# HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL ASSETS RECONSTRUCTION CO. LTD. & ORS

- **Citation:** [2014] 11 S.C.R. 605
- **Court:** Supreme Court of India
- **Decided:** 2014-04-03
- **Case number:** Criminal Appeal No. 736 of 2014
- **Bench:** A.K. Patnaik, V. Gopala Gowda
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/harshad-govardhan-sondagar-v-international-assets-reconstruction-co-ltd-ors-29459
- **Pages:** 45

## Headnote

A
B
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - ss. 13, 14 and C
17 - Proceedings under the Act - By the secured creditor
against the borrower - The secured assets consisting of
premises leased out by the borrower and was in possession
of the lessees - Whether the Act would affect the /ease - Held:
So long as the mortgage deed does not prohibit a mortgagor D
from making a /ease of the mortgaged property and so Jong
as the lease satisfies the requirements of s. 65A(2) of T.P.
Act, a /ease made by borrower as a mortgagor is valid and
binding on the secured creditor as a mortgagee - So Jong as
/ease of an immovable property does not get determined,
E
possession of the Jessee is lawful - Initiation of proceeding
under s. 13 does not have the effect of determining the lease
- such lawful possession of a lessee cannot be taken under
the provisions of the Act - Hence the competent courts do not
have power to take possession uls. 14 from such lessee -
F
Transfer of Property Act, 1882 - s. 65A.
Allowing the appeals, the Court
HELD: 1. Sub-section (1) of Section 65A of the
Transfer of Property Act states that the mortgagor has the G
power to make lease of a mortgaged property while he
is in lawful possession of the same subject to the
provisions of sub-section (2) of Section 65A of the
605
H
-,..
606
SUPREME COURT REPORTS
[2014] 11 S.C.R.
A
Transfer of Property Act and such lease is binding on the
mortgagee. Sub-section (3) of Section 65A further
provides that such a power is available with the
mortgagor to make a lease of the mortgage property only
if and as far as a contrary intention is not expressed in
B
the mortgage-deed. Thus, so long as the mortgage-deed
does not prohibit a mortgagor from making a lease of the
mortgaged property and so long as the lease satisfies the
requirements of sub-section (2) of Section 65A, a lease
made by a borrower as a mortgagor will not only be valid
c but is also binding on the secured creditor as a
mortgagee. [Para 12] [621-E-G]
2. Sub-section (13) of Secti~n 13 of the SARFAESI
Act, however, provides that after receipt of notice referred
0
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
E . mortgagor to make a lease are ·in.consistent with each
other. Hence, sub-section (13) of Section 13 of the
SARFAESI Act will override the provisions of Section 65A
of the Transfer of Property Act by virtue of Section 35 of
F
the SARFAESI Act, and a lease of a secured asset made
by the borrowe·r after he receives the notice under subsection ·(2) of Section 13 froin the secured creditor
intending to enforce that secured asset will not be a valid
lease. [Para 15] [629-B-D]
'·
G
3. There is no provision in Section 13 of the·
SARFAESI Act that a I.ease 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,
H
the possession of the lessee is lawful and such lawful
•
• HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 607
ASSETS RECONSTRUCTION CO. LTD.
possession of a lessee has to be protected by all courts A
and tribunals. So long as a lease of an immovable
property does not get determined, the lessee tias a right
to enjoy the property and this right is a right to property
which cannot be taken away without the authority of law
as provided in Article 300A of the Constitution. [Para 16) B
[631-B-E]
4. 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 C
possession of the secured

## Text

_Characters 0–39,636 of 87,865. This is a partial read: ask again with offset=39636 for what follows._

•
[2014] 11 S.C.R. 605
HARSHAD GOVARDHAN SONDAGAR
v.
INTERNATIONAL ASSETS RECONSTRUCTION CO. LTD.
& ORS.
(Criminal Appeal No. 736 of 2014)
APRIL 03, 2014
[A.K. PATNAIK AND V. GOPALA GOWDA, JJ.]
A
B
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - ss. 13, 14 and C
17 - Proceedings under the Act - By the secured creditor
against the borrower - The secured assets consisting of
premises leased out by the borrower and was in possession
of the lessees - Whether the Act would affect the /ease - Held:
So long as the mortgage deed does not prohibit a mortgagor D
from making a /ease of the mortgaged property and so Jong
as the lease satisfies the requirements of s. 65A(2) of T.P.
Act, a /ease made by borrower as a mortgagor is valid and
binding on the secured creditor as a mortgagee - So Jong as
/ease of an immovable property does not get determined,
E
possession of the Jessee is lawful - Initiation of proceeding
under s. 13 does not have the effect of determining the lease
- such lawful possession of a lessee cannot be taken under
the provisions of the Act - Hence the competent courts do not
have power to take possession uls. 14 from such lessee -
F
Transfer of Property Act, 1882 - s. 65A.
Allowing the appeals, the Court
HELD: 1. Sub-section (1) of Section 65A of the
Transfer of Property Act states that the mortgagor has the G
power to make lease of a mortgaged property while he
is in lawful possession of the same subject to the
provisions of sub-section (2) of Section 65A of the
605
H
-,..
606
SUPREME COURT REPORTS
[2014] 11 S.C.R.
A
Transfer of Property Act and such lease is binding on the
mortgagee. Sub-section (3) of Section 65A further
provides that such a power is available with the
mortgagor to make a lease of the mortgage property only
if and as far as a contrary intention is not expressed in
B
the mortgage-deed. Thus, so long as the mortgage-deed
does not prohibit a mortgagor from making a lease of the
mortgaged property and so long as the lease satisfies the
requirements of sub-section (2) of Section 65A, a lease
made by a borrower as a mortgagor will not only be valid
c but is also binding on the secured creditor as a
mortgagee. [Para 12] [621-E-G]
2. Sub-section (13) of Secti~n 13 of the SARFAESI
Act, however, provides that after receipt of notice referred
0
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
E . mortgagor to make a lease are ·in.consistent with each
other. Hence, sub-section (13) of Section 13 of the
SARFAESI Act will override the provisions of Section 65A
of the Transfer of Property Act by virtue of Section 35 of
F
the SARFAESI Act, and a lease of a secured asset made
by the borrowe·r after he receives the notice under subsection ·(2) of Section 13 froin the secured creditor
intending to enforce that secured asset will not be a valid
lease. [Para 15] [629-B-D]
'·
G
3. There is no provision in Section 13 of the·
SARFAESI Act that a I.ease 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,
H
the possession of the lessee is lawful and such lawful
•
• HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 607
ASSETS RECONSTRUCTION CO. LTD.
possession of a lessee has to be protected by all courts A
and tribunals. So long as a lease of an immovable
property does not get determined, the lessee tias a right
to enjoy the property and this right is a right to property
which cannot be taken away without the authority of law
as provided in Article 300A of the Constitution. [Para 16) B
[631-B-E]
4. 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 C
possession of the secured asset. Since 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,
possession of the secured asset from a lessee in lawful D
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 E
asset from such a lessee and hand over the same to the
secured creditor. [Para 18) [634-F-H; 635-A]
5. When, therefore, a lessee becomes aware of the
possession being taken by the secured creditor, in
F
respect of the secured asset, he may either surrender
possession or resist the attempt of the secured creditor
to take the possession by producing before the
authorised officer, proof that he was inducted as a lessee
prior to the creation of the mortgage or that he was a G
lessee under the mortgagor in accordance with the
provisions of Section 65A of the Transfer of Property Act
and that the lease does not stand determined in
accordance with Section 111 of the Transfer of Property
Act. [Para 21) [639-C-F]
H
•
608
SUPREME COURT REPORTS
· [2014] 11 S.C.R.
A
6. If the lessee resists the attempt of the secured
creditor tQ take possession, the authorised officer cannot
evict the lessee by force but has to file an application
before the Chief Metropolitan Magistrate or the District
Magistrate under Section 14 of the SARFAESI Act. If the
B Chief Metropolitan Magistrate or District Magistrate is
satisfied that there is no valid case, he can pass an order
for delivering possession of the secured asset to the
secured creditor. [Para 21J [639-F-H; 640-A, DJ
7. The SARFAESI Act, attaches finality to the decision
C of the Chief Metropolitan Magistrate or the District
Magistrate. But a statutory provisions attaching finality to
the decision of an authority excluding the power of any
other authority or Court to examine such a decision will
not be a bar for the High Court or this Court to exercise
D jurisdiction vested by the Constitution because a
statutory provision cannot take away a power vested by
the Constitution; Therefore, the decision of the Chief
Metropolitan Magistrate or the District Magistrate can be
challenged before the High Court under Articles 226 and
E 227 of the Constitution by any aggrieved party. [Para 22J
[640-F-GJ
Columbia Sportswear Company vs. Director of Income
Tax, Bangalore (2012) 11 SCC 224:' 2012 (7) SCR 187 -
F
relied on.
·
·
8. There is no remedy available under Section 17 of
the SARFAESI Act to the lessee to protect his lawful
possession under a valid lease. In view of sub-section (3)
of Section 17 of the SARFAESI Act, the Debts Recovery
G Tribunal has powers to restore possession of the
secured asset to the borrower only and not to any person
such as a lessee. [Para 24J [643-D, E, HJ
9. The tenants do not have remedies under the
H Maharashtra Rent Control Act, 1999. Section 33 of the
•
• HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 609
· ASSETS RECONSTRUCTION CO. LTD.
Maharashtra Rent Control Act vests jurisdiction in the A
. courts named therein to decide disputes between the
landlord and the tenant and not disputes between the
secured creditor and the tenant under landlord· who is a
borrower of the secured assets. [Para 26] [645-D-E; 646F~
8
Transcore vs. Union of India & Anr. (2008) 1 SCC 125:
2006 (9) Suppl. SCR 785 - held inapplicable.
Mis Trade Well, a Proprietorship Firm, Mumbai and Anr.
vs. Indian Bank and Anr. 2007 CRI. L.J. 2544 - referred to. C
C.B. Gautam vs. Union of India and Ors. (1993) 1 SCC
78: 1992 (3) Suppl. SCR 12; /CIC/ Bank Ltd. vs. S/DCO
Leathers Ltd. and Ors. (2006) 10 SCC 452: 2006 (1) Suppl.
SCR 528; Shri Sanjeev Bansal vs. Oman International Bank
SAOG and Anr. 131 (2006) DLT 729; Sree Lakshmi Products o
vs. State Bank of India AIR 2007 Madras 148; Sunita
Jugalkishore Gilda vs. Rama/al Udhoji Tanna (dead) through
LRs. and Ors. (2013) 10 SCC 258; Central Bank of India vs.
State of Kera/a and Ors. (2009) 4 SCC 94: 2009 (3) SCR 735;
Authorised Officer, Indian Overseas Bank and Anr. vs. Ashok E
Saw Mill (2009) 8 sec 366: 2009 (11) SCR 599; United
Bank of India vs. Satyawati Tandon and Ors. (2010) 8 SCC
110: 2010 (9) SCR 1; Raghunath Rai Bareja and Anr. vs.
Punjab National Bank and Ors. (2007) 2 SCC 230: 2006 (10)
Suppl. SCR 287 - cited.
F
Case Law Reference:
2007 CRI. L.J. 2544
referred to
Para 2
1992 (3) Suppl. SCR 12
cited
Para 4
2006 (1) Suppl. SCR 528
cited
Para 4
G
(2006) DL T 729
cited
Para 8
AIR 2007 Madras 148
cited
Para 8
2009 (3) SCR 735
cited
Para 9
H
610
SUPREME COURT REPORTS
[2014] 11 S.C.R.
A
2009 (11) SCR 599
cited
Para 9
2010 (9) SCR 1
cited
Para 9
2006 (10 ) Suppl. SCR 287 cited
Para 10
(2013) 1 o sec 258
'cited
Para 13
B
. 2012 (7) SCR 187
relied on
Para 22
2006 (9) Suppl. SCR 785
held
Para 25
inapplicable
C
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
No. 736 of 2014.
From the Judgment and Order dated 20.08.2011 of the
High Court of Judicature at Bombay in CRPIL No. 24 of 2011.
WITH
D
,
Criminal Appeal Nos. 737, 738, 739, 740, 741, 742, 743, 744,
745, 746, 747, 748, 749, 750, 751, 752, 753, 754, 755, 756,
757, 758, 759, 760, 761, 762, 763, 764, 765, 766, 767, 768,
769, 770, 771, 772, 773, 774, 775, 776, 777, 778, 779, 780,
E
781, 782, 783, 784, 785, 786, 787, 788, 789, 790, 791, 792,
793, 794, 795, 796, 797' 798. 799-800, 801, 802, 803, 804.-
805, 806 and 807 of 2014
C.A. Sundaram, Vikash Singh, Raju Ramachandran,
Pradeep Dewan, S. Balakrishnan, R. S. Suri, Sanjay Jain,
F
Ramesh Singh, Sharvin Majumdar, Nikhil Goel, Marsook
Bafaki, Naveen Goel, A. Venayagam Balan, Dr. Kailash Chand,
Pratap Venugopal, Meenakshi Chauhan, Gaurav Nair (for K.
J. John & Co.), Ruchi Kohli, H. P. Sharma, Pankaj Kumar,
Subramonium Prasad, Sanjay Kumar Singh, Vijay Kumar, Anil
G
Kumar Sangal, Siddharth Sangal, Nina Gupta, Mudit Sharma,
Lalit Bhasih, Ranjan Jha, Amar Dave, Krishnayan Sen, Rishad
. A. Chowdhury, Kunal Chatterji, Samta Thapa, Deepika Kalia,
Kapish Seth, Deepak Prakash, Haritha V.A., Yogmaya, Usha
Nandini V., 0. P. Gaggar, M. T. George, Sonal Jain, Rajiv M.
H
Brahma, Shrish Kumar Mishra, Ajay Kumar Singh, Surya Nath
•
• HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 611
ASSETS RECONSTRUCTION CO. LTD.
Pandey, Sanjay Jain, Sanjeev Sagar, Chandra Bhushan
A
Prasad, Niraj Gupta, Anupam Dhingra, Vinay Navare, Keshav
Ranjan, Satyajeet Kumar, Abha R. Sharma, Praveena Gautam,
Sarvesh Singh Baghel, R. N. Keshwani, Ram Lal Roy, Amrita
Singh, Pallavi Tayal Chaddha, Chanchal Kumar Ganguli, Sanjay
Kapur, Nidhi, Arun Aggarwal, Balaji Srinivasan, Chander
B
Bhushan, S. S. Shamshery, Bhakti Vardhan, Shubhasis R.
Soren, Bharat Sood, R. C. Kohli,. Sanjay Bhatt, Dushyant
Kumar, Rabin Majumder for the appearing parties.
The Judgment of the Court was delivered by
c
A. K. PATNAIK, J. 1. Leave granted.
Facts:
2. The appellants claim to be tenants of different premises
in Mumbai. These premises were mortgaged to different banks
D
as securities for loans advanced by the banks (hereinafter
referred to as 'the.secured creditors'). As the borrowers have
defaulted in repayment of their secured debts or instalments
thereof and their accounts in respect of such debts have been
classified by the secured creditors as non-performing assets,
E
the secured creditors have issued notices of 60 days period
under sub-section (2) of Section 13 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 (for short 'SARFAESI Act') to the borrowers· .
saying that they intend to enforce the secured assets in the event
F
of non-payment of the secured debts. As the borrowers have
failed to discharge their liability in full within the period of sixty
days from the date of notice, the secured creditors have
exercised their right under sub-section (4) of Section 13 of the
SARFAESI Act to take possession of the secured assets of G
the borrowers. The secured assets, however, consist of the
premises under possession of the appellants. The secured
creditors have, therefore, made a request under Section 14(1)
of the SARFAESI Act to the Chief Metropolitan Magistrate,
Mumbai, to take possession of the premises and handover the
H
.t;.. ••
612
SUPREME COURT REPORTS
[2014] 11 S.C.R.
A possession ofthe premises to the secured creditors in
accordance with the provisions of Section 14 of the SARFAESI
Act. Threatened by dispossession of the premises under their
possession by the Chief Metropolitan Magistrate, Mumbai,
under Section 14 of the SARFAESI Act, the appellants have
B moved this Court in this batch of cases. Their case is that they
are not borrowers, but they are lessees of the borrowers and
are entitled to remain in possession of the secured assets.- A
Division Bench of the Bombay High Court in M/s Trade Well,
a Proprietorship Firm, Mumbai & Anr. v. Indian Bank & Anr.
· c [2007 CRI. L.J. 2544] has, however, held that when a secured
creditor takes measures under sub-section (4) of Section 13
of the SARFAESI Act on account of failure of the borrower to
repay his liability and approaches the Chief Metropolitan
Magistrate for assistance to take possession of the secured
D assets, the liability of the borrower having been crystallized,
there can be no adjudication by the Chief Metropolitan
Magistrate and possession has to be taken by a nonadjudicatory process and there is no question of pointing out
to the Chit:)f Metropolitan Magistrate at that stage that the
E
person who is to be dispossessed is a tenant. The Division
Bench of the Bombay High Court has further held in M/s Trade
Well (supra) that the remedy of the borrower as well.as a thirdparty is to file an appli9ation under Section 17 of the SARFAESI
Act before the Debts Recover}' Tribunal and in case the
borrower or a third-party succeeds, the Debts Recovery Tribunal
F
can restore possession of the secured assets to the borrower
or a third-party. This view taken by the Bombay High Court in
Mis Trade Well (supra) has been followed in the i_mpugned
judgment dated 20.08.2011 of the High Court passed in the
case of International Assets Reconstruction Company Limited
G v. Union of India & Ors. The grievarice of the appellants is that
if the impugned judgment of the High Court is implemented, the
appellants have no option but to surrender possession to the
Chief Metropolitan Magistrate, Mumbai, and move the Debts
Recovery Tribunal under Sectio_n 17 of the SARFAESI Act. Such
H a remedy, according to the appellants, is not actually available
•
•
HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 613
ASSETS RECONSTRUCTION CO. LTD. [A.K. PATNAIK, J.]
under Section 17 of the SARFAESI Act and if the remedy is
A
available, it is meaningless as they have to move out from the
tenanted premises and only in the event the Debts Recovery
J"ribunal decides in favour of the appellants, they may come back
to the tenanted premises. Aggrieved by the impugned
judgment, they have, therefore, filed these appeals by way of B
special leave under Article 136 of the Constitution.
Contentions of the learned counsel for the appellants:
3. Mr. C.A. Sundaram, learned senior counsel appearing
for the appellants, submitted that under Article 300A of the C
Constitution, every person has a constitutional right not to be
deprived of his property save by authority of law. He submitted
that a tenant is a lessee and has a right to be in possession of
the property of the lessor during the period of the lease and this
right cannot be taken away save by authority of law. He
D
submitted that there is nothing in the provisions of the
SARFAESI Act, and in particular Section 13 of the said Act, to
show that this right of a lessee to remain in possession of the
secured asset during the period of the lease stands
extinguished when the secured creditor initiates action under E
Section 13 of the SARFAESI Act. He submitted that the
language of sub-section (13) of Section 13 of the SARFAESI
Act, however, shows that no borrower shall, after receipt of
notice under sub-section (2) of section 13, transfer by way of
sale, lease or otherwise any of his secured assets referred to
F
in the notice, without the prior written consent of the secured
creditor. He submitted that this provision in the SARFAESI Act
is a clear indication that a lease of a secured asset by the
borrower before receipt of a notice by him under sub-section
(2) of Section 13 of the SARFAESI Act was not prohibited under
the said Act. He submitted that in the absence of any express G
language in the SARFAESI Act affecting a lease of a secured
asset made by the borrower in favour of a lessee, the lease
continues to be a valid lease even after the secured creditor
initiates action under Section 13 of the SARFAESI Act.
H
614
SUPREME COURT REPORTS
· [2014] 11 S.C.R.
A
4. In support of this argument, he cited a decision of the
Constitution Bench of this Court in C.8. Gautam v. Union of
India & Ors. ((1993) 1 SCC 78]. In this case, the provisions of
Section 269-UD and Section 269-UE of the Income Tax Act,
1961 made by Parliament to prevent evasion of tax by transfer
B of immovable property for an apparent consideration less than
the market price of the property were under challenge as ultra
vires the Constitution. Sub-section (1) of Section 269-UD of
the Income Tax Act, 1961 provided that on an order for purchase
by the Central Government of an immovable property, the
C Central Government would be liable to pay as compensation
to the owner of the property an amount equal to the amount of
apparent consideration and sub-section ( 1) of Section 269-U E
provided that in case an order for compulsory purchase is
made under sub-section (1) of Section 269-UD, the property
0
in respect of which the order is made shall vest in the Central
Government free from all encumbrances and sub-section (2)
of Section 269-UE further provided that the transferor or any
other person who may be in possession of the immovable
property in respect of which an order under sub-section (1) of
Section 269-UD is made is required to surrender or deliver
E
possession of the property to the appropriate authority or any
other person duly authorised by the appropriate authority within
fifteen days of the service of the order on him. This Court held
that if there is a lessee in occupation of the property concerned,
his leasehold rights would be destroyed and he would have to
F
handover the possession of the property to the appropriate
authority or any other person nominated by the appropriate
authority and this clearly shows that an order for compulsory
purchase results in the leasehold rights being destroyed. This
Court further held that an order for compulsory purchase in such
G cases would necessarily result in gross injustice to the lessees
and to their being deprived of their rights without their being in
any way involved in the attempt at a tax evasion. This Court,
therefore, read down sub-section (2) of Section 269-UE so as
to make it inapplicable to bonafide lessees in possession of
H the property. He submitted that this Court should accordingly
•
• HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 615
ASSETS RECONSTRUCTION CO. LTD. [AK. PATNAIK, J.)
hold in this case that the rights of bonafide lessees under a A
lease ·executed prior to receipt of notice under sub-section (2)
of Section 13 of the SARFAESI Act by the borrower are not
affected by the action of secured creditor under Section 1.3 of
the SARFAESI Act. He relied on the observation of this Court
in /CIC/ Bank Ltd. v. S/DCO Leathers Ltd. & Ors. [(2006) 10 B
sec 452] that while enacting a statute, Parliament cannot be
presumed to have taken away the right to property which is a
constitutional right.
5. Mr. Sundaram next submitted that the view taken by the
Bombay High Court in Mis Trade Well (supra) and in the C
impugned judgment that a third-party such as a lessee can
under Section 17 of the SARFAESI Act make an application
before the Debts Recovery Tribunal and that in case he
succeeds, the Debts Recovery Tribunal can restore possession
of the. secured assets to the lessee is not at all correct. He D
referred to the provisions of sub-section (3) of Section 17 of
the SARFAESI Act to show that the Debts Recovery Tribunal
can restore possession of the secured assets only to the
borrower and not to the lessee. He submitted that the Debts
Recovery Tribunal has no power under Section 17 of the
E
SARFAESI Act to restore possession of the secured assets
to a lessee. He submitted that under the SARFAESI Act no
notice either by the secured creditor or by the Chief Metropolitan
Magistrate or the District Magistrate is required to be given to
a lessee of the secured assets in possession of the secured
F
creditor and in the absence of such a notice, the lessee will not
have any opportunity to move either the Debt Recovery Tribunal
under Section 17 or the Chief Metropolitan Magistrate or the
District Magistrate under Section 14 of the SARFAESI Act. He
submitted that sub-section (3) of Section 14 of the SARFAESI G
Act further provides that no act of the Chief Metropolitan
Magistrate or the District Magistrate or any officer authorised
by the Chief Metropolitan Magistrate or District Magistrate to
take possession of the secured assets shall be called in
question in any court or before any authority and this would
H
A
B
c
D
E
F
616
SUPREME COURT REPORTS
[2014] 11 S.C.R.
mean that a lessee would have no remedy against the decision
of the Chief Metropolitan Magistrate or the District Magistrate.
He submitted that as there is no remedy under the SARFAESI
Act to protect the lawful possession of the lessee under a lease
and the Act also does not bar the remedies under the
respective local tenancy laws, this.Court should hold that the
remedies for the parties in a case where the secured assets
are in possession of the lessees are under the respective
tenancy laws. These arguments of Mr. Sundaram were adopted
by all other counsel. appearing for the lessees. .
Contentions of the learned counsel for the respondents:
6. Mr. Vikas Singh, learned senior counsel appearing for
the State Bank of India and the Indian Banks Association,
submitted that while there are no restrictions on the right of the
borrower to make a lease of an immovable property prior to
the mortgage, once a mortgage is created, his right to make a
lease of the mortgaged property is regulated by the provisions
of Section 65A of the Transf~r of Property Act, 1882. He
submitted that under Section 65A of the Transfer of Property
Act, a mortgagor, while lawfully in possession of the mortgaged
property, has the power to make leases thereof subject to the
provisions of sub-section (1) of Section 65A of the said Act.
·He submitted that if a lease made by a mortgagor satisfies the
requirements of sub-sedion (2) of Section 65A of the Transfer
of Property Act, it will be a valid lease and will be binding on
the secured creditor. He submitted that sub-section (3) of
Section 65A of the Transfer of Property Act further made it clear .
that if a contrary intention is expressed in the mortgage-deed,
prohibiting the mortgagor from making a lease of the
G
mortgaged property while he is in lawful possession of the
same, the mortgagor cannot m'ake a lease and if such lease
is made, such lease will not_ be binding on the mortgagee.
According to him, possession of the lessee under the following
two categories of leases: (i) leases created prior to the
H
mortgage and (ii) leases created in accordance with Section
•
• HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 617
ASSETS RECONSTRUCTION CO. LTD. [A.K. PATNAIK, J.]
65A of the Transfer of Property Act is protected by law, and
A
possession of other persons claiming to be lessees is not
protected by law.
7. Mr. Vikas srngh next submitted that sub-section (13) of
Section 13 of the SARFAESI Act further provides that no
borrower shall, after receipt of notice referred to in sub-section
B
. (2) of Section 13 of the SARFAESI Act, transfer by way of
lease, any of his secured assets referred to in the notice,
without prior written consent of the secured creditor. He
submitted that if the borrower makes a lease of the secured
assets after receipt of a notice under sub-section (2) of Section
C
13 of the SARFAESI Act without the prior written consent of the
secured creditor, the lease would accordingly be void and the
possession of the secured asset of the lessee is not protected
bylaw.
D
8. In support of these submisions, Mr. Vikas Singh relied
on the decision of the Delhi High Court in Shri Sanjeev Bansal
v. Oman International Ba.nk SAOG & Anr. 131 (2006) DLT 729
and the decision of the Madras High Court in Sree Lakshmi
Products v. State Bank of India (AIR 2007 Madras 148) in
which the two High Courts have held that tenancies created in
contravention of Section 65A of the Transfer of Property Act are
not binding on the secured creditor and cannot come in the way
of the secured creditor taking possession of the tenanted
premises under the SAR FAES I Act. He also cited the decision
of this Court in Sunita Jugalkishore Gilda v. Rama/al Udhoji
Tanna (dead) through LRs. & Ors. [(2013) 10 SCC 258] in
which this Court has held that the rule of /is pendens in Section
E
F
52 of the Transfer of Property Act, 1882 applies to a suit on a
mortgage/by mortge1gee as well and, therefore, if a mortgagor
G
grants a lease during the pendency of a suit for sale by the
mortgagee, the lessee is bound by the result of the suit. Relying
on this decision, he submitted that once the secured creditor
issues a notice to a borrower to take possession of a secured
asset and the borrower despite such notice, transfers the
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SUPREME COURT REPORTS
[2014] 11 S.C.R.
A possession of the secured asset by way of lease to a lessee
without prior consent of the secured creditor, the lessee of such
a lease is bound to surrender possession of the secured asset
to the secured creditor.
8
9. Mr. Vikas Singh submitted that though the SARFAESI
Act is silent on the remedies available to a lessee who is in
lawful possession of a secured asset, in the case of the
aforesaid two categories of leases created pri1Jr to the
mortgage and created after the mortgage in accordance with
Section 65A of the Transfer of Property Act, the lessee has a
C remedy of filing an application under Section 17(1) of the
SAR FAES I Act as the application under Section 17(1) of the
SARFAESI Act can be filed by "any person" and not just the
borrower. He submitted that the SARFAESI Act has been
enacted to enable the secured creditors to recover the secured
D debts without the intervention of courts and tribunals and thirdparties claiming to be lessees but not bonafide lessees under
leases which are not in accordance with Section 65A of the
Transfer of Property Act should not be allowed to frustrate this
laudable object of the Act by preventing the secured creditors
E from taking the possession of the secured assets and realizing
the secured debts. In support of this submission, he referred
to the observations of this Court in Central Bank of India v.
State of Kera/a and Others [(2°009) 4 SCC 94], Authorised
Officer, Indian Overseas Bank and Anotherv. Ashok Saw Mill
F [(2009) 8 SCC 366] and United Bank of India v. Satyawati
Tandon & Others [(2010) 8 SCC 11 O]. He submitted that the
remedy of a bonafide lessee is, therefore, to surrender
possession under Section 14 of the SARFAESI Act and to file
an application under Section 17(1) of the SARFAESI Act
G before the Debts Recovery Tribunal and in case he succeeds
before the Debts Recovery Tribunal to establish that the lease
was created prior to the mortgage and the lease was to the
knowledge of the secured creditor or that the lease was created
after the mortgage in accordance with Section 65A of the ·
H Transfer of Property Act, the Debts Recovery Tribunal will
•
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· HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 619
ASSETS RECONSTRUCTION CO. LTD. [A.K. PATNAIK, J.]
~
restore possession of the secured asset. The other counsel A
appearing for the respondents adopted the aforesaid
arguments of Mr. Vikas Singh and further submitted that the
appellants, who have not filed documents to show that they are
bonafide lessees, should not be afforded the protection against
the· action initiated by the secured creditors to·take possession
B
of the secured asset under Section 13 of the SARFAESI Act.
10. Mr. Shrish Kumar Mishra, learned counsel appearing
for the Oriental Bank of Commerce in Civil Appeal arising out
of S.L.P. (C) No.6639 of 2012, however, made a departure
from the submissions made by Mr. Vikas Singh. He submitted C
that under sub-section (4) of Section 13 of the SARFAESI Act,
the secured creditor has a right to take over the possession of
the secured assets and since Section 35 ofthe SARFAESI Act
provides that the provisions of the SARFAESI Act shall have
effect, notwithstanding anything, inconsistent therewith contained D
in any other law for the time being in force, sub-section (4) of
Section 13 of the SAR FAE SI Act will override the rights of the
lessee to remain in possession of the secured assets. He relied
on a decision of this Court in Ragilunath Rai Bareja and
Another v. Punjab National Bank and Others. [(2007) 2 SCC
E
230] for the proposition that the court must in accordance with
the mischief rule of interpretation give a purposive interpretation
to the provisions of the statute. He argued that if this mischief
rule of interpretation is adopted by this Court, then the correct
interpretation of sub-section (4) of Section 13 read with Section
F
35 of the SARFAESI Act would be that a lease will stand
·terminated on the secured creditor deciding to take the
measures contemplated under sub-section (4) of Section 13
of the SARFAESI Act.
G
Opinion of the Court on the questions of law raised in
these Appeals:
11. The first question that we have to decide is whether
the provisions of the SAR FAES I Act have in any way affected
the right of a lessee to remain in possession of the secured
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[2014] 11 S.C.R.
A
asset during the period of a lease. A 'secured asset' has been
defined in Section 2(zc) of the SARFAESI Act to mean the
property on which the security interest is created. In case of an
immovable property, a security interest is created in a secured
asset by way of a mortgage in favour of the secured creditor.
B
There may be cases where before the mortgage is created in
respect of an immovable property, the borrower had already
leased out the immovable property in favour of a lessee either
as the owner or as a person competent or authorised to transfer
the immovable property in accordance with Section 7 of the
c Transfer of Property Act. If such a lease is made, by virtue of
Section 8 of the Transfer of Property Act, the lessee will have
the right to enjoy the leased property in accordance with the
terms and condition of the lease irrespective of whether a.
subsequent mortgagee of the immovable property has
0
knowledge of such a lease or not.
12. Afte:r the mortgage of an immovable property is created
by the borrower in favour of a secured creditor, the right of the
borrower to lease a mortgaged property is regulated· by Section
65A of the Transfer of Property Act. Section 65A of the Transfer
E
of Property Act is extracted hereinbelow:
F
G
H
"65A. Mortgagor's power to lease.-(1) Subject to the
provisions of sub- section (2), a mortgagor, while ·lawfully
in possession of the mortg'aged 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.
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HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 621
ASSETS RECONSTRUCTION CO. LTD. [A.K. PATNAIK, J.]
(c) No such lease shall contain a covenant for renewal.
A
( 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
B
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,
c
as so varied and extended, shall, as far as may be, 0
operate in like manner and with all like incidents, effects
and consequences, as if such variations or extensions were
contained in that sub- section.
Thus, sub~section (1) of Section 65A of the Transfer of Property
Act states that the mortgagor has the power to make lease of E
a mortgaged property while he is in lawful possession of the
same subject to the provisions of sub-section (2) of Section
65A of the Transfer of Property Act and such lease is binding
on the mortgagee. Sub-section (3) of Section 65A further
provides that such a power is available with the mortgagor to
F
make a lease of the mortgage property only if and as far as a
contrary intention is not expressed in the mortgage-deed. Thus,
so long as the mortgage-deed does not prohibit a mortgagor
from making a lease of the mortgaged property and so long
as the lease satisfies the requirements of sub-section (2) of G
Section 65A, a lease made by a borrower as a mortgagor will
not only be valid but is also binding on the secured creditor as
a mortgagee.
13. We may now consider whether the provisions of the
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622
SUPREME COURT REPORTS
[2014] 11' S.C.R.
A
SARFAESI Act have the effect of terminating these valid leases
made by the borrower or the mortgagor made in accordance
with the provisions of the Transfer of Property Act. Section 35
of the SARFAESI Act , on which the High Court has placed
reliance in the case of Mis Trade Well (supra) as well as in
B the impugned judgment is reproduced hereinbelow:
c
"35. The provisions of this Act to override other
laws.-The provisions of this Act shall have effect,
notwithstanding anything inconsistent therewith contained
in any other law for the time being in force or any
instrurrient having effect by virtue of any such law."
Section 35 of the SARFAESI Act, therefore, provides that the
provisions of the SARFAESI Act shall have effect,
notwithstanding anything inconsistent therewith contained in any
D other law for the time being in force. Thus, if there is any
provision in the SARFAESI Act and if there is any provision in
any other law which is inconsistent therewith, the provision of
the SARFAESI Act will have effect and not the provision of any
other law. The only section in the SARFAESI Act which confers
E
a statutory right on the secured creditor to take possession of
the secured asset and enforce the secured asset for the
realization of the secured debt is Section 13. We will, therefore,
have to find out whether there is any provision in Section 13 of
the SARFAESI Act which is inconsistent with the right of a
F
borrower or a mortgagor to make a lease in accordance with
the provisions of the Transfer of Property Act and the
corresponding right of a lessee to remain in possession of the
property leased out to him during the peri9d of a lease.
14. Section 13 of the SARFAESI Act is extracted
G hereinbelow:
"13.
Enforcement
of
security
interest.-
(1 ).
Notwithstanding anything contained in section 69 or
section 69A of the Transfer of Property Act, 1882 (4 of
H
1882), any security interest created in favour of any
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• HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 623
ASSETS RECONSTRUCTION CO. LTD. [AK. PATNAIK, J.]
. secured creditor may be enforced, without the intervention
A
of the court or tribunal, by such creditor in accordanee with
the provisions of this Act.
·
(2) Where any borrower, who is under a liability to a
secured creditor under a security agreement, makes any
8
default in repayment of secured debt or any instalment
thereof, and his account in respect of such debt is
classified by the secured creditor as non-performing asset,
then, the secured creditor may require the borrower by
notice in writing to discharge in full his liabilities to the
C
secured creditor within sixty days from the date of notice
failing which the secured creditor shall be entitled to
exercise all or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give
details of the amount payable by the borrower and the
D
secured assets intended to be enforced by the secured
creditor in the event of non-payment of secured debts bv
the borrower.
(3A) If, on receipt of the notice under sub-section (2), the
. borrower makes any representation or raises any objection,
the secured creditor shall consider such representation or
objection and if the secured creditor comes to the
conclusion that such representation or objection is not
acceptable or tenable, he shall communicate within 15
days of receipt of such representation or objection the
reasons for non-acceptance of the representation or
objection to the borrower:
E
F
Provided that the reasons so communicated or the likely
action of the secured creditor at the stage of G
communication of reasons shall not confer any right upon
the borrower to prefer an application to the Debts
Recovery Tribunal under Section 17 or the Court of District
Judge under Section 17A.
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624
A
B
c
D
E
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G
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SUPREME COURT REPORTS
[2014] 11 S.C.R.
(4) In case the borrower fails to discharge his liability in
full within the period specified in sub-section (2), the·
secured creditor may take recourse to one or more of the
following measures to recover his secured debt, namely:-
(a) take possession of the secured assets of the
borrower including the right to transfer by way of
lease, assignment or sale for realising the secured
asset;
(b) take over the management of the business of
the borrower including the right to transfer by way
of lease, assignment or sale for realising the
secured asset;
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where
the substantial part of the business of the borrower
is held as security for the debt.
Provided further that where the management of
whole, of the business or part of the business is
severable, the secured creditor shall take over the
management of such business of the borrower
which is relatable to the security or the debt;
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the
possession of which has been taken over by the
secured creditor;
(d) require at any time by notice in writing, any
person who has acquired any of the secured 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.
(5) Any payment made by any person referred to in clause
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• HARSHAD GOVARDHAN SONDAGAR v. INTERNATIONAL 625
ASSETS RECONSTRUCTION CO. LTD. [A.K.