Dismissed

Prasad P Cheeran v. Kerala State Cooperative Bank Ltd.

DRT23 Aug 2022SA/141/2022

Case brief

AI extract

What is this about?

Debt Recovery Tribunal dismissed a petition by a tenant challenging possession notices. The court held that an unregistered three-year lease violates the Transfer of Property Act and did not grant protection against SARFAESI measures initiated by the bank.

What did the court decide?

Securitization Application dismissed; applicant treated as not having legal right to restrain SARFAESI measures or continue possession beyond eleven months.

Prasad P Cheeran versus Kerala State Cooperative Bank Ltd. — Banking and Recovery | DRT (2022)

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

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Dated this the 23^rd day of August, 2022

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SECURITISATION APPLICATION No.141/2022

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Between

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Prasad.P.Cheeran, Cheeran House, Thalappilly Taluk, Kunnamkulam, Thrissur District. …Applicant

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And

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Kerala State Co-operative Bank, West Fort Branch, Guruvayoor Road, Punkunnam, Thrissur – 680 036, represented by its Authorised Officer.

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Saji, Nangelivalappil House, Kanattukara Desom, Ayyanthole Village, Thrissur Taluk, Thrissur.

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Saradha, Nangelivalappil House, Kanattukara Desom, Ayyanthole Village, Thrissur Taluk, Thrissur.

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Sija, Nangelivalappil House, Kanattukara Desom, Ayyanthole Village, Thrissur Taluk, Thrissur.

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Dolly, Nangelivalappil House, Kanattukara Desom, Ayyanthole Village, Thrissur Taluk, Thrissur. …Defendants

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SA 141/2022

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This Securitization Application having been heard on 27.07.2022 in the presence of Advocate Ms.Tulasi Panicker for the applicant and Advocate Sri.Gilbert George Correya for the 1^st defendant, and stood over to this day for consideration, the Tribunal delivered the following:

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F I N A L O R D E R

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This application is filed by a third party under S.17(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short ‘the SARFAESI Act’) claiming as a tenant in the secured asset which was mortgaged by the borrower, the 2^nd defendant in this case for availing a loan from the 1^st defendant.

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Facts of the case

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In the SA, the applicant claims that he is running a boys hostel namely Empire Hostel in building No.23/324 in Kanattukara, Thrissur. The income derived from the business is his sole means of livelihood. He entered into a tenancy basing on the rental agreement with the 2^nd defendant. The said agreement was initially for a period of three years at a monthly rent of Rs.15,000/-. The applicant has also given an advance of Rs.50,000/- to the 2^nd defendant. The said agreement was renewed every three years with 5% enhancement. True copy of the agreement executed between the applicant/tenant and the 2^nd defendant/landlord dated 15.02.2017 is marked as Annexure-A1.

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Subsequently, it came to the knowledge of the applicant that defendants 2 to 5 availed a loan from the 1^st defendant bank by creating equitable mortgage by deposit of title deed No.1981/2003 of SRO, Ayyanthole relating to the property having an extent of 0.0202 hectares i.e., 5 cents comprised in Sy.No.870/6p of Ayyanthole Village,

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SA 141/2022

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Thrissur Taluk. An amount of Rs.62,58,439/- is outstanding under the loan account due to non-payment of the installments by the borrowers. It is also learnt that the 1^st defendant initiated SARFAESI proceedings against the borrowers and also filed application under S.14 of the SARFAESI Act before the CJM Court, Thrissur. In the said proceeding, an Advocate Commissioner was appointed to take physical possession of the property. The order passed in MC No.85/2022 is marked as Annexure-A3. The Advocate Commissioner issued notice to defendants 2 to 5 for taking physical possession of the property which is marked as Annexure-A4.

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Aggrieved by Annexures-A3 and A4, the 2^nd defendant approached the Hon'ble High Court of Kerala in W.P.(C) No.8795/2022, which was disposed of with a direction to repay the overdue amount of Rs.33,72,438/- in 12 equated monthly instalments and the 1^st installment shall be paid on or before 30.03.2022. Copy of the judgment passed by the Hon'ble High Court is marked as Annexure-A5. The applicant has no knowledge about the creation of such equitable mortgage. He has been running the hostel over the rented premises under the name and style Empire Hostel on the basis of valid rent agreement executed between him and the 2^nd defendant. In case the applicant would be dispossessed from the said premises, it would cause hardship to him. He, being a bonafide tenant, has legal right to possess the property. Hence he has filed the SA praying to quash Annexure-A3 order passed by the learned CJM, Thrissur and Annexure-A4 notice issued by the Advocate Commissioner.

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SA 141/2022

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In the written statement the 1^st defendant bank denied the claim advanced by the applicant and contended inter alia that the 2^nd defendant availed three separate loans from the defendant bank. Initially the 2^nd defendant availed a loan of Rs.5 lakhs on 19.02.2014 which was subsequently enhanced to Rs.20 lakhs and Rs.40 lakhs respectively on 28.01.2015 and 06.03.2017. The aforesaid loan was secured by depositing title deed No.1981/2003 of SRO, Ayyanthole. Copy of the memorandum of deposit of title deeds dated 23.02.2014 is produced herewith and marked as Annexure-D1. Subsequently, the 2^nd defendant executed memorandum of extension of equitable mortgage in favour of the defendant bank on 04.02.2015 and 09.03.2017 vide Annexures-D2 and D2(a).

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The borrower defaulted in repaying the loan and hence the loan account was classified as NPA on 30.09.2017. Thereafter, the defendant bank has taken measures under the provisions of the SARFAESI Act and issued notice under S.13(2) of the Act to borrower and guarantors on 21.11.2018 demanding them to repay the outstanding loan amount. As the borrower did not take any interest in repaying the loan, possession notice under S.13(4) of the SARFAESI Act was issued on 13.03.2020 for taking symbolic possession of the property. Thereafter, the defendant bank filed application under S.14 of the SARFAESI Act before the CJM Court in MC No.85/2022 for taking physical possession of the secured asset which was allowed and the Advocate Commissioner issued notice to the borrower for taking physical possession of the property.

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SA 141/2022

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The property was mortgaged with the defendant bank on 22.02.2014 and Annexure-A1 rent agreement was executed on 15.02.2017 i.e., after creation of mortgage. The said agreement is clear violation of S.65A of the Transfer of Property Act, and the subsequent renewal is after the issuance of the demand notice under S.13(2) of the SARFAESI Act. The defendant bank has no knowledge about the creation of any rent agreement in respect of the secured asset. The borrower has also produced affidavit before the defendant bank that no tenancy exists with respect to the secured asset. True copy of the affidavit is produced herewith and marked as Annexure-D3. If there is any valid lease agreement, the same is not binding on the secured creditor. Basing upon an unregistered lease deed, the applicant cannot lay any claim on the secured asset in view of the judgment passed by the Hon'ble Apex Court in Bajarang Shyamsunder Agarwal vs. Central Bank of India & another , reported in (2019) 9 SCC 94 . Relying on the ratio laid down by the Hon'ble Apex Court in the aforesaid judgment, learned counsel for the defendant bank prayed for dismissal of the SA. The defendants no. 2 to 5 are profoma parties to this proceeding and hence they have not contested the case.

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From the respective case of the applicant and the defendant

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bank, the following issues arise for adjudication in this case:

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(i) Whether there is any valid lease agreement executed in favour of the applicant in respect of the secured asset?

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(ii) Whether the borrower has any right to create lease agreement after mortgaging the property with the defendant bank?

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SA 141/2022

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(iii) Whether basing upon an unregistered lease deed, the applicant is entitled to get any relief against the SARFAESI measures initiated by the defendant bank?

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In this case the application is filed by a 3^rd party claiming himself as a tenant under the borrower/2^nd defendant in this case. The lease agreement marked as Annexure-A1 was created on 15.02.2017 which is not registered. There is no dispute that the borrower availed loan from the defendant bank by mortgaging the secured asset and they defaulted in repaying the same, for which the bank has taken steps under the provisions of the SARFAESI Act. The question raised for adjudication is whether basing upon such unregistered lease agreement, the applicant can be treated as an aggrieved person to challenge the SARFAESI measures taken by the defendant bank or the secured creditor. S.65A of the Transfer of Property Act reads as follows:

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65A. Mortgagor’s power to lease.—

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(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.

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(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,

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(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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(c) No such lease shall contain a covenant for renewal,

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(d) Every such lease shall take effect from a date not later than six months from the date on which it is made,

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(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 with a time therein specified.

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(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

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SA 141/2022

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consequences, as if such variations or extensions were contained in that sub-section.

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Annexure-A1 agreement was created on 15.02.2017 for a period of three years prior to issuance of the demand notice by the defendant bank. The applicant claimed that the said agreement was renewed for a further period of three years, but no such document is filed by him in this case. In the judgment relied on by the learned counsel for the defendant bank in the case of Bajarang Shyamsunder Agarwal vs. Central Bank of India & another (supra), the Hon'ble Apex Court held as follows:-

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“In our view, the objective of SARFAESI Act, coupled with the T.P. Act and the Rent Act are required to be reconciled herein in the following manner:

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a) If a valid tenancy under law is in existence even prior to the creation of the mortgage, the tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. The lease has to be determined in accordance with Section 111 of the TP Act for determination of leases. As the existence of a prior existing lease inevitably affects the risk undertaken by the bank while providing the loan, it is expected of Banks/Creditors to have conducted a standard due diligence in this regard. Where the bank has proceeded to accept such a property as mortgage, it will be presumed that it has consented to the risk that comes as a consequence of the existing tenancy. In such a situation, the rights of a rightful tenant cannot be compromised under the SARFAESI Act proceedings.

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b) If a tenancy under law comes into existence after the creation of a mortgage, but prior to the issuance of notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65A of the T.P. Act.

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c) In any case, if any of the tenants claim that he is entitled to possession of a secured asset for a term of more than a year, it has to be supported by the execution of a registered instrument. In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under Section 107 of the T.P. Act.”

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Admittedly, in this case the lease agreement is not registered though the same was created for a period of three years which violates S.107 of the Transfer of Property Act. The Hon'ble Apex Court had categorically held that if a tenant claims that he is entitled to

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SA 141/2022

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possession of the secured asset for a term of more than a year, it has to be supported by execution of a registered document. In the absence of a registered instrument if the tenant relies on an unregistered instrument or oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under S.107 of the Transfer of Property Act. That is to say, the lease must be valid for a period of eleven months from the date of creation of the same and thereafter the applicant has no legal right to continue as a tenant in the secured asset.

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The applicant has no legal right to restrain the defendant bank from taking the SARFAESI measures against the borrower. Even if the tenancy agreement was created after the creation of equitable mortgage and the same having not been registered, it is valid only for a period of eleven months. The applicant cannot be treated as an aggrieved person to lay any claim under S.17(1) of the SARFAESI Act and also has no right to continue the possession of the secured asset. All the issues framed in this case are answered against the applicant.

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In view of the foregoing reasons, the SA, being devoid of any merit, is dismissed. There is no order as to costs.

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(Dictated to my PA, corrected and pronounced by me in the open Tribunal on this the 23^rd day of August, 2022)

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[SOVAN KUMAR DASH] PRESIDING OFFICER

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SA 141/2022

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Document on the part of the applicant

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Annexures	Date	Particulars of documents
Annexure-A1	15.02.2017	True copy of rent agreement executed between the applicant and defendants 2 to 4.
Annexure-A2	31.01.2022	True copy of MC No.85/2022 filed by the 1^st defendant before the CJM Court, Thrissur.
Annexure-A3	17.02.2022	True copy of order in MC No.85/2022 of the CJM Court, Thrissur.
Annexure-A4	10.03.2022	True copy of notice issued by the Advocate Commissioner in MC No.85/2022.
Annexure-A5	16.03.2022	True copy of judgment in W.P.(C) No.8795/2022 of the Hon'ble High Court of Kerala.

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Documents on the part of the 1^st defendant bank

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Annexures	Date	Particulars o	f do	cuments
Annexure-D1	23.02.2014	True copy deposit of ti	of tle d	the memorandum of eeds.
Annexure-D2	04.02.2015	True copy extension o	of f eq	the memorandum of uitable mortgage.
Annexure- D2(a)	09.03.2017	True copy extension o	of f eq	the memorandum of uitable mortgage.
Annexure-D3	03.02.2017	True copy defendants	of 2 to	affidavit executed by 4.

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Documents on the part of defendants 2 to 5

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Nil

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PRESIDING OFFICER

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

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Dated the 23^rd August, 2022

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SA No.141/2022

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Between

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Prasad.P.Cheeran, Cheeran House, Thalappilly Taluk, Kunnamkulam, Thrissur District. …Applicant

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And

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Kerala State Co-operative Bank, West Fort Branch, Guruvayoor Road, Punkunnam, Thrissur – 680 036, represented by its Authorised Officer & 4 others. …Defendants

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F I N A L O R D E R

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SA 141/2022 23.08.2022

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………………. In view of the foregoing reasons, the SA, being devoid of any merit, is dismissed (vide separate order) . There is no order as to costs.

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Presiding Officer

Prasad P Cheeran v. Kerala State Cooperative Bank Ltd.

Case brief

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Prasad P Cheeran v. Kerala State Cooperative Bank Ltd.

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