Provisions of the SARFAESI Act cannot be used to override the provisions of Rent Control Act #indianlaws

Supreme 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.  The provisions of the SARFAESI Act cannot be used to override 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.

Point for determination before the Court was whether a ‘protected tenant’ under the Maharashtra Rent Control Act, 1999 (‘Rent Control Act’) can be treated as a lessee, and whether the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) will override the provisions of the Rent Control Act. How can the right of the ‘protected tenant’ be preserved in cases where the debtor-landlord secures a loan by offering the very same property as a security interest either to Banks or Financial Institutions, was also the essential legal question raised before the Court.

It was contended on behalf of the tenant (Appellant) that prior tenancy in respect of the mortgaged property to the Bank is protected in terms of the Rent Control Act. It was further contended that it is a settled position of law that in the absence of a valid document of lease for more than one year or in case of an invalid lease deed, the relation of tenancy between a landlord and the tenant is still created due to delivery of possession to the tenant and payment of rent to the landlord-owner and such tenancy is deemed to be a tenancy from month to month in respect of such property. In the instant case, the tenancy of the Appellants in respect of the property in question which was the secured asset of the Bank being from month to month would also be protected under the provisions of the Rent Control Act.

On the contrary it was argued that the pith and substance of the central enactment in the instant case, i.e. the SARFAESI Act needs to be appreciated and proper implementation of the provisions of the SARFAESI Act is in the larger interest of the nation. Since it is a special Act with a special purpose and procedure laid down for the recovery of the secured asset of the debtor by the Bank to recover the amount due to it, any encroachment upon this Act should not be permitted, as it would defeat the laudable object of the Act.

Supreme Court held that the SARFAESI Act was enacted to provide procedures to the Banks to recover their security interest from the debtors and their collateral security assets as provided under the provisions of the Act. Providing a smooth and efficient recovery procedure to enable the banks to recover the Non-Performing Assets is a laudable object indeed, which needs to be ensured for the development of the economy of the Country.

It was observed that object of both the legislation in question is laudable. The ultimate object behind the enactment of Rent legislation is to control and regulate the rate of rent so that unnecessary hardship is not caused to the tenant, and also to provide protection to the tenants against arbitrary and unreasonable evictions from the possession of the property.

There is an interest of the bank in recovering the Non-Performing Asset on the one hand, and protecting the right of the blameless tenant on the other. The Rent Control Act being a social welfare legislation, must be construed as such. 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.  The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Control Act.

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.

As far as granting leasehold rights being created after the property has been mortgaged to the bank, the consent of the creditor needs to be taken. Further 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.

The Hon’ble Court stated that to allow the provisions of SARFAESI Act to override the provisions of the various Rent Control Acts and 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, would mean that the legislative powers of the state legislatures are denuded which would amount to subverting the law enacted by the State Legislature.

[Vishal N. Kalsaria vs. Bank of India & Ors.]

(SC, 20.01.2016)

Criminal Appeal No. 52 of 2016