Allowed

M s Allybee Trading Co. v. Raj Radhe Finance Limited

DRAT26 Feb 2024MISC APPEAL/134/2023

Case brief

AI extract

What is this about?

In this monetarily recoverable debt appeal, the Court allowed the appellant tenants seeking protection from SARFAESI measures initiated by the Financial Institution. The appellant claimed a pre-existing oral tenancy predating the mortgage. Relying on Supreme Court precedents regarding oral tenancies and the Rent Act, the Court allowed the appeal, set aside the interim order rejecting protection, a

What did the court decide?

The interim interlocutory order declining protection was set aside; the Appellant is granted protection from SARFAESI measures pending the disposal of the Securitisation Application.

M s Allybee Trading Co. versus Raj Radhe Finance Limited — Cheque Dishonour | DRAT (2024)

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BEFORE THE DEBTS RECOVERY APPELLATE TRIBUNAL, AT: MUMBAI Present: Mr Justice Ashok Menon, Chairperson Misc. Appeal No. 134/2023

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Between

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M/s Allybee Trading Co. … Appellant/s V/s. Raj Radhe Finance Ltd. & Anr. …Respondent/s

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Mr Charles D’Souza along with Ms Misbah Ansari, i/b Mr Jamshed Ansari, Advocate for Appellant.

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Mr Prashant Pandit along with Mr Jay Pandit, Advocate for Respondent.

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:-Order dated: 26/02/2024:-

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The Appellant is a firm represented by its partner and is the original Applicant in the Securitisation Application (S.A.) No. 606 of 2023 on the files of the Debts Recovery Tribunal-II, Ahmedabad (D.R.T.) and is aggrieved by the dismissal of the interim relief of protection sought under the provisions of the Securitisation & Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002 (“SARFAESI Act”, for short) and granting the liberty to the Respondent Financial Institution (FI) to proceed with the Sarfaesi measures initiated against the secured assets.

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The Appellant claims to be a tenant in occupation of the shop rooms which is being proceeded against by the FI for recovery of debt allegedly due from the borrower/mortgagor. The Appellant claims that the original owner of the shop rooms namely Nathlal Manekchand Doshi had entrusted the rooms and measuring 362 ft² situated on the eastern side of plot Nos. 15 and 16 of the Rajkot 1

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revenue survey Nos. 119/1 & 119/2 part and parcel of City Survey Ward No. 13/2, City Survey No. 4054, in the year 1993 by way of an oral lease. After the demise of the original landlord, his legal heir namely Amit Nathlal Doshi acknowledged the tenancy and executed a memorandum of undertaking with the firm on 10.06.2011.

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On 27.08.2005, Amit Nathlal Doshi sold the aforesaid promises to the 2^nd Respondent namely Gautam Vallabhbhai Kapuria. However, the existence of the tenancy in favour of the firm was not mentioned in the sale deed. On the same date, an agreement is executed between Doshi and Kapuria in which the tenancy is admitted. However, the said document is not registered.

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On 23.12.2015, the 2^nd Respondent created a mortgage in favour of Dena Bank mortgaging the subject property to secure a loan taken by M/s Balaji Enterprises. 5. The Appellant and 7 other tenants occupying the premises filed a civil suit No. 216 of 2017 to protect their tenancy right against the 2^nd Respondent and the bank.

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The borrower M/s Balaji Enterprises defaulted on payment of the loan to the bank resulting in the account being classified as nonperforming assets (NPA) on 30.11.2016. A demand notice was issued to the borrower and the mortgagor under section 13 (2) of the SARFAESI Act on 19.01.2017. Notice was issued by the Mamlatdar/Tahsildar for taking physical possession of the property on 05.09.2017. When the Mamlatdar came to take possession of the property on 28.09.2017 it was noted that the property was occupied by tenants and hence the taking over of possession was deferred to 04.10.2017. Realising that the property was being proceeded against,

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the Appellants and the other tenants filed an interlocutory application in the aforesaid civil suit No. 216/2017 and on 04.10.2017 obtained an order of status quo from the civil court.

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In the meanwhile, the borrower availed yet another loan of ₹1.30 crores from the 1^st Respondent FI on 16.03.2021 mortgaging properties inclusive of the subject property. The 1^st Respondent FI took over the loan granted by Dena Bank for ₹1.70 crores on 13.12.2021. Consequent to the loan granted by the FI to M/s Balaji Enterprises on 03.12.2021 being defaulted, it was classified as NPA. The FI issued a demand notice under section 13 (2) of the SARFAESI Act on 25.07.2022. The 1^st Respondent took symbolic possession of the secured assets on 05.11.2022. Thereafter an application was filed under section 14 for taking physical possession of the secured assets and an order was passed by the Chief Judicial Magistrate (CJM) on 08.07.2023. An Advocate Commissioner deputed from the court issued a notice to take physical possession of the subject property on 20.08.2023. The very next day, the Appellant approached the D.R.T. by filing the aforesaid S.A. No. 606/2003. The Appellants sought interim protection which was declined by the impugned order. The Appellant is aggrieved and hence in appeal.

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The first Respondent FI has vehemently opposed the misc. appeal on the ground that the Appellant does not have any case to frustrate the Sarfaesi measures initiated by the FI for recovery of the debt due. The only intention of the Appellant is to thwart the measures taken by the FI to recover the debt. It is pointed out that the original mortgage was created on 23.02.2015 by the owner of the property namely Gautam Kaporia in favour of Dena Bank. The original

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borrower M/s Balaji Enterprises defaulted on the payment of the debt to Dena Bank and the debt was classified as NPA and notice was issued under Sec. 13(2) of the SARFAESI Act to the borrower/guarantor/mortgagor. On 16.03.2021, the debt due to Dena Bank was discharged and the fresh mortgage was created on 16.03.2021 in favour of the first Respondent FI. Fresh notice under Sec. 13(2) was issued by FI, symbolic possession was taken on 05.11.2022 and the property was put up for auction on 04.03.2023. The property was sold for a sale consideration of ₹3,00,25,000/- and the entire sale consideration has been deposited and the sale certificate issued in favour of the auction purchaser on 22.05.2023.

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The Appellant claims to be a tenant protected under the provisions of the Rent Control Act. It is stated that the firm has been paying rent to the landlord since 1993. Photocopies of rent receipts starting from 01.10.1993 to 31.03.2015 and photocopies of the electricity bills from 15.11.2012 to 06.07.2023 photocopy of the Udyam Registration Certificate obtained in the name of the Appellant firm on 28.09.2021, photocopy of the GST Registration Certificate dated 06.07.2021 are the documents which are relied upon by the Appellant to prove that there was an existing tenancy before the creation of the mortgage. The original entrustment of the shop rooms to the Appellant firm was by Nathlal Manekchand Doshi the exact date of entrustment is not known but the oral lease was created in 1993 and there are rent receipts available from 01.10.1993. The original landlord’s son Amit Nathlal Doshi acknowledged the tenancy and continued to receive rent. However, he sold the property on 27.08.2015 to the present owner Gautam Kaporia by way of the

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registered sale deed. The sale deed does not mention tenancy. However, a supplemental sale deed was executed on the same date between Amit Doshi and Gautam Kaporia stating the fact of the existence of tenancy by way of the unregistered document. The question that would arise for consideration is whether the documents produced by the Appellant would prima facie indicate the existence of tenancy prior to the mortgage. The Hon’ble Supreme Court has in Vishal N. Kalsaria v/s Bank of India & Ors (2016) 3 SCC 762 observed thus:

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“30. The issue of determination of tenancy is also one which is well settled. While Sec. 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 Sec. 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 nonregistration 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 Sec. 14 of the SARFAESI Act before the learned Magistrate. Further, in terms of Sec. 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 the light of the same, neither can the landlord nor the banks be permitted to exploit the fact of non-registration of the tenancy deed against the tenant.”

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In Bajrang Shyamsunder Agrawal v/s Central Bank of India & Ors.

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(2019) 9 SCC 94 considering the decision in Vishal N. Kalsaria (supra)

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the Hon’ble Supreme Court held thus:

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“22. After examining the legal and constitutional position, the Court held that while SARFAESI Act has a laudable objective of providing a smooth and efficient recovery procedure, it cannot override the objective of the Rent Acts to control the rate of rent and provide to protection to tenants against arbitrary and unreasonable evictions. To resolve this conflict, this Court held that:

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22.1. The provisions of the SARFAESI Act cannot be used to override the provisions of the Rent Act. The landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Act.

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22.2. While a yearly tenancy requires to be registered, oral tenancy can still be proved by showing that the tenant has been in occupation of the premises before the Magistrate under Sec. 14 of the SARFAESI Act. 22.3. The non-registration of tenancy deed cannot be used against the tenant. For leasehold rights being created after the property has been mortgaged to the bank, the consent of the creditor needs to be taken. 22.4. Even though, Sec. 35 of the SARFAESI Act has a non obstante clause, it will not override the statutory rights of the tenants under the Rent Control Act. The non obstante clause under Sec. 35 of the SARFAESI Act only applies to laws operating in the same field.

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While we agree with the principle laid out in Vishal N Kalsaria case that the tenancy right under the Rent Act need to be respected in appropriate cases, however, we believe that the holding with respect to the restricted application of the non obstante clause under Sec. 35 of the SARFAESI Act, to only apply to the laws operating in the same field is too narrow and such a proposition does not follow from the ruling of this Court in Harshad Govardhan case .”

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Even in the later decision in H emraj Ratnakar Salian vs HDFC Bank Ltd. & Ors 2021 SCC OnLine SC 611, the Hon’ble Supreme Court has observed that the Rent Act would not come to the aid of a “tenant-in-sufferance” vis -a -vis SARFAESI Act due to the operation of Sec. 13(2) read with Sec. 13(13) of the SARFAESI Act. In that

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decision also the person claiming tenancy had set up an oral tenancy but it was observed that there was no good or sufficient evidence to establish the tenancy. The Xerox copy of the rent receipts was after the creation of the mortgage and therefore, it was held not acceptable. 12. In the instant case, rent receipts are start from 01.10.1993 and continue till 31.03.2015, and electricity bills are also from the period 15.11.2012 to 06.07.2023. The Mamlatdar who had gone to take delivery of the property on 28.09.2017 had specifically reported that tenants were found to be in possession. A Civil Suit was also filed by the tenants including the Appellant to protect their tenancy right and had obtained an order of status quo on 04.10.2017. The present mortgage in favour of the first Respondent FI was created on 16.03.2021 and 03.12.2021. The Appellant should be allowed to prove their right of tenancy for which evidence will have to be adduced. Prima facie, they have a case and therefore, the Misc. Appeal is allowed and the impugned interlocutory order declining the protection in S.A. No. 606 of 2023 by the D.R.T. is set aside and the Appellant is granted protection from the Sarfaesi measures till the disposal of the S.A. The S.A. shall be disposed of untrammelled by whatever is observed either in the impugned order or this order. Efforts shall be made to dispose of the S.A. expeditiously given the granting of injunction pending disposal of the S.A. Misc. Appeal is allowed.

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Sd/Chairperson

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mks-01

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M s Allybee Trading Co. v. Raj Radhe Finance Limited

Case brief

What is this about?

What did the court decide?

M s Allybee Trading Co. v. Raj Radhe Finance Limited

Case brief

What is this about?

What did the court decide?

What the court decided

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