleaded in this writ petition.
Learned counsel for the respondents filed a counter affidavit to the impleadment application stating therein that they have no locus as they were subsequent tenant. As the property was mortgaged on 24.03.2004 with the Bank the applicants have no right or locus standi in the secured assets to challenge the proceedings at this stage.
Sri Arvind Srivastava, learned counsel for the petitioner has laid emphasis upon the provision of Section 17 (4) of the Act which prescribes that the Debt Recovery Tribunal has power even to decide the tenancy right of any person with regard to secured assets.
Considering the aforesaid, we are not inclined to allow the applicants to be impleaded in the present proceedings as the applicants have a remedy to approach the Debt Recovery Tribunal, under Section 17 (4) of the Act, therefore, the impleadment application is rejected. "
The petitioners are thereafter stated to have approached the D.R.T. by filing Securitization Application No. 50 of 2019. It appears that at the relevant time, the Tribunal was not functioning at Allahabad constraining the petitioners to approach this Court by way of Writ -C No. 4540 of 2019. That petition was disposed of on 8 February 2019 upon the Division Bench being informed that the vacancy in the office of the Presiding Officer as existing had since been filled and therefore it would be open to the petitioners here to move an urgency application before the Tribunal for grant of appropriate relief. The Court further provided that till 11 February 2019, no coercive action would be taken against the petitioners. The Securitization Application was ultimately dismissed by the D.R.T. in terms of its order dated 21 February 2019. While dismissing that application the Tribunal noted that the Rent Agreement in question was unregistered and that it was in violation of Section 65A(2)(c) of the 1882 Act. From a reading of that order it appears that Clause 7 of the Rent Agreement, extracted hereinabove, was construed to be a provision for renewal and therefore in violation of the injunct engrafted in Clause (c) of Section 65A(2).
It would also be relevant to note that in the interregnum the petitioners also appear to have moved an application before the District Judge, Kanpur Nagar referable to Section 9 of the Arbitration and Conciliation Act, 19967 seeking an interim restraint against the original borrowers from interfering in the business being carried on by them from the secured asset. The District Judge passed an order of 26 February 2019 restraining the original borrowers from interfering with the possession of the petitioners and for maintenance of status quo. It is significant to note at this juncture that a similar application under Section 9 of the 1996 Act was previously filed before the District Judge, Kanpur Dehat. The original borrowers who appeared in those proceedings are stated to have conceded to the grant of interim protection to the petitioners here. Notwithstanding the consent between parties, the District Judge, Kanpur Dehat, rejected the application on 30 May 2018 holding that since the Rent Agreement was unregistered, no relief could be granted to the petitioners. This order, it becomes pertinent to note, does not appear to have been brought to the attention of the District Judge, Kanpur Nagar who granted interim protection to the petitioners on 26 February 2019. Significantly, the order of the District Judge, Kanpur Dehat referred to above was also not disclosed in the writ petition. It has come on the record of these proceedings along with the Counter Affidavit which has been filed by the Bank. It is in that backdrop that Sri Srivastava, learned counsel has contended that the petitioners are guilty of suppression of material facts and that the instant writ petition thus must be dismissed on this ground alone. However, the Court shall deal with this submission at an appropriate juncture in this judgment.
Since the Securitization Application had come to be rejected by the D.R.T. on 21 February 2019, the petitioners preferred a Securitization Appeal before the D.R.A.T. on 8 March 2019. That appeal has been dismissed by the D.R.A.T. On 03 May 2019. The D.R.A.T while rejecting the Securitization Appeal has affirmed the view taken by the D.R.T. holding that Clause 7 of the Rent Agreement violated the provisions of Section 65A(2)(c). Additionally, it has held that since the period of three years when computed from the date of execution of the lease deed had admittedly expired on 3 April 2015, the petitioners had lost their right to be treated as statutory tenants. Clause 7, the D.R.A.T noted, was a continuance clause clearly in violation of Clause (c) of Section 65A(2).
Aggrieved by those orders, the instant writ petition came to be preferred before this Court on 14 May 2019. On 24 May 2019, a learned Judge of the Court after hearing submissions addressed on behalf of the respective parties, directed them to exchange affidavits and in the meanwhile provided that status quo would be maintained. That order of status quo has been extended on this petition from time to time.
Before this Court, the principal submission which has been addressed by Sri Rakesh Pande, the learned Senior Counsel appearing on behalf of the petitioners, was that the Rent Agreement was for a fixed tenure of three years and upon the expiry of that term the petitioners are liable to be treated as tenants holding over. Sri Pande contends that since the tenancy so existing has not been terminated in accordance with the provisions made in Section 106 of the 1882 Act, the petitioners are not liable to be evicted from the premises in question. According to Sri Pande, a tenant holding over is entitled to enjoy the demised premises by virtue of the provisions made in Section 116 of the 1882 Act and after the expiry of the term of three years, the lease executed in favour of the petitioners would be liable to be viewed as continuing from month to month till it is determined in accordance with Section 106. Sri Pande has submitted that both the D.R.T. as well as the D.R.A.T have clearly misconstrued Clause 7 of the Rent Agreement and have consequently committed a manifest illegality in holding it to be in violation of Section 65A(2)(c). According to Sri Pande, on a plain reading of that clause, it is manifest that it confers no right of renewal. Sri Pande has further submitted that the proceedings as initiated by the Bank are liable to be quashed on account of a failure to comply with the provisions made in Section 14 of the 2002 Act. This submission is addressed since according to Sri Pande, the application made by the Bank was not supported by an affidavit as mandatorily required. It is his further submission that the application must also be quashed since the Bank did not advertise the steps initiated by it in newspapers having wide circulation. Sri Pande submits that these objections taken to the proceedings initiated by the Bank though specifically urged by the petitioners have neither been dealt with nor considered by either the D.R.T. or D.R.A.T. Sri Pande in support of his submissions has placed reliance upon the decisions rendered by the Supreme Court in Harshad Goverdhan Sondagar v. International Assets Reconstruction Company Limited And Others8 and Vishal N. Kalsaria v Bank of India9 to contend that the rights of a tenant do not stand effaced or overridden by the provisions of the 2002 Act. According to Sri Pande since the petitioners were tenants holding over whose lease had not been terminated in accordance with the provisions made in Section 106 of the 1882 Act, the Bank could not be permitted to take over possession of the secured asset. While Sri Pande submitted that in case the Court were to agree with the contention of the petitioners that clause 7 is not a provision for renewal, the matter be remitted back to the DRT, he was invited to establish that the Rent Agreement otherwise satisfied the requirements of Section 65-A (2) of the 1882 Act. Addressing submissions in that light and proceeding further, Sri Pande submitted that the Court must assume the lease to be of a monthly tenure. According to Sri Pande clause 7 of the Rent Agreement while not entitled to be viewed or accepted as evidence of a clause of renewal or continuance, it can be considered to adjudge the character of the possession of the petitioner. Dealing with clause (e), Sri Pande referred the Court to Clause 7 of the Rent Agreement and the provisions of termination made thereunder.
Countering these submissions, Sri Srivastava, learned counsel appearing for the Bank, has firstly contended that the petitioners are guilty of suppression of material facts and therefore are clearly disentitled from the grant of any relief by this Court while exercising its jurisdiction under Article 226 of the Constitution. It was contended that there was a deliberate concealment of facts by the petitioners who failed to disclose before the District Judge, Kanpur Nagar that their earlier application under Section 9 had already been dismissed. Sri Srivastava argued that the deliberate suppression of facts was continued when the order of the District Judge, Kanpur Dehat dated 30 May 2018 was not even disclosed in the writ petition. Elaborating further, Sri Srivastava submitted that the original borrowers never disclosed to the Bank the creation of the alleged tenancy in favour of the petitioners. He highlighted the facts that the original borrowers in their application filed under Section 17 of the 2002 Act nowhere mentioned nor disclosed the factum of the tenancy created in favour of the petitioners. It was further highlighted that even in O.A. No. 32 of 2013 in which the original borrowers appeared and filed their written statement on 18 November 2013, no disclosure was made with respect to the creation of the tenancy in question. Sri Srivastava has vehemently contended that the creation of the tenancy is clearly a sham designed to defeat the lawful claim of the Bank. According to him the Rent Agreement has been antedated only to thwart the rights of the Bank to take possession of the secured asset. Sri Srivastava has also highlighted the fact that the petitioners are stated to have entered into business transactions with companies that were managed by the family members of the Directors of the original borrowers. What was essentially sought to be conveyed was that the petitioners here were merely a front of the original borrowers set up to defeat the claims of the Bank.
Addressing the Court on the merits of the questions raised, Sri Srivastava contended that the claim of the petitioners is liable to be negatived since evidently the terms of the Rent Agreement are in manifest violation of Section 65(2)(e) of the 1882 Act. Sri Srivastava contends that since Clause 7 created a right in favour of the petitioners to enjoy the secured asset in perpetuity, it must be held to be a lease exceeding a period of three years and thus being in clear violation of Clause (e). It was further submitted that the Rent Agreement would fall foul of Clause (e) also because it did not contain any clause of re-entry. Countering the submissions addressed by Sri Pande that the provisions of Section 14 were violated, Sri Srivastava has placed on the record an authenticated copy of the Affidavit filed by the Bank in Writ Petition No. 38518 of 2018 to establish that the application under Section 14 as moved by the Bank was, in fact, duly supported by an affidavit. Sri Srivastava has also drawn the attention of the Court to the advertisements taken out in various leading newspapers to submit that the Bank had scrupulously adhered to the requirements as placed by the 2002 Act. Sri Srivastava submits that since the Rent Agreement in question was admittedly an unregistered agreement, it was clearly in violation of the mandatory requirements put in place by Section 107 of the 1882 Act and that consequently the petitioners were not entitled to the grant of any protection in law. Sri Arvind Srivastava has pressed in aid a decision rendered by a Division Bench of the Kerala High Court in P.M. Kelukutti And Others v. Young Men's Christian Association And Others10 to submit that since the lease in question was clearly violative of the provisions made in Section 65-A (2)(e), no protection could be accorded to the petitioners here from the action initiated by the Bank under the 2002 Act.
Sri Kartikeya Saran, learned counsel appearing for the auction purchaser, has submitted that the Rent Agreement which was unregistered was clearly hit by Section 49 of the Registration Act, 1908 and consequently no rights could be recognized as having been created in favour of the petitioners. Sri Saran has also drawn the attention of the Court to the fact that although four plots were auctioned by the Bank, the dispute in the present case relates to Plot No. 461 only and that the auction purchaser who has paid valuable consideration is being unjustifiably deprived of possession. Sri Saran has submitted that the auction proceedings were duly advertised and notices published in reputed newspapers. Sri Saran contends that both the D.R.T. as well as the D.R.A.T. have rightly held that the Rent Agreement in question was violative of the provisions of Section 65 A and therefore the petitioners would clearly not be entitled to any relief. Sri Saran while reiterating the contentions addressed on behalf of the Bank that the lease was in clear violation of the provisions of Section 65-A drew the attention of the Court to a decision rendered by a Division Bench of the Delhi High Court in Sanjeev Bansal v. Oman International Bank SAOG And Others11 to submit that the petitioners had no right to assail the action initiated by the Bank or to challenge the auction conducted under the provisions of the 2002 Act.
The Court before proceeding to deal with the fundamental questions raised deems it appropriate to dispose of two preliminary issues at this juncture. Although it has been strenuously urged [and which allegation cannot perhaps be lightly brushed aside] that the petitioners suppressed and concealed material facts, the Court does not deem it expedient to non-suit the petitioners on this charge for the following reasons. Firstly this writ petition was entertained by a learned Judge of the Court and set down for admission after hearing counsels for respective parties. The issue of concealment and suppression which may have had some relevance on the question of this Court entertaining the writ petition does not appear to have been raised. Moreover parties have been heard at length by the Court and have made elaborate submissions on the merits of the matter. It would therefore be in furtherance of the ends of justice to lend a quietus to the controversy raised more so since this Court cannot be unmindful of the fact that the right of a financial institution seeking to recover public moneys is at stake. There is thus an evident expediency to render an authoritative pronouncement on the questions that have been raised and ring the curtains down on this litigation.
Insofar as the issue of the application of the Bank not being in accordance with the requirements of statute, suffice it to note that a copy of the counter affidavit filed by the Bank in the earlier round of litigation clearly puts the controversy to rest. Insofar as the issue of advertisement of proceedings is concerned, the same have also been brought on record. Sri Pande has failed to establish or prove that the newspapers in which these advertisements were published were not of wide circulation. More fundamentally he has also failed to prove that the petitioners had no knowledge of the proceedings initiated by the Bank.
That then takes the Court to consider the correctness of the findings returned by both the DRT and DRAT that clause 7 was a renewal clause which violated the provisions of clause (c) of Section 65A(2). In the considered view of this Court, the contention of Sri Pande on this facet of the controversy appears to be correct. On a plain reading of clause 7, it is evident that the lessee was conferred a right to continue in possession of the demised premises till the cancellation of the Rent Agreement itself or till the lessor paid costs and expenses of the constructions/renovation of the constructions raised thereon. Viewed in the backdrop of the plain language employed in that provision, it is evident that clause 7 was really not a clause envisaging renewal. The Black's Laws Dictionary (Ninth Edition) defines the expression "renewal" in the following terms:
"renewal, n (17c). 1. The act of restoring or reestablishing. 2. parliamentary law. The introduction or consideration of a question already disposed of.-Also termed renewal of a motion. See restorative motion under MOTION(2), Cf. RECONSIDER. 3.The re-creation of a legal relationship or the replacement of an old contract with a new contract, as opposed to the mere tension of a previous relationship or contract. Cf. EXTENSION(1); REVIVAL(1)."
P Ramanatha Aiyer's in the Law Lexicon has defined the word "renew" and "renewal" as under: -
"Renew. "To renew", in its popular sense, is to refresh, revive, or rehabilitate an expiring or declining subject.
To continue in force for a fresh period; to make new.
The word "renewed", or "renewal" as applied to promissory notes in commercial and legal parlance, means something more than the substitution of another obligation for the old one. It means to re-establish a particular contract for another period of time, to restore to its former conditions an obligation on which the time of payment has been extended.
"Renew in relation to grant of lease is, to grant a new or to grant or give a lease for a fresh period" R.M. Mehta V. H.P.F.M.Co. Ltd., AIR 1976 Mad 194.203.
Generally a bill or note "is renewed by another being taken in its place, the parties and the amount being the same, though perhaps in some cases the interest due on the first is added" (per LINDLEY, L.J. Barber v. Mackrell, 68 LT 29: 41 WR To "renew" a bill or note, does not, always not necessarily, import that a new or additional bill or notice is to be given; such an instrument is "renewed" merely by the time for its payment being extended (Russell v. Philips, 19 LJQB 297: 12 QB 892).
Renewal. A change of something old for something new. An act of renewing any permission, grant, etc. [S. 71, T.P. Act (4 of 1882)] "The renewal of a "license" means, a new license granted by way of renewal". (Paterson's Licensing Acts: 7 Encyc.400,401).
The renewal of negotiable bill or note is regarded simply as a prolongation of the original contract.
The office of a "renewal", as it is termed, of a life, policy, is to prevent discontinuance or forfeiture."
Explaining the ambit of that expression, the Supreme Court in Gajraj Singh Vs. State Transport Appellate Tribunal12 held thus
35.This may be angulated from yet another legal perspective, namely, consequences that would flow from the meaning of the word `renewal' of a permit under Section 81 of the Act. Black`s Law Dictionary Sixth Edn., defines the word `renewal' at p. 1296 thus:
"The act of renewing or reviving. A revival or rehabilitation of an expiring subject; that which is made anew or re-established. The substitution of a new right or obligation for another of the same nature. A change of something old to something new. To grant or obtain extension of;"
36. In P. Ramanatha Aivar's "The law Lexicon" (Reprint Edn. 1987), the word `renewal' is defined at p. 1107 to mean "a change of something old for something new". The renewal of a `licence' means "a new licence granted by way of renewal". The renewal of a negotiable bill or note is regarded simply as a prolongation of the original contact. The office of a 'renewal', as it is termed, of a life policy, is to prevent discontinuance of forfeiture.
37. In Provash Chandra Dalui v. Biswanath Banerjee [1989 Supp (1) SCC 487] (SCC at p. 496] in para 14, this Court drew the distinction between the meaning of the words extension and renewal. It was held that:
"... a distinction between 'extension' and 'renewal' is chiefly that in the case of renewal, a new lease is required while in the case of extension the same lease continues in force during additional period by the performance of stipulated act. In other words, the word `extension' when used in its proper and usual sense in connection with a lease, means prolongation of the lease."
As is evident from the dictionary meaning ascribed to the word "renewal", it is principally an act of restoration or re-establishment. It has been defined to mean the recreation of a legal relationship and the replacement of an old contract with a new as opposed to a mere extension of a previous relationship or contract. Similarly it has been defined to mean to restore or to grant a new or fresh lease. It has also been defined to mean and convey a prevention of discontinuance or forfeiture. From the nature of the language which is employed in clause 7, it is manifest that it conferred a right on the petitioners to continue to occupy the secured asset even after the expiry of the original period of three years and to continue as such till the agreement was ultimately cancelled or till they were paid the costs of construction/renovation. In one sense the provision clearly appears to confer a right on the petitioners to occupy the premises in perpetuity or at least till the agreement was cancelled or costs of construction reimbursed to the petitioners. It, in any case, did not envisage a periodical extension or restoration of the original term of the lease. In the considered view of this Court, both the DRT as well DRAT have clearly erred, therefore, in construing clause 7 to be a provision for renewal. The conclusion so drawn by these authorities of the Rent Agreement being in violation of clause (c) of Section 65A(2) consequently does not merit acceptance.
The core issue which falls for consideration is whether the Rent Agreement of 04 April 2012 stands saved under the provisions of Section 65-A. Section 65-A reads thus: -
"[65-A. Mortgagor's power to lease.--
(1) Subject to the provisions of sub-section (2), a mortgagor, while lawfully in possession of the mortgaged property, shall have power to make leases thereof which shall be binding on the mortgagee.
(2) (a) Every such lease shall be such as would be made in the ordinary course of management of the property concerned, and in accordance with any local law, custom or usage,
(b) Every such lease shall reserve the best rent that can reasonably be obtained, and no premium shall be paid or promised and no rent shall be payable in advance,
(c) No such lease shall contain a covenant for renewal,
(d) Every such lease shall take effect from a date not later than six months from the date on which it is made,
(e) In the case of a lease of buildings, whether leased with or without the land on which they stand, the duration of the lease shall in no case exceed three years, and the lease shall contain a covenant for payment of the rent and a condition of re-entry on the rent not being paid within a time therein specified.
(3) The provisions of sub-section (1) apply only if and as far as a contrary intention is not expressed in the mortgage-deed; and the provisions of sub-section (2) may be varied or extended by the mortgage-deed and, as so varied and extended, shall, as far as may be, operate in like manner and with all like incidents, effects and consequences, as if such variations or extensions were contained in that sub-section.]"
Explaining the interplay and impact of the provisions of the 2002 Act on the rights of a tenant as preserved and protected by the 1882 Act, the Supreme Court in Harshad Govardhan Sondagar Vs. International Assets Reconstruction Company Limited and others13 expounded the legal position in the following terms: -
21. When we read the different provisions of Section 13 of the SARFAESI Act extracted above, we find that Sub-section (4) of Section 13 provides that in case the borrower fails to discharge his liability in full within sixty days from the date of notice as provided in subsection (2) of Section 13 of the SARFAESI Act, the secured creditor may take recourse to one or more of the measures mentioned therein to recover his secured debt. One of the measures mentioned in clause (a) in Sub-section (4) of Section 13 of the SARFAESI Act is to take possession of the secured assets of the borrower including the right to transfer by way of lease. 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. There is, however, no mention in Sub-section (4) of Section 13 of the SARFAESI Act that a lease made by the borrower in favour of a lessee will stand determined on the secured creditor deciding to take any of the measures mentioned in Section 13 of the said Act. Subsection (13) of Section 13 of the SARFAESI Act, however, provides that after receipt of notice referred to in sub-section (2) of Section 13 of the SARFAESI Act, no borrower shall lease any of his secured assets referred to in the notice, without the prior written consent of the secured creditor. This provision in sub-section (13) of Section 13 of the SARFAESI Act and the provisions of the Transfer of Property Act enabling the borrower or the mortgagor to make a lease are inconsistent with each other. Hence, sub-section (13) of Section 13 of the SARFAESI Act will override the provisions of Section 65-A of the Transfer of Property Act by virtue of Section 35 of the SARFAESI Act, and a lease of a secured asset made by the borrower after he receives the notice under sub-section (2) of Section 13 from the secured creditor intending to enforce that secured asset will not be a valid lease.
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Section 105 thus provides that a lessee of an immovable property has a right to enjoy such property, for a certain time or in perpetuity when a lessor leases an immovable property transferring his right to enjoy such property for a certain time or in perpetuity. Section 111 of the Transfer of Property Act, 1882 provides the different modes by which a lease gets determined. Thus, so long as a lease of an immovable property does not get determined, the lessee has a right to enjoy the property and this right is a right to property and this right cannot be taken away without the authority of law as provided in Article 300-A of the Constitution. As we have noticed, there is no provision in Section 13 of the SARFAESI Act that a lease in respect of a secured asset shall stand determined when the secured creditor decides to take the measures mentioned in Section 13 of the said Act. Without the determination of a valid lease, the possession of the lessee is lawful and such lawful possession of a lessee has to be protected by all courts and tribunals.
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25. The opening words of sub-section (1) of Section 14 of the SARFAESI Act make it clear that where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor "under the provisions of the Act", the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof. Thus, only if possession of the secured asset is required to be taken under the provisions of the SARFAESI Act, the secured creditor can move the Chief Metropolitan Magistrate or the District Magistrate for assistance to take possession of the secured asset. We have already held that Section 13 of the SARFAESI Act does not provide that the lease in respect of a secured asset will get determined when the secured creditor decides to take the measures in the said section. Hence, possession of the secured asset from a lessee in lawful possession under a valid lease is not required to be taken under the provisions of the SARFAESI Act and the Chief Metropolitan Magistrate or the District Magistrate, therefore, does not have any power under Section 14 of the SARFAESI Act to take possession of the secured asset from such a lessee and hand over the same to the secured creditor. When, therefore, a secured creditor moves the Chief Metropolitan Magistrate or the District Magistrate for assistance to take possession of the secured asset, he must state in the affidavit accompanying the application that the secured asset is not in possession of a lessee under the valid lease made prior to creation of the mortgage by the borrower or made in accordance with Section 65A of the Transfer of Property Act prior to receipt of a notice under sub-section (2) of Section 13 of the SARFAESI Act by the borrower. We would like to clarify that even in such cases where the secured creditor is unable to take possession of the secured asset after expiry of the period of 60 days of the notice to the borrower of the intention of the secured creditor to enforce the secured asset to realize the secured debt, the secured creditor will have the right to receive any money due or which may become due, including rent, from the lessee to the borrower. This will be clear from clause (d) of sub-section (4) of Section 13, which provides that in case the borrower fails to discharge his liability in full within the notice period, the secured creditor may require, at any time by notice in writing, any person who has acquired any of the assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
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32.When we read sub-section (1) of Section 17 of the SARFAESI Act, we find that under the said sub-section "any person (including borrower)", aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor or his authorised officer under the chapter, may apply to the Debts Recovery Tribunal having jurisdiction in the matter within 45 days from the date on which such measures had been taken. We agree with Mr. Vikas Singh that the words 'any person' are wide enough to include a lessee also. It is also possible to take a view that within 45 days from the date on which a possession notice is delivered or affixed or published under sub-rules (1) and (2) of Rule 8 of the Security Interest (Enforcement) Rules, 2002, a lessee may file an application before the Debts Recovery Tribunal having jurisdiction in the matter for restoration of possession in case he is dispossessed of the secured asset. But when we read sub-section (3) of Section 17 of the SARFAESI Act, we find that the Debts Recovery Tribunal has powers to restore possession of the secured asset to the borrower only and not to any person such as a lessee. Hence, even if the Debt Recovery Tribunal comes to the conclusion that any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor are not in accordance with the provisions of the Act, it cannot restore possession of the secured asset to the lessee. Where, therefore, the Debts Recovery Tribunal considers the application of the lessee and comes to the conclusion that the lease in favour of the lessee was made prior to the creation of mortgage or the lease though made after the creation of mortgage is in accordance with the requirements of Section 65A of the Transfer of Property Act and the lease was valid and binding on the mortgagee and the lease is yet to be determined, the Debts Recovery Tribunal will not have the power to restore possession of the secured asset to the lessee. In our considered opinion, therefore, there is no remedy available under Section 17 of the SARFAESI Act to the lessee to protect his lawful possession under a valid lease.
....
34.We have perused the aforesaid decision of this Court in Transcore (supra) and we find that in that case, the question whether the secured creditor, in exercise of its rights under Section 13 of the SARFAESI Act, can take over possession of the secured asset in possession of a lessee under a valid lease was not considered nor was the question whether there is anything in the SARFAESI Act inconsistent with the right of a lessee to remain in possession of the secured asset under the Transfer of Property Act considered. In our view, therefore, the High Court has not properly appreciated the judgment of this Court in Transcore (supra) and has lost sight of the opening words of sub-section (1) of Section 13 of the SARFAESI Act which state that notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882, any security interest created in favour of any secured creditor may be enforced, without the intervention of the court or tribunal, by such creditor in accordance with the provisions of the Act. The High Court has failed to appreciate that the provisions of Section 13 of the SARFAESI Act thus override the provisions of Section 69 or Section 69A of the Transfer of Property Act, but does not override the provisions of the Transfer of Property Act relating to the rights of a lessee under a lease created before receipt of a notice under sub-section (2) of Section 13 of the SARFAESI Act by a borrower. Hence, the view taken by the Bombay High Court in the impugned judgment as well as in Trade Well so far as the rights of the lessee in possession of the secured asset under a valid lease made by the mortgagor prior to the creation of mortgage or after the creation of mortgage in accordance with Section 65A of the Transfer of Property Act is not correct and the impugned judgment of the High Court insofar it takes this view is set aside.
......
36. We may now consider the contention of the respondents that some of the appellants have not produced any document to prove that they are bona fide lessees of the secured assets. We find that in the cases before us, the appellants have relied on the written instruments or rent receipts issued by the landlord to the tenant. Section 107 of the Transfer of Property Act provides that a lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made "only by a registered instrument" and all other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Hence, if any of the appellants claim that they are entitled to possession of a secured asset for any term exceeding one year from the date of the lease made in his favour, he has to produce proof of execution of a registered instrument in his favour by the lessor. Where he does not produce proof of execution of a registered instrument in his favour and instead relies on an unregistered instrument or oral agreement accompanied by delivery of possession, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, will have to come to the conclusion that he is not entitled to the possession of the secured asset for more than a year from the date of the instrument or from the date of delivery of possession in his favour by the landlord.
The legal position of the rights of a tenant not being derogated or completely annihilated by the provisions of the 2002 Act was reemphasized by the Supreme Court in Vishal N. Kalsaria Vs. Bank of India and others14 where the following observations were made: -
30. The issue of determination of tenancy is also one which is well settled. While Section 106 of the Transfer of Property Act, 1882 does provide for registration of leases which are created on a year to year basis, what needs to be remembered is the effect of non-registration, or the creation of tenancy by way of an oral agreement. According to Section 106 of the Transfer of Property Act, 1882, a monthly tenancy shall be deemed to be a tenancy from month to month and must be registered if it is reduced into writing. The Transfer of Property Act, however, remains silent on the position of law in cases where the agreement is not reduced into writing. If the two parties are executing their rights and liabilities in the nature of a landlord-tenant relationship and if regular rent is being paid and accepted, then the mere factum of non-registration of deed will not make the lease itself nugatory. If no written lease deed exists, then such tenants are required to prove that they have been in occupation of the premises as tenants by producing such evidence in the proceedings under Section 14 of the SARFAESI Act before the learned Magistrate. Further, in terms of Section 55(2) of the special law in the instant case, which is the Rent Control Act, the onus to get such a deed registered is on the landlord. In light of the same, neither the landlord nor the banks can be permitted to exploit the fact of non registration of the tenancy deed against the tenant.
....
37. It is a settled position of law that once tenancy is created, a 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. 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. It can only extend to the laws operating in the same field.
....
40. In view of the above legal position, if we accept the legal submissions made on behalf of the Banks to hold that the provisions of SARFAESI Act override the provisions of the various Rent Control Acts to allow a bank to evict a tenant from the tenanted premise, which has become a secured asset of the bank after the default on loan by the landlord and dispense with the procedure laid down under the provisions of the various Rent Control Acts and the law laid down by this Court in a catena of cases, then the legislative powers of the state legislatures are denuded which would amount to subverting the law enacted by the State Legislature. Surely, such a situation was not contemplated by the Parliament while enacting the SARFAESI Act and therefore, the interpretation sought to be made by the learned counsel appearing on behalf of the Banks cannot be accepted by this Court as the same is wholly untenable in law.
While the Court is conscious of the fact that the Rent Agreement is unregistered and consequently its terms cannot be read in evidence of a lease validly created in favour of the petitioners, it must necessarily scrutinize the instrument for the limited purpose of ascertaining whether its terms were in accord with the provisions made in Section 65A (2) of the 1882 Act. This would clearly be within the permissible territory of what has legally come to be defined as a "collateral purpose". In doing so, the Court is really not adjudicating upon the rights of the lessor or lessee based upon the provisions contained in that instrument but only looking at it from the periphery in order to ascertain whether it would be entitled in law to be recognised as being in conformity with Section 65A(2) of the 1882 Act.
It is not disputed that the unregistered Rent Agreement came to be executed between the parties after the creation of the mortgage in favour of the Bank. A lease of mortgaged property binds a mortgagee provided it is established to not fall foul of the provisions made in sub-section (2) of Section 65-A. The requirement of a lease of immovable property for a term exceeding one year being compulsorily registered cannot possibly be disputed. That is clearly the mandate flowing from Section 107 of the 1882 Act read with Sections 17 and 49 of the Registration Act. In the present case the rent agreement is stated to have created a lease in favour of the petitioners initially for a period of three years. It thus, clearly fell within the ambit of Section 107 of the 1882 Act read with Sections 17 and 49 of the Registration Act. Clause (a) of Section 65A(2) requires a lease made in the ordinary course of management of the property to be in accord with any local law, custom or usage. The expression 'local law' would clearly bring within its ambit both the 1882 Act as well as the Registration Act. Since the Rent Agreement indubitably fails to comply with a mandatory statutory requirement placed in terms of the enactments aforementioned, it is manifest that it does not satisfy the provisions made in Clause (a). Even if the terms of the lease were scrutinized for the collateral purpose of testing whether the provisions made in Section 65-A were not violated, the Court notes that in terms of Clause-7, a lease interest over the secured asset in perpetuity appears to have been purported to be created in favour of the petitioners. Clause-7 intended to confer a right on the lessee to continue in possession of the secured asset until cancellation of the Rent Agreement or till such time as the petitioners were paid all costs and expenses of the construction/renovation undertaken over the property. Clause-7 does not clarify at whose instance the Rent Agreement could be cancelled. A reading of the Rent Agreement further establishes that no right of termination appears to have been specifically reserved in favour of the lessor. The lease, therefore, appears to have been created with the intent of clothing the petitioners with a right to occupy the premises not only beyond the period of three years but at their option solely. Viewed in that light it is evident that the lessor intended to create an interest over the secured asset for a period exceeding three years and did not reserve a right of re-entry in case rent was not paid. Clause-7 is thus evidently in violation of the injunct comprised in clause (e) of sub-section (2) also. The Court consequently comes to the irresistible conclusion that the Rent Agreement did not meet the requirements placed by clauses (a) and (e) of Section 65-A (2).
Since the Rent Agreement is evidently in violation of the restraints and conditions placed by Section 65-A, it cannot possibly be recognised as being saved. It consequently does not bind the mortgagee, namely, the Bank. Dealing with a similar situation of a violation of the mandatory provisions of Section 65A and its consequential impact on the rights of a lessee, a Division Bench of the Kerala High Court in P.M. Kelukutty and others Vs. Young Men's Christian Association and others15 held: -
"In View of the aforesaid discussion, the Apex Court in Viashal N. Kalsaria's case (supra) has held that once tenancy is created the tenant can be evicted only after due process of law as described under the Rent Control Act. For the purpose of the present case, it is not necessary to go into the issue as to whether the appellants could have been evicted only under the provisions of the Kerala Rent Control Laws. The proposition as laid down in Vishal Kalsaria's case (supra) has to read as proposition laying down that valid tenancy cannot be terminated by resorting to Section 14 of the 2002 Act. We are not to take any other view in the present case in view of the pronouncement of the Apex Court as noted above. The question to be considered in the present case is as to whether the lease on the basis of tenancy as being claimed by the appellants are valid leases in the event the leases are to be held in accordance with Section 65A(2) of the 1882 Act obviously, appellants cannot be dispossessed in exercise of the power under Section 14 of the 2002 Act. As noticed above, in the present case the terms and conditions of the lease deed which is claimed by the appellants and brought on record as Exts. P-4 to P-16 indicate that leases were executed (1) for a period ranging from 51 to 99 years (ii) for a period containing renewal clause (iii) on payment of advance amount of several lakhs refundable interest security. Certain terms and conditions in the lease deed dated 27.12.2004 are relevant to be noticed herein below:
21. In view of the pronouncements made by the Apex Court in Harshad Govardhan Sondagar's case (supra) that protection from dispossession under Section 14 of the 2002 Act is available only to a lessee who claims to have executed a lease deed after creation of the mortgage in accordance with the provisions under Section 65A. Leases which are claimed by the appellants are not in acceptance with Section 65A(2), we are afraid that appellants are not entitled to have protection from dispossession under the 2002 Act. Issue Nos. I to V are answered in the following manner:
(1) Agreement dated 27.12.2004, Ext. P-3 is neither a mortgage deed nor an integral part of mortgage created by memorandum dated 31.12.2004 depositing title deeds, Exhibit P-3 however, can be relied for finding out consent by mortgagee for execution of lease deed after creation of the mortgage.
(2) Leases executed in favour of the appellants are leases who have been executed with the permission of the mortgagee which is evident by Annexure III to the Schedule A of agreement dated 27.12.2004, Ext. P-3.
(3) Leases granted after execution of the mortgage has to conform the provisions of Section 65A(2) of the 1882 Act. No contrary intention modifying any of the conditions in Section 65A(2) are present in the facts of the present case.
(4) Consent of the mortgage for execution of the lease deed cannot be treated as consent for execution of a lease contrary to the conditions as enumerated in Section 65A(2) of the 1882 Act.
(5) Lease in favour of the appellants not being in accordance with Section 65A(2) of the 1882 Act, appellants are not entitled to for protection from dispossession under Section 14 of the 2002 Act."
Another Division Bench of the Delhi High Court in Sanjeev Bansal Vs. Oman International Bank SAOG16 and others dealing with an identical question held: -
"6. Manifestly the said unregistered lease was created for the alleged unlimited period through unregistered lease deed in complete contravention of Section 65-A of the Transfer of Property Act. As per the said provision of Section 65-A, the lessee can enjoy the protection if the lease is created by the mortgagor in conformity with the mandate of requirements laid down in Section 65-A of TP Act and not otherwise. Neither the mortgagor nor the lessee can defeat the right of mortgagee and no lessee can claim any protection unless his tenancy is as per the requirements of Section 65-A of Transfer of Property Act. The present petition is devoid of any merits. We would not like to interfere in the orders passed by the DRAT."
It is thus manifest that the instrument in question in the absence of being found to exist within the protective umbrella of Section 65A(2) cannot bind the Bank and consequently cannot entitle the petitioners to resist the action taken by it under the provisions of the 2002 Act.
As observed hereinbefore since the lease deed was unregistered, the stand of the petitioners of a lease of three years being created in their favour cannot be countenanced. The non-registration of the instrument clearly forbids the Court from looking into its terms in order to ascertain the terms of the contract between the parties. The instrument cannot be recognised in law to be the repository of the bargain between the parties. It can at best and is well settled be viewed only for collateral purposes. That then raises the question of the nature of tenancy if at all which stood created in favour of the petitioners.
As has been repeatedly held, an unregistered instrument purporting to create a lease for a period exceeding one year is inadmissible in evidence. However the matter cannot possibly rest here since construing the provisions of the 1882 Act, Courts have also recognised the creation of a lease by implication and attendant circumstances. The issue of a lease by inference coming into existence and being created was dealt with by the Supreme Court in Anthony v. K.C. Ittoop & Sons17 where the legal position was explained as under: -
"8. The lease-deed relied on by the plaintiff was intended to be operative for a period of five years. It is an unregistered instrument. Hence such an instrument cannot create a lease on account of three-pronged statutory inhibitions. The first interdict is contained in the first paragraph of Section 107 of the Transfer of Property Act, 1882 (for short "the TP Act") which reads thus:
"107. A lease of immovable property from year to year, or for any term exceeding one year, or reserving an yearly rent, can be made only by a registered instrument."
(emphasis supplied)
9. The second inhibition can be discerned from Section 17(1) of the Registration Act 1908 and it reads thus: (only the material portion) "17.Documents of which registration is compulsory. -(1) The following documents shall be registered if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely:
(a)-(c) * * *
(d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent.
10. The third interdict is contained in Section 49 of the Registration Act which speaks about the fatal consequence of non-compliance of Section 17 thereof. Section 49 reads thus:
"49. Effect of non-registration of documents required to be registered.- No document required by Section 17 or by any provision of the Transfer of Property Act, 1882, to be registered shall-
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction affecting such property or conferring such power, unless it has been registered."
[Provided that an unregistered document affecting immovable property and required by this Act, or the Transfer of Property Act, 1882, to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877, or as evidence of part performance of a contract for the purposes of Section 53-A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by registered instrument.]"
No endeavour was made by the counsel to obviate the said interdict with the help of the exemptions contained in the proviso.
11. The resultant position is insurmountable that so far as the instrument of lease is concerned there is no scope for holding that appellant is a lessee by virtue of the said instrument. The court is disabled from using the instrument as evidence and hence it goes out of consideration in this case, hook, line and sinker (vide Smt. Shantabai v. State of Bombay: [AIR 1958 SC 532; 1959 SCR 265], Satish Chand Makhan vs. Govardhan Das Byas, [(1984) 1 SCC 369] and Bajaj Auto Ltd. v. Behari Lal Kohli [(1989 4 SCC 39:AIR 1989 SC 1806].
12. But the above finding does not exhaust the scope of the issue whether appellant is a lessee of the building. A lease of immovable property is defined in Section 105 of the TP Act. A transfer of a right to enjoy a property in consideration of a price paid or promised to be rendered periodically or on specified occasions is the basic fabric for a valid lease. The provision says that such a transfer can be made expressly or by implication. Once there is such a transfer of right to enjoy the property a lease stands created. What is mentioned in the three paragraphs of the first part of Section 107 of the TP Act are only the different modes of how leases are created. The first para has been extracted above and it deals with the mode of creating the particular kinds of leases mentioned therein. The third para can be read along with the above as it contains a condition to be complied with if the parties choose to create a lease as per a registered instrument mentioned therein. All other leases, if created, necessarily fall within the ambit of the second para. Thus, dehors the instrument parties can create a lease as envisaged in the second para of Section 107 which reads thus:
"All other leases of immovable property may be made either by a registered instrument or by oral agreement accompanied by delivery of possession."
13. When lease is a transfer of a right to enjoy the property and such transfer can be made expressly or by implication, the mere fact that an unregistered instrument came into existence would not stand in the way of the court to determine whether there was in fact a lease otherwise than through such deed.
14. When it is admitted by both sides that appellant was inducted into the possession of the building by the owner thereof and that appellant was paying monthly rent or had agreed to pay rent in respect of the building, the legal character of appellants possession has to be attributed to a jural relationship between the parties. Such a jural relationship, on the fact situation of this case, cannot be placed anything different from that of lessor and lessee falling within the purview of the second paragraph of Section 107 of the TP Act extracted above. From the pleadings of the parties there is no possibility for holding that the nature of possession of the appellant in respect of the building is anything other than as a lessee.
15. Shri P.Krishnamoorthy learned Senior Counsel contended that a lease need not necessarily be the corollary of such a situation as possession of the appellant could as well be permissive. We are unable to agree with the submission on the fact-situation of this case that the appellants possession of the building can be one of mere permissive nature without any right or liabilities attached to it. When it is admitted that legal possession of the building has been transferred to the appellant there is no scope for countenancing even a case of licence. A transfer of right in the building for enjoyment, of which the consideration of payment of monthly rent has been fixed, can reasonably be presumed. Since the lease could not fall within the first paragraph of Section 107 it could not have been for a period exceeding one year. The further presumption is that the lease would fall within the ambit of residuary second paragraph of Section 107 of the TP Act.
16. Taking a different view would be contrary to the reality when parties clearly intended to create a lease though the document which they executed had not gone into the processes of registration. That lacuna had affected the validity of the document, but what had happened between the parties in respect of the property became a reality. Non registration of the document had caused only two consequences. One is that no lease exceeding one year was created. Second is that the instrument became useless so far as creation of the lease is concerned. Nonetheless the presumption that a lease not exceeding one year stood created by conduct of parties remains un-rebutted."
If one bears the principles enunciated by the Supreme Court in Anthony in mind, it is evident that the petitioners would be liable to be recognised as having been inducted into the demised premises on a monthly tenancy. Undisputedly the annual rent of Rs. 24 lakhs as provisioned for under the agreement envisaged the payment of that amount on a monthly basis. It is also not disputed before this Court that the petitioners were inducted into the premises with the assent of the landlord. The payment of monthly rent has also not been questioned. In view of the above the tenancy as created in favour of the petitioners would clearly fall within the ambit of the second part of Section 107 of the 1882 Act. The Court comes to this irresistible conclusion in light of the principles elucidated in Anthony where it was held that the mere fact that an unregistered instrument came to be executed between the parties would not stand in the way of the Court determining that there was, in fact, a lease which came to be created otherwise than through such a deed. In Anthony it was further held that mere non-registration of the instrument would only lead to the consequence of the Court recognising that no lease exceeding one year was created and secondly that the instrument itself was of no legal consequence. However and significantly it was held that notwithstanding the aforementioned consequences it could still be presumed that a lease not exceeding one year came into existence.
The Court may then consider the rights of the petitioners proceeding on the assumption that a monthly tenancy came to be created in their favour. If this contention were to be accepted, it would necessarily bid the Court to presume the creation of a tenancy on the first date of every month and its expiry on the last date of that month. The problem, however, in considering whether this tenancy would stand saved and not be contrary to the provisions of the 2002 Act arises when one takes into consideration the injunction as engrafted in Section 13(13) thereof. Subsection (13) restrains a borrower from transferring by way of sale, lease or otherwise the secured asset after receipt of a notice under Section 13(2) without the prior written consent of the secured creditor. Undisputedly even a monthly tenancy can be recognised to have come into existence only as an outcome of a bilateral and consensual act of parties. The acceptance of the contention addressed at the behest of the petitioners compels this Court to view the creation of a monthly tenancy by the original borrower in favour of the petitioners at the beginning of every month. This would logically lead to the creation of a monthly tenancy even after 09 October 2012 when the Section 13(2) notice came to be issued. The creation of a monthly tenancy cannot be viewed as an extension or renewal of an earlier term. It essentially and in law amounts to the creation of a fresh tenancy at the beginning of every month. If this submission of a monthly tenancy as urged on behalf of the petitioners is accepted, it would lead to a logical conclusion of a monthly tenancy being created and coming into existence even after the Section 13(2) notice came to be issued. It is not the case of the petitioners that the so called monthly tenancy came to be created with the prior and written consent of the secured creditor. Viewed in that light it is manifest that the provisions of Section 13(13) would stand breached. The contention that the statutory restraint engrafted in Section 13 (13) of the SARFAESI Act operates only against the lessor/original debtor is misconceived. The creation of a tenancy is the formation of a contract based upon the action of two parties assenting to enter into a legal relationship. The acceptance of this submission would not only be contrary to the plain legislative intent infusing that provision, it would also deprive it of rigour and purpose.
That then takes the Court to consider the argument addressed on behalf of the petitioners that they were tenants holding over. It would at the very outset be important to underline that the petitioners insofar as this aspect is concerned have clearly taken a vacillating and contradictory stand prior to the filing of the instant writ petition. Before the DRT and DRAT it was asserted that the lease was initially for a period of three years and extendable thereafter on mutual consent on a month-to-month basis. This is evident from the averments made in paragraph 6.4 of the Securitization Application as filed before the DRT which reads thus:-
"6.4 That on 04.04.2012 the Respondent No.3 through Respondent No. 4 entered into an agreement with applicant no.1(represented by Applicant no.2) whereby the open land of respondent no. 2 situated at Arazi No. 461 Fatehpur Roshnai, Rania, Kanpur Dehat was let out on rent @ 24 lacs per annum for which lease deed was executed between parties. Copy of the rent agreement dated 04.04.2012 is being annexure hereto & marked as ANNEXURE NO.A-3 to this S.A. It is further submitted that in said Rent Agreement it was clearly provided that Lease Deed will be initially for a period of 3 years shall be extended thereafter on mutual consent month to month basis at the payment of rent."
A similar stand was taken before the DRAT in the Securitization Appeal instituted. The assertions made in clause 5.4 of that appeal are for the sake of convenience extracted herein below:-
"6.4 That on 04.04.2012 the Respondent No.3 through Respondent No. 4 entered into an agreement with Appellant no.1(represented by Appellant no.2) whereby the open land of respondent no. 2 situated at Arazi No. 461 Fatehpur Roshnai, Rania, Kanpur Dehat was let out on rent @ 24 lacs per annum for which lease deed was executed between parties. Copy of the rent agreement dated 04.04.2012 is being annexure hereto & marked as ANNEXURE NO.A-3 to this Appeal.
It is further submitted that in said Rent Agreement it was clearly provided that Lease Deed will be initially for a period of 3 years shall be extended thereafter on mutual consent month to month basis at the payment of rent."
However in the application moved under Section 9 of the 1996 Act, the petitioners appear to have taken a completely distinct stand. Before the District Judge Kanpur Dehat, the argument addressed was that the Rent Agreement was terminable only when the lessor paid to the petitioners' costs of the plant and machinery as well as the constructions raised thereon. Similarly in the Section 9 application which was made before the District Judge Kanpur Nagar an identical stand was struck as is evident from the averments made in paragraph-7 of that application which is extracted herein below:-
"That it is deemed necessary to be mentioned here that no termination of the Rent lease can be made by the respondent-company until and unless the respondent-company shall make a payment of all costs and expenses of the construction or renovation of the structure situated at Factory Premises No. 461, Fatehpur Roshnai, Rania, Kanpur Dehat as per Rent Agreement dated 04.04.2012."
From the above narration of facts it is thus evident that while in the arbitration applications, the petitioners sought to contend that the lease was to continue till such time as the lessor paid over the costs of plant and machinery and the constructions raised over the demised premises and consequently being liable to be viewed as a continuing lease not restricted to the initial period of three years, before the DRT and DRAT it was asserted that upon the expiry of the initial term of three years, the lease interest assumed the character of a monthly tenancy.
However the contradictory stand as struck by the petitioners need not detain this Court. This since the Court is of the firm view that the submission of Sri Pande based on the principles of holding over is clearly fallacious. A tenant is stated to be one holding over when he continues to occupy the demised premises after the expiry of the original term of the lease. Coupled with this and in terms of Section 116 is the requirement of the continued possession being with the assent of the lessor and in the absence of an agreement to the contrary. That, however, takes the Court back to Clause 7 of the Rent Agreement which has already been recognised as purporting to confer a right on the petitioners to occupy the demised premised in perpetuity. If that be the correct position there would be no occasion for this Court to presume the petitioners' continuance in the secured asset beyond the original term of the lease.
Alternatively and bearing in mind that the Rent Agreement was unregistered, it would as a logical corollary compel the Court to hold that no initial term of lease was ever fixed and in any case is not legally recognizable. The submission of holding over is based on the assumption that the lease was to initially operate for a period of three years where after the petitioners continued to occupy the premises from month to month. This also appears to be the underlying theme of the objections taken before the DRT and DRAT. However and as has been noted above this argument itself proceeds on a legally impermissible assumption. Since no original tenure of lease is entitled to be recognised as existing in law, the principles of holding over can possibly have no application.
Further and as would be evident from the discussion which follows, the contention of a monthly tenancy as urged on behalf of the petitioners itself undercuts the line of argument adopted. The argument of a monthly tenancy would itself be clearly incompatible with the application of the principle of holding over. As noted above the stand of the petitioners was that they became tenants on a monthly basis. If they be correct in this submission, the logical corollary would be the creation of a tenancy every month. Viewed in this light and since a tenancy would spring into existence on the first day of every month, they could never be recognised as continuing to occupy the demised premises after the expiry of an initially reserved period of lease. In the case of a monthly tenancy a determination would not occur since at the beginning of every month a fresh tenancy would come into existence. Dealing with the concept of holding over a Division Bench of the Karnataka High Court in Sudarshan Trading Company Limited, Bangalore v. L. D'Souza18 held as under:-
Re: Point (b):
22. The question is whether after the expiry of the lease under Ext. P. 1 there is a tenancy by holding-over. If there was one, it would be month to month one requiring for its determination 15 days' notice expiring with the end of the tenancy month. It is no doubt true that there are some statements in the plaint itself that there was such a month to month tenancy after the expiry of Ext. P. 1. Is that, by itself, conclusive?
23. If, after the expiry of the period of lease or after its determination, a tenant merely holds over without the landlords, consent there is no tenancy of any kind at all. If in such case, the tenant continues in possession without landlord's consent he becomes what in English law is called a "tenant by sufferance". This is really no, tenancy at all in the strict sense and requires no notice to determine it, the expression being merely a fiction to avoid the continuance of possession operating as a trespass. It is different from the concept of a tenancy at will which arises by implication of law in certain cases of permissive possession. No notice is necessary to terminate a tenancy at sufferance.
24. But the case of tenancy by holding over is different and is governed by the provisions of Section 116, T. P. Act. Tenancy by holding over is a creature of a bilateral, consensual act and does not come into existence by a mere unilateral intendment or declaration of one of the parties.
25. As to the conditions requisite for a tenancy by holding over under Section 116, T. P. Act, Supreme Court observed: Bhawanji Lakhamshi v. Himattal Jamnadas Dani ((1972) 1 SCC 388 : AIR1972 SC 819):
"9. The act of holding over after the expiration of the term does not create a tenancy of any kind ...... What the section contemplated is that on one side ' there should be an offer of taking a new lease evidenced by the lessee or sub-lessee remaining in possession of the property after his term was over and on the other side there must be a definite consent to continuance of possession by the landlord expressed by acceptance of rent or otherwise."
31. If as in the present case, there is no fresh contract of tenancy between the parties - and such a contract cannot come into existence without the consent of both - the position is that the position clearly falls under Section 111(a), T. P. Act, and no notice under Section 106 becomes necessary as there is no month to month tenancy by holding over. This would be so notwithstanding the unilateral assertions of the respondent in the plaint that there was a month to month tenancy. In all such cases the respective cases of both parties, and their pleadings as a whole had to be examined and a conclusion arrived at as to the existence of holding over tenancy on the basis of the material on record."
It is thus evident that the submissions addressed on the basis of Section 116 of the 1882 Act are thoroughly misconceived.
Summation A. There was no violation of the provisions of Section 14 of the 2002 Act since the application is shown to have been duly supported by an affidavit. The petitioners have also failed to prove the charge that the proceedings were not duly advertised in accordance with the provisions of the 2002 Act. They have, in any case, failed to prove that they were unaware of the proceedings initiated.
B. The petitioners have struck a vacillating and contradictory position insofar as the tenure of the lease is concerned. While in the Section 9 applications they took the stand that the lease was terminable only upon the lessor paying for the plant/machinery and existing structures, before the DRT and DRAT it was contended that the lease was for a period of three years upon expiry of which they continued as tenants from month to month.
C. The assertion of the petitioners that the lease initially was for a period of three years upon the expiry of which they become tenants de novo cannot possibly be accepted on account of the Rent Agreement being in admitted violation of Sections 107 of the 1882 Act read with Sections 17 and 49 of the Registration Act 1908. In the absence of the Rent Agreement being registered, as mandatorily required in law, it is not possible for the Court to look into the term and tenure of the lease as enshrined in the Rent Agreement. It cannot possibly be admitted in evidence or countenanced in law.
D. As a necessary consequence of the Rent Agreement being unregistered, the petitioners cannot be recognised to have lawfully held the property either for a terms of three years or in perpetuity as claimed at one stage.
E. In light of the Rent Agreement being unregistered, it clearly falls foul of clause (a) of Section 65A(2). The Rent Agreement fails to abide by the requirement of compulsory registration under the applicable local laws namely the Transfer of Property Act, 1882 and the Registration Act, 1908.
F. Since the parties purported to create a lease interest exceeding a period of thee years, it also falls foul of clause (e) of Section 65A(2). The absence of a clause of re-entry also renders the Rent Agreement violative of clause (e) of Section 65A (2).
G. In light of the Rent Agreement having been found to be violative of clauses (a) and (e) of Section 65A(2), the lease is not protected by the provisions of the Transfer of Property Act, 1882 and does not bind the mortgagee.
H. Although the premises were taken for manufacturing purposes, in the absence of a registered instrument having been drawn, the petitioners, at best, can be recognised as having been inducted as tenants from month to month.
I. The monthly tenancy can be assumed in light of the conduct of the lessor and lessee where the petitioners are stated to have occupied the premises with the assent of the respondent Nos. 3 and 4 on the payment of a monthly rent.
J. The monthly tenancy bids the Court to presume a tenancy coming into existence on the first day of each month and expiring on the last date of that month. Parties by way of a bilateral act would be deemed to have created such a tenancy every month.
K. If the creation of monthly tenancy as urged on behalf of the petitioners is accepted, it would as a necessary corollary also compel the Court to recognise the creation of a tenancy even after the notice issued under Section 13(2) of the 2002 Act.
L. The creation of such a tenancy would clearly be violative of the statutory injunct engrafted in Section 13 (13) of the 2002 Act. On this ground also the petitioner must be held disentitled to the grant of any relief or to assail the action initiated by the Bank.
M. The contention that the statutory restraint engrafted in Section 13 (13) of the SARFAESI Act operates only against the lessor/original debtor is misconceived. The creation of a tenancy is the formation of a contract based upon the action of two parties assenting to enter into a legal relationship. The acceptance of this submission would not only be contrary to the plain legislative intent infusing that provision, it would also deprive it of rigour and purpose.
N. Section 116 of the Transfer of Property Act, 1882 is clearly not attracted. Since the petitioners claim to be tenants occupying the premises on the basis of a monthly tenancy, the question of holding over cannot possibly arise. The principle of holding over can have application only in a case where the terms of the original lease expires and the lessee continues to occupy the premises with the assent of the lessor.
O. Once it is held that the lease violated the restrictions imposed by clauses (a) and (e) of Section 65A(2), it ceases to bind the mortgagee and does not protect the possession of the petitioners. The contention of a monthly tenancy being created would undisputedly result in violation of the mandatory provisions engrafted in Section 13(13) of the 2002 Act. On both counts, therefore, the petitioners can neither be recognised in law to be in lawful occupation nor can they thwart the action of the Bank initiated under the 2002 Act.
P. Although the DRT and DRAT were not correct in construing Clause 7 of the Rent Agreement to be a clause for renewal thus violating clause (c) of Section 65A (2) and would not merit acceptance, in light of the conclusions recorded above the petitioners are not entitled to any relief.
In light of the aforesaid discussion and the conclusions recorded hereinabove, the challenge to the impugned orders, to the extent noted above, fails. The writ petition is dismissed.
Order Date :- 31.7.2019 Arun K. Singh/LA/faraz (Yashwant Varma, J.)