Dismissed

Smt Shaik Farzana and two others v. Khan Patan

DRT20 Apr 2026SA/42/2024

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal-II at Hyderabad dismissed an application by tenants seeking to quash physical possession measures under the SARFAESI Act. The court held that unregistered lease agreements exceeding one year are void under the Transfer of Property Act and do not bind the secured creditor.

What did the court decide?

The Securitisation Application was dismissed with a direction to close any pending interlocutory applications.

Smt Shaik Farzana and two others versus Khan Patan — Company and Corporate | DRT (2026)

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IN THE DEBTS RECOVERY TRIBUNAL -^{II AT HYDEMBAD}

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DATED THIS THE 2oth DAY OF^APRIL,2026

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PRESENT: SH. RAMESHWAR^{KOTHE, B.Com, L.LB. (Hons'),M.A.}

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PRESIDING OFFICER

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Securitization Application^{No. 42 OF 2024}

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Smt. Shaik Farzana, Wo. Shaik^Jaffar, Age: 39, R/o. 10/1041, K M^H Street,^Kadapa, Andhra Pradesh - 516001.

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Sri. Shaik Ghouse Basha, S/o.^{Shaik Ramthulla,} Age: 36, R/o. 10-397, K M H Street,^Kadapa, Andhra Pradesh - 516001.

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Smt. Mohammad^{Ghousiya Begum,W/o. MohdZaheed,} Age: 40, R/o. 10/1040,^{K M H Street, Kadapa,} Rndhra Pradesh - 516001. """'Applicant

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Versus

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M/s. Shriram Finance^Ltd.,

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(Formerly Known as "shriram City Union^{Finance Ltd',")} ......Respondent Rep. by its authorized^{officer/Power of Attorney}

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: Mr. G. Srinivas Counsel for the Applicant Counsel for Respondent^{Company: M/s. N. Raghuveer}

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-: q-u-E-B:-

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The^present Securitization^{Applicationis filed by the Applicants} uls.L7 of the Securitisation^{and Reconstructionof FinancialAssets} and Enforcement of^{SecurityInterest Act, 2002(..Act,,hereinafterfor} short) to set aside the^{measure initiated by the respondentcompany} includingthephysicalpossessioninrespectofthesASchedule properties through Advocate commissioner via order of^{the Hon',ble} Principal Senior^{Civil Judge cum AssistantSessionsJudge cumChief} Judicial Magistrate^{at Kadapadated 09.01'2024and anotheradvocate}

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SA No.4212024

commissioner appointed by the Hon'ble Principle Senior Civil Judge cum Assistant Sessions Judge cum Chief Judicial Magistrate in crl.M.P.No.439 0t 2023 dated 11.10.2023.

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The case of applicants in brief is that they have been in lawful possession of the schedule premises since 2015 on the basis of lease agreements executed with the property owners (who are the borrowers/guarantors of the Respondent Finance Company), and that they have regularly been paying rent, electricity charges, and water charges from that time. The tenancy agreements were duly renewed in 2021 for a period extending up to 2024, i.e., prior to the issuance of the Demand Notice under Section 13(2) of the SARFAESI Act dated 30.01.2023, and that the tenancies therefore pre-date the commencement of the SARFAESI proceedings. The Applicants rely on settled legal principles governing the rights of tenants' vis-d-vis secured creditors, emphasizing that the SARFAESI Act does not override the statutory protections available to tenants under applicable Rent Control laws or the Transfer of Property Act, 1882. They place primary reliance on Vishal N. Kalsaria v. Bank of India, wherein the Hon'ble Supreme Court held that tenants cannot be arbitrarily evicted merely by invoking SARFAESI proceedings and that statutory tenancy rights, where validly established continue to subsist despite the non obstante clause in Section 35 of the SARFAESI Act. They further rely on Bajarang Shyam Sunder Agarwal v. Centrat Bank of India, where the Court held that if a valid tenancy exists prior to the creation of the mortgage, the secured creditor cannot disturb the tenant's possession without first determining the lease in accordance with Section 111 of the Transfer of Property Act, thereby imposing a due diligence obligation on banks before accepting mortgaged properties from borrower's lessors. On facts, the Applicants submit that they are bona fide tenants, paying monthly rents r-anging from

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SANo.42l2O24

Rs.l,T00toRs.T,T0Oalongwithsecuritydeposits,andthattheir tenancy is supported^{by rent receipts, lease agreements(including} the202lrenewals)andpaymentparticulars.Theycontendthatthe tenancy was created^{prior to, and at the very least renewed before'} the initiation of^{SARFAESIproceedings, and that the Respondent} Finance Company,^{as a secured creditor, is thereforeprecluded from} disturbing their^{possessionwithout following the due processlaid} down under^{tenancy and transfer of property law' They also invoke} Section 65A^{of the Transfer of PropertyAct to contend that leases} created by a^{mortgagor in lawful possessionbind the mortgagee'} subject to any^{statutory limitations, and that the Respondent must} adjudicate the^{lease beforetaking any coercive step' The Applicants} further challenge^{the procedural legality ofthe possession} proceedings initiated^{by the Respondent Finance Companyunder} section 14^{of the SARFAESI Act. They submit that the order dated} 11.10.2023^{passed by the Chief ludicial Magistrate' Kadapa' in Crl'} M.P. No.^{439 of 2023 is vitiated by material irregularities' includinga} discrepancy^{between the causetitle in the petition and the supporting} affidavit,^{non-disclosureofnecessaryparties (namely the} borrowers/owners),^{and non-compliancewith mandatory affidavit} under oath^{requirements' They also contend that the warrant issued} to the Advocate^{commissioner had lapsed,and that' in the absence} of any^{formal application for extension of the said warrant'} subsequent^{attempts to take physicalpossessionare illegal' relying} ontheAndhraPradeshHighCourtdecisioninM/sMangatagiriTextiles v. I)nion^{Bank of India'Theyallegethat such action would amount to} forcibre^{eviction in violationof principresof naturaljustice, Articre14} of the^{Constitution, and the statutorysafeguards available to tenants'} and would^{render them homeless despite their long-standingand} lawfuloccupation.Withthesecontentions,aoolicantsprayforSetting 7ffiso,\

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sA No. 4212024

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aside of the impugned physical possession measures against the SA Schedule Property.

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Respondent Bank filed reply statement. The submission of the respondent bank, in brief, are: at the outset the SA is not maintainable on the ground of non-joinder of necessary parties, specifically the principal borrower, Shamsheer Khan patan, and others, against whom recovery proceedings under Sections 13(2) and 13(4) of the SARFAESI Act have already been initiated. It is contended that the Applicants are strangers to the loan transaction and have approached the Tribunal at the behest of the borrower with mala fide intent to obstruct the lawful recovery process. The Respondent asserts that the Applicants have no locus standi, as they are neither borrowers nor guarantors, and that their alleged clajm of tenancy is unsupported by any valid, legally enforceable document. The Respondent further submits that the S.A. is a last_ditch attempt to frustrate recovery process after the borrower defaurted on a roan of Rs.30 lakhs and failed to discharge his contractual liabilities. It is emphasized that due procedure under the SARFAESI Act has been strictly folrowed, incruding the issuance of the Demand Notice under Section 13(2), the measures taken under Section 13(4), and the securing of an order under Section 14 from the competent N4agistrate for taking possession of the secured asset. The Respondent highlights that no tenancy was discrosed at any stage of the roan o. .".ou"., proceedings, nor was any consent obtained from the secured creditor for the creation of such tenancy after the issuance of the Demand Notice. A significant contention raised is that the alleged lease relied upon by the Applicants is unregistered and therefore invalid under Section 107 of the Transfer of property Act, 18g2. The Respondent argues that such an unregistered lease is void and not binding on the secured creditor, and further alleges that it has been fabricated specifically to defeat the enforcrrm e n t proceed i n ezhl|eisg;l\ p I a ce d

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SANo.42l2O24

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on the Supreme Court^{judgmenlin Baiarang Shyamsunder Agarwal} v. Central Bank of India^{& Another, wherein it was held that only a} valid and legally^{recognizedtenancy-preferablyevidenced by a} registered instrument^{and created prior to the mortgage or in strict} compliance with the^{statutory requirements-can be protected} against SARFAESI-based^{dispossession'In the absence of such} compliance, the tenant^{cannot claim possession rights over the} secured asset.^{The Respondent also reiteratesthe legislative intent} behind the SARFAESI^{Act, emphasisingthat the statute empowers} financial institutions^{to recover dues efficientlyby enforcing security} interests without^{resorting to regularcivil courts, therebyaddressing} the^problem of^{non-performing assets' It is arguedthat the secured} creditor,havingalreadytakensymbolicpossession,islegallyentitled to^{proceed with physical possession and the sale of the assetin} accordance^{with the statutory scheme.The borrowers,having} defaulted, cannot^{indirectly stall recovery by permittingthird pafty} claims that^{were never disclosed or consentedto by the lender'}

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4,HeardtheLearnedCounselfortheApplicantsandRespondent Bank. Perused^{the material brought on record'}

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During the^{courseof argumentsthe applicant reiterated the} contentsofitsapplicationandSubmitsthattheApplicantsbeingbona fide tenants^{in lawful possession of the schedule premises since 2015} under lease^{aqreements(renewed in 2}zt up to 2024)with the} borrower-owners,^{have regularlypaid rents (Rs'1'700-Rs'7} '7OO)' electricity, water^{charges,and security deposits'as evidencedby} receipts and^{agreements predating the Respondent'sSection13(2)} SARFAESI^{Demand Noticedated 30'01'2023'Relying on Vishal N'} Kalsaria v.^{Bank of India and Bajarang Shyamsunder Agarwal v'} centrat Bank^{or rndia, they assert that SARFAESI er"A$k$lff'}

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sA No. 4212024

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override their statutory tenancy rights under Rent Control laws, Transfer of Property Act (Sections 654, 111), and Section 35 of SARFAESI, precluding disturbance of possession without due process; further, the CIM's Section 14 order dated 11.10.2023 (Crl. M.p. No. 439/2023) is illegal due to discrepancies in cause title/affidavit, nonj.gjt.dsf,.pJ,.gyteJ:r.l_qp:if, y.eLtT!-(p,el,lt?!.e.ar,3giti Is*ir9:,,y; !,!,_q! Bank of India), violating natural justice, Article 14, and tenant safeguards.

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Per Contra, the Learned Counsel for the Respondent Bank while reiterating the contents of its reply statement, contends of the sA being not maintainabre due to non-joinder of necessary parties (principal borrower shamsheer Khan patan and others, against whom SARFAESI Sections t3(2)/t3(4) proceedings are ongoing); Applicants, strangers to the Rs.30 lakhs loan transaction without locus standi (neither borrowers/guara ntors), rack varid enforceabre tenancy documents (unregistered rease under Tp Act section 107, allegedly fabricated post-Demand Notice without render consent/disclosure), and act mala fide at borrower's behest to obstruct recovery. per Bajarang Shyamsunder Agarwal v. Central Bank of India, only valid, pre-mortgage/registered tenancies bind secured creditors; SARFAESI's regisrative intent (section 35) empowers efficient enforcement (symbollc possession taken, section t4 CiM order secured), entiuing Respondent to physical possession/sale without civil court interference, unhindered by undisclosed third-party claims.

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7, The points for consideration are as follows : _

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i) Whether the applicants made out any valid ground for quashing the measure initiated by the respondent bank under section 14 of the Act against the SA Schedule Property?

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ii) To what relief?

Point No.(i):

S.ThereisnodenialthattheleasesagreementsreliedUponby the applicants^{are for more than one year and unregistered} documents. It^{is well settled as per cited judgmentinBairang} Shyamsunder^{Agarwal (supra) relied on by respondent bank that no} tenancy rights^{can be claimed on the strength of an unregistered} leasedocumentformorethanaperiodprescribedunderSec'107of the Transfer of^{Property Act' As per Section 107 of the Transfer of} Property Act,^{lease of immovable property from year to year' or for} term exceeding^{one year, or reserving a yearly rent' can be made} only by a^{registered instrument' Admittedly,the lease deed pressed} into service being^{unregistered,it cannot be looked into'}

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It is^{pertinent to note from the order dated 22'10'2024in lA} No.226/2024^{that this Tribunal noted the legal position laid by} Hon'ble Supreme^{Court in the caseof BairangShyamsunderAgarwal} and accordingly^{stay petition was dismissed'while citingother} reasons also'

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