Bombay High Court
J M Financial Asset ... vs The Board Of Trusts Of The Port ... on 24 August, 2016
Bench: S.C. Dharmadhikari
wp.17.2014 (Colabawalla).doc
dik
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 17 OF 2014
JM Financial Asset Reconstruction
]
Company Pvt. Ltd. a company incorporated ]
under the provisions of the Companies Act,1956, ]
and registered as a securitization and ]
reconstruction company under Section 3 of ]
Securitization and Reconstruction of Financial ]
Assets and Enforcement of Security Interest Act,
ig ]
2002, having its registered office at 141, Maker ]
Chambers III, Nariman Point, Mumbai - 400 021 ] ...Petitioner
vs
1. The Board of Trustees of the Port of ]
Mumbai, a statutory corporation ]
constituted under the provisions of Major ]
Port Trusts Act, 1963, having its registered ]
office at Vijay Deep, Shoorji Vallabhdas ]
Marg, Fort, Mumbai - 400 001
2 Shubh Hospitality Pvt. Ltd., a company ]
incorporated under the provisions of the ]
Companies Act, 1956 having its address at ]
3 P.J. Ramchandani Marg, Opposite Radio ]
Club, Colaba, Mumbai - 400 005. ]
3 Bank of India, a body corporate ]
constituted under the provisions of the ]
Banking Companies (Acquisition and ]
Transfer of Undertaking) Act, 1970, having ]
its head office at Star House, C-5, G Block ]
Bandra Kurla Complex, Bandra (West), ]
Mumbai - 400 051 and branch office at ]
Bank of India Building, 1st Floor, 70-80, ]
Mahatma Gandhi Road, Fort, Mumbai - ]
400 001. ]
Pg 1 of 37
::: Uploaded on - 24/08/2016 ::: Downloaded on - 25/08/2016 00:35:51 :::
wp.17.2014 (Colabawalla).doc
4 The Estate Office, being the officer ]
appointed under the provisions of the Public ]
Premises (Eviction of Unauthorized ]
Occupants) Act, 1971 and having his office ]
at 7th Floor, Port Bhavan, Shoorji ]
Vallabhdas Marg, Ballard Estate Mumbai ]
- 400 001 ]...Respondents.
.....
Mr. S.U. Kamdar, Sr. counsel along with Mr Sharan Jagtiani, Mr
Chirag Kamdar, Ms Helina Desai i/b M/s Wadia Ghandy and Co. for
the Petitioner.
Mr. E.P. Bharucha, Sr. counsel a/w Mr Ajay Fernandes for
Respondent Nos.1 and 4.
Mr Rony P. Joseph for Respondent No.3.
.....
CORAM : S. C. DHARMADHIKARI &
B.P.COLABAWALLA, JJ.
Reserved On : 15 July, 2016.
Pronounced On : 24 August, 2016.
JUDGMENT: [ Per B. P. Colabawalla, J ]
1. Rule. By consent of parties, rule made returnable
forthwith and heard finally.
2. This Writ Petition is filed under Article 226 of the
Constitution of India, inter alia challenging (i) the termination letter
Pg 2 of 37
wp.17.2014 (Colabawalla).doc
dated 27 September, 2012 issued by Respondent No.1 to Respondent
No.2 terminating the lease dated 29 October, 1935; and (ii) the Show
Cause Notices ("SCNs") both dated 18 February, 2013, issued by
Respondent No.4 under Sections 4 and 7 of the Public Premises
(Eviction of Unauthorized Occupants) Act, 1971 (for short the "PP
Act").
3.
The property in question is all that piece and parcel of
land admeasuring approximately 1036.71 sq. mtrs. bearing plot
No.26 (old RR No.1245) and cadestral Survey No. 10/384 of Colaba
division together with the building standing thereon consisting of
ground + four floors, two garages and a pump-house (hereinafter
referred to as "said property"). At the outset, we must mention here
that it is not in dispute before us that the 1st Respondent is a
"statutory authority" as defined in section 2(fa)(iv) of the PP Act and
the said property are "public premises" as defined in section
2(e)(2)(v) of the said Act. It is also not in dispute that Respondent
No.1 is the owner / landlord of the said property.
4. In a nutshell, in this Petition, the Petitioner has
challenged the jurisdiction of Estate Officer (Respondent No.4) to
issue the impugned SCNs (both dated 18 February, 2013) on the
Pg 3 of 37
wp.17.2014 (Colabawalla).doc
ground that the Petitioner, being an Asset Reconstruction Company
("ARC"), and having taken possession of the said property under
Section 13(4) of the Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (for short the
"SARFAESI Act"), could not be evicted under the provisions of the
PP Act. To put it simply, it is the case of the Petitioner that the
provisions of the SARFAESI Act override the provisions of the PP
Act, and therefore, if the 1st Respondent wanted to evict and get
possession of the said property from the Petitioner, the same could be
done only by approaching the Debt Recovery Tribunal ("DRT")
under Section 17 of the SARFAESI Act. It is in these circumstances,
that the termination letter dated 27 September, 2012 as well as the
SCNs, both dated 18 February, 2013, have been challenged in the
present Writ Petition.
5. The brief facts giving rise to the present controversy are
as follows:
(a) The Petitioner before us is a company incorporated under
the provisions of the Companies Act, 1956 and registered
as a securitisation and reconstruction company under
Section 3 of the SARFAESI Act. The Petitioner claims
Pg 4 of 37
wp.17.2014 (Colabawalla).doc
that it is in exclusive possession of the said property since
6 August, 2012 pursuant to measures taken under
Section 13(4) of the SARFAESI Act. Respondent No.1 is
the Board of Trustees of the Port of Mumbai, a statutory
corporation constituted under the provisions of Section 5
of the Major Port Trusts Act, 1963. Respondent No.1 is
the successors-in-title to the Trustees of the Port of
Bombay, constituted under the provisions of the Bombay
Port Trust Act, 1879 (since repealed). Respondent No.2 is
a company incorporated under the provisions of the
Companies Act, 1956 and is the assignee of the leasehold
rights in the said property as more particularly set out
hereinafter. Respondent No.3 is the Bank of India, who
claims to be a mortgagee of the said leasehold rights of
Respondent No.2 for a loan granted by Respondent No.3
to Respondent No.2. Subsequently, Respondent No.3 has
assigned the debts owed by Respondent No.2 to
Respondent No.3 together with the underlying security
interest, in favour of the Petitioner. Respondent No.4 is
the Estate Officer, appointed by the Central Government
in exercise of the powers conferred under Section 3 of the
PP Act and is the authority that has issued the impugned
Pg 5 of 37
wp.17.2014 (Colabawalla).doc
SCNs against Respondent No.2, Respondent No.3 and the
Petitioner respectively.
(b) By and under a lease deed dated 29 October, 1935 ("the
said Lease") executed between the successors-in-title of
Respondent No.1 of the first part and Phirozshaw Cowasji
Lentin and Banoo Phirozshaw Lentin of the second part
and Rao Bahadur Dadasahib A. Surve of the third part,
demised unto the said Rao Bahadur Dadasahib A. Surve,
the said property for a period of 99 years. It is the case of
the Petitioner that under the terms of said lease, there
was no prohibition for creation of a mortgage by deposit of
a title deeds. The only restriction was for creating a
mortgage by way of an under-lease.
(c) Thereafter, pursuant to diverse assignments which were
duly permitted by the predecessors of Respondent No.1,
the leasehold rights in respect of the said property stood
vested in favour of one Balwant Rai Shelley. Under a Deed
of Variation dated 8 February, 1977, the said Balwant Rai
Shelley was allowed to use the said garage in the said
building for storage of non-hazardous material and the
Pg 6 of 37
wp.17.2014 (Colabawalla).doc
lease rentals were revised in the manner provided
therein.
(d) On 23 July, 1993, the said Balwant Rai Shelley expired
leaving behind his last Will and testament dated 27
January, 1993. Under the said Will, Balwant Rai Shelley
gave, devised and bequeathed all his right, title and
interest in respect of the said property in favour of his
daughter Pramila Ramnikrai Wadhwan. This Will has
been probated in 1995.
(e) Many years later, in the year 2006 the said Pramila
Ramnikrai Wadhwan sought permission of Respondent
No.1 to further assign the leasehold rights in respect of
the said property in favour of Respondent No.2, which
permission was granted by Respondent No.1 by its letter
dated 4 September, 2006. Pursuant to the aforesaid
permission, by and under a Deed of Assignment dated 22
December, 2006, executed between said Pramila
Ramnikrai Wadhwan of the one part and Respondent
No.2 of the other part, the said Pramila Ramnikrai
Wadhwan assigned and transferred the leasehold rights
Pg 7 of 37
wp.17.2014 (Colabawalla).doc
in respect of the said property in favour of Respondent
No.2.
(f) In the interregnum, Respondent No.2 intended to take
financial assistance for carrying out its business, and
accordingly, approached Respondent No.3. It is the case
of the Petitioner that in this regard, Respondent Nos.2
and 3 had a meeting on 10 October, 2006 with
Respondent No.1, at which time Respondent No.3 was
advised by the representative of Respondent No.1 (Mr
Patil) that since only a mortgage by way of an under-lease
was prohibited under the terms of the lease, a mortgage
by deposit of title-deeds could be created by Respondent
No.2 in favour of Respondent No.3. Accordingly, by and
under a Term Loan Agreement dated 5 November 2006,
Respondent No.2 availed of a loan of Rs.43.50 Crores
from Respondent No.3. For securing repayment of the
said loan, Respondent No.2 created a mortgage by deposit
of title-deeds in respect of the leasehold interest in the
said property in favour of Respondent No.3. It is the case
of the Petitioner that creation of this equitable mortgage
was intimated to Respondent No.1 by Respondent No.3
Pg 8 of 37
wp.17.2014 (Colabawalla).doc
vide its letter dated 5 January, 2007. Thereafter, since
according to Respondent No.2 the building constructed on
the said property required urgent repairs, Respondent
No.2, by its letter dated 8 March, 2007 informed
Respondent No.1 that it would be undertaking the said
repairs.
(g) Thereafter, on 2 January, 2009, Respondent No.3 once
again informed Respondent No.1 about creation of the
said mortgage. In response thereto, Respondent No.1 by
and under their letter dated 18 February, 2009 stated
that the creation of the said mortgage was without the
prior sanction of Respondent No.1 and was inter alia in
violation of the terms of said lease and called upon
Respondent No.2 to clarify inter alia, why no prior
consent was taken before creating said mortgage.
(h) In reply thereto, Respondent No.3, by its letter dated 28
February, 2009 inter alia made a reference to the
meeting held on 10 October, 2006 and stated that
pursuant to the said meeting, Respondent No.3 was
advised that a valid mortgage by way of deposit of title-
Pg 9 of 37
wp.17.2014 (Colabawalla).doc
deeds could be created without the consent of Respondent
No.1. It is in these circumstances, that the mortgage was
created. Thereafter, another letter dated 1 March, 2009
was addressed by Respondent No.2 to Respondent No.1
inter alia stating that the said equitable mortgage was
created as per the discussion and procedure suggested by
the Estate Manager of Respondent No.1, namely, Mr Patil,
and that the entire transaction entered into was
transparent.
(i) Be that as it may, since Respondent No.2 was in arrears of
the lease rentals, Respondent No.1 under their demand
notice dated 23 March, 2009 called upon Respondent
No.2 to make payment of the bills attached to the said
letter failing which legal proceedings would be initiated
against Respondent No.2. In reply thereto, Respondent
No.2 informed Respondent No.1 that it shall shortly
comply with the said demand notice and that they had
already put a deposit of Rs.2.05 Crores towards advance
rent, with Respondent No.1.
(j) Unconnected with the aforesaid demand, on 28 May,
Pg 10 of 37
wp.17.2014 (Colabawalla).doc
2009 Respondent No.3 addressed a letter to Respondent
No.1 and called upon Respondent No.1 to confirm having
noted its lien in respect of the said property in their books
and sought their co-operation in the matter. Thereafter,
Respondent No.3 by and under a Deed of Assignment
dated 18 August, 2009 (which was modified by a Deed of
Rectification dated 2 February, 2012) along with the
security interest therein, assigned the debts (along with
the security interest) owed by Respondent No.2, in favour
of the Petitioner.
(k) Be that as it may, by a letter dated 3 September, 2010,
Respondent No.1 once again informed Respondent No.2
that it had committed breaches of the terms of said lease
by creating a mortgage in favour of Respondent No.3
without the prior consent of Respondent No.1. In reply
thereto, Respondent No.2 by its letter dated 29
September, 2010 informed Respondent No.1 that it was
under a bonafide belief that Respondent No.1 was
satisfied by the reply given by Respondent No.2 vide its
letter dated 1 March, 2009. Respondent No.2, further
stated that they shall comply with the conditions and
Pg 11 of 37
wp.17.2014 (Colabawalla).doc
sought a cure period of six months to arrange the dues
owed to Respondent No.1.
(l) Since, the dues of Respondent No.1 were not paid, on 21
January, 2011, Respondent No.1 inter alia informed
Respondent No.2 that since there were breaches
committed by Respondent No.2, action under the PP Act
would be initiated against Respondent No.2.
ig As
mentioned earlier, Respondent No.2 had undertaken the
work of re-plastering/ repairing the said property. In
these circumstances, Respondent No.1, by their letter
dated 12 June, 2012 informed Respondent No.2 that the
said work was done without prior approval of Respondent
No.1, which also amounted to a breach of the said lease.
(m) Be that as it may, in the meanwhile, since Respondent
No.2 had defaulted in servicing the loan availed of by it
from Respondent No.3 (which was subseqently assigned
to the Petitioner), the Petitioner initiated proceedings
under the provisions of the SARFAESI Act, which finally
culminated in the Petitioner taking possession of the said
property on 6 August, 2012. It is the case of the
Pg 12 of 37
wp.17.2014 (Colabawalla).doc
Petitioner that this possession was taken pursuant to
orders passed under Section 14 of the SARFAESI Act.
(n) Independent of this, since Respondent No.2 had not
complied with the requisitions of Respondent No.1, by
their letter dated 17 September, 2012, Respondent No.1
informed Respondent No.2 (with a copy marked to the
Petitioner) that Respondent No.1 had sealed the said
property. Thereafter, Respondent No.1 through their
Advocates letter dated 27 September, 2012, terminated
the said lease for the reasons more particularly set out
therein. A copy of this termination letter was also
forwarded to the Petitioner.
(o) In reply to this termination letter, the Petitioner through
their Advocates letter dated 10 October, 2012, inter alia
contended that in the said lease there was no restriction
for creating a mortgage by deposit of title deeds, as well as
for the enforcement thereof. In the said letter the
Petitioner informed the 1st Respondent that the leasehold
rights in the said property would be sold by the Petitioner
under the SARFAESI Act. Thereafter, the 1st Respondent,
Pg 13 of 37
wp.17.2014 (Colabawalla).doc
by its letter dated 18 January, 2013, informed the
Petitioner that the entire exercise of mortgage and the
consequent action of the Petitioner was unauthorized and
holding of any auction by the Petitioner to sell the
leasehold rights of Respondent No.2 would be illegal and
highly objectionable to Respondent No.1.
(p) Thereafter, further correspondence ensued between the
parties and finally the Petitioner received the said two
SCNs, both dated 18 February, 2013, issued by
Respondent No.4 (Estate Officer) under the provisions of
Sections 4 and 7 of the PP Act. It is in these
circumstances that the termination letter dated 27
September, 2012 and these two SCNs are impugned in
this Writ Petition.
(q) For the sake of completeness, we must also mention that
the 1st Respondent herein had filed Writ Petition (L) No.
375 of 2013 (subsequently numbered as Writ Petition No.
502 of 2013) inter alia seeking a Mandamus against the
Petitioner herein (i) to revoke the equitable mortgage;
and (ii) to cancel the said Assignment Agreement dated
Pg 14 of 37
wp.17.2014 (Colabawalla).doc
18 August, 2009 (entered into between Respondent No.3
and the Petitioner) and for other reliefs as more
particularly set out therein. The said Writ Petition was
finally disposed of by an order dated 25 March, 2013. We
are not referring to this order in further detail as it does
not have a bearing in deciding the issues raised before us.
6. In this factual backdrop, Mr Kamdar, learned Sr. Counsel
appearing on behalf of the Petitioner, submitted that admittedly the
Petitioner was an ARC as contemplated under the provisions of the
SARFAESI Act. It had, by virtue of the Deed of Assignment dated 18
August, 2009, taken over the debts owed by Respondent No.2 to
Respondent No.3. Since Respondent No.2 had defaulted in repaying
its loans, the Petitioner had taken recourse to the provisions of the
SARFAESI Act to recover its dues and pursuant to which the
Petitioner had taken possession of the said property on 6 August,
2012. He submitted that the Petitioner, therefore, to recover its
dues, were entitled to sell the leasehold rights in the said property
and which were mortgaged in their favour, under the provisions of
the SARFAESI Act.
7. Mr Kamdar submitted that the provisions of the
Pg 15 of 37
wp.17.2014 (Colabawalla).doc
SARFAESI Act are a code in itself. The entire mechanism of taking
possession and thereafter selling the secured assets without the
intervention of the Court have been provided for in the said Act. He
submitted that the SARFAESI Act being a special Legislation,
overrides the provisions of the PP Act. It was submitted by Mr
Kamdar that if the 1st Respondent wanted to evict the Petitioner from
the said property (the possession of which was with the Petitioner
pursuant to the measures taken under the SARFAESI Act), the same
could be done by the 1st Respondent only by approaching the DRT
under Section 17 of the SARFAESI Act. The Petitioner having taken
measures under the provisions of the SARFAESI Act, could not be
evicted by the 1st Respondent by taking recourse to the provisions of
the PP Act, was the submission. In this regard, Mr Kamdar drew our
attention to the definition of the words "security interest" [section
2(zf)] to mean the right, title and interest of any kind whatsoever
upon property, created in favour of any secured creditor and
included any mortgage, charge, hypothecation or assignment, other
than those specified in Section 31 of the SARFAESI Act. He also
placed reliance on Section 17 of the Act which inter alia gives a right
to any person aggrieved by any of the measures taken by the secured
creditor under Section 13(4) of the SARFAESI Act, to approach the
DRT. He submitted that Section 17(3) itself provides that if the DRT,
Pg 16 of 37
wp.17.2014 (Colabawalla).doc
after examining the facts and circumstances, comes to the conclusion
that any of the measures referred to in Section 13(4) of the
SARFAESI Act are not taken in accordance with the provisions of the
Act or the rules framed thereunder, the restoration of possession and
or management of the secured assets can be ordered by the DRT. He
submitted that Section 17(4) provides that if the DRT declares that
the recourse taken by the secured creditor under Section 13(4) was
in accordance with the provisions of the SARFAESI Act, then
notwithstanding anything contained in any other law for the time
being in force, the secured creditor would be entitled to take recourse
to one or more measures specified in sub-section (4) to Section 13 of
the SARFAESI Act, to recover its debt. Thereafter, he also placed
reliance on Section 34 to contend that that the Civil Court was barred
from entertaining any suit or proceeding, in respect of any matter
which the DRT or the DRAT, was empowered by or under the Act to
determine. He also placed reliance on Section 35 which inter alia
stipulates that the provisions of the SARFAESI Act shall have effect,
notwithstanding anything inconsistent therewith contained in any
other law for the time being in force or any instrument having effect
by virtue of any such law. Placing reliance on all these provisions,
Mr. Kamdar submitted that the SARFAESI Act is a code in itself and
its provisions shall override the provisions of the PP Act. To put it
Pg 17 of 37
wp.17.2014 (Colabawalla).doc
simply, it was submission of Mr Kamdar that before the Estate Officer
adjudicates the SCNs issued by him, he will have to inquire into
whether the actions taken by the Petitioner under Section 13(4) of
the SARFAESI Act are valid or otherwise. This adjudication,
according to Mr Kamdar, can be done only by the DRT under Section
17 of the SARFAESI Act and not by the Estate Officer under the
provisions of the PP Act. This being the position, according to Mr
Kamdar, the Estate Officer had no jurisdiction to issue the impugned
SCNs (both dated 18 February, 2013), and therefore, sought our
interference under Article 226 of the Constitution of India. In
support of the proposition that the provisions of the SARFAESI Act
would override the provisions of the PP Act, Mr Kamdar relied upon
the following decisions:
(i) Indian Overseas Bank and Anr. Vs. Ashok Saw Mills.1
(ii) Kanaiyalal Lalchand Sachdev Vs. State of
Maharashtra. 2
(iii) United Bank of India Vs. Satyawati Tandon & Ors.3
(iv) Transcore Vs. Union of India & Anr.4
(v) Vishal N. Kalsaria Vs. Bank of India & Ors.5
(vi) Madras Petrochem Ltd. & Anr. Vs. Board for
1 (2009) 8 SCC 366
2 (2011) 2 SCC 782
3 (2010) 8 SCC 110
4 (2008) 1 SCC 125
5 (2016) 3 SCC 762
Pg 18 of 37
wp.17.2014 (Colabawalla).doc
Industrial and Financial Reconstruction & Ors.6
8. Relying on the aforesaid decisions, Mr Kamdar submitted
that the provisions of the SARFAESI Act would override the
provisions of the PP Act and consequently the issuance of the SCNs
by Respondent No.4 seeking to evict the Petitioner from the said
property were wholly without jurisdiction.
9.
On the other hand, Mr Bharucha, learned Sr. Counsel
appearing on behalf of the 1st Respondent, submitted that the
question of whether the provisions of the SARFAESI Act override the
provisions of the PP Act would arise only if there was anything
inconsistent between two Acts. He submitted that this is clear from
Section 35 of the SARFAESI Act which inter alia stipulates that the
provisions of the SARFAESI Act shall prevail notwithstanding
anything inconsistent therewith contained in any other law for the
time being in force. He submitted that in the facts of the present
case, there was no conflict or inconsistency between the provisions of
the PP Act and the provisions of the SARFAESI Act for this Court to
hold that the provisions of the SARFAESI Act would override the
provisions of the PP Act.
6 (2016) 1 SCC 1
Pg 19 of 37
wp.17.2014 (Colabawalla).doc
10. Mr Bharucha submitted that admittedly the 1st
Respondent is the owner of the said property and and which are the
public premises within the meaning of the PP Act. Since, the 2nd
Respondent (in whose favour the leasehold rights are created) had
breached the terms of the lease, Respondent No.1, as the lessor, had
exercised its right to terminate the lease. As the lease stood
terminated, consequently, the possession of Respondent No.2 as well
as of the parties claiming through them, had been rendered
unauthorized.
11. He submitted that in the facts of the present case, it is not
in dispute that what has been mortgaged with the Petitioner is only
the leasehold interest in the said property. The 1st Respondent's
ownership rights in the said property have not been mortgaged with
the Petitioner. In these circumstances, he submitted that the
provisions of the SARFAESI Act do not and cannot take away the
rights of the owner in the said property. The right of the 1st
Respondent, as the owner/ lessor of the said property, therefore,
remain intact including the right to terminate the lease and evict the
lessee, in case the lessee breaches the terms of the lease. He
submitted that looking to all these facts it is absolutely clear that
there is no conflict between the provisions of the SARFAESI Act and
Pg 20 of 37
wp.17.2014 (Colabawalla).doc
the PP Act. He submitted that the leasehold rights of the 2nd
Respondent are subject to termination as per the provisions of the
said lease, which lease has been terminated. The validity of this
termination is the subject matter of the proceedings before
Respondent No.4 (the Estate Officer) under the provisions of the PP
Act. Mr. Bharucha submitted that the Petitioner cannot get any
higher right than what Respondent No.2 had in the said property. If
the 2nd Respondent breached the terms of the said lease, the 1st
Respondent was well within its rights to terminate the lease
notwithstanding the fact that the 2nd Respondent had mortgaged its
leasehold rights in favour of the Petitioner. If the Petitioner cannot
get a better right and/or title than the lessee (Respondent No.2) and
the same would be subject to all the rights, obligations and liabilities
of the said lease, then the Petitioner would suffer the same
consequences that Respondent No.2 suffered, if it is found that
Respondent No.2 had committed breaches of the terms of the said
lease, was the submission of Mr Bharucha. In support of this
proposition, Mr Bharucha relied upon the decisions of the Supreme
Court in the case of Harshad Govardhan Sondagar Vs International
Assets Reconstruction Co. Ltd & Anr.7 and Vishal N. Kalsaria.5 He
submitted that in these cases, the Supreme Court had clearly held
7 (2014) 6 SCC 1
5 (2016) 3 SCC 762
Pg 21 of 37
wp.17.2014 (Colabawalla).doc
that even though the landlord had created a mortgage of his property
in favour of a bank or financial institution (as defined in the
SARFAESI Act), the same cannot destroy the rights of the tenants in
the said property, which tenancy was created prior to the mortgage.
In other words, the rights of pre-exisisting tenants were unaffected
by the provisions of the SARFAESI Act and merely because the
landlord had mortgaged its ownership rights, the tenants could not
be thrown out of the property by exercising powers under the
SARFAESI Act. He submitted that the converse would equally apply,
and similarly in the facts of the present case, where admittedly the
1st Respondent had not mortgaged its rights with the Petitioner, the
provisions of the SARFAESI Act cannot destroy the rights of the 1st
Respondent (as the lessor) to terminate the lease in case the lessee
(Respondent No.2) had breached the terms of the lease. Relying
upon Sections 2(g), 4, 7 and 15 of the PP Act, Mr Bharucha
contended that the PP Act is a self contained code governing the
relationship between public undertakings and the occupants of their
buildings, to the extent that they provide for eviction of unauthorized
occupants from public premises and matters incidental thereto. To
put it simply, it was the submission of Mr Bharucha, that the 1st
Respondent's right to terminate the lease and evict the lessee
remained intact despite the provisions of the SARFAESI Act. The
Pg 22 of 37
wp.17.2014 (Colabawalla).doc
SARFAESI Act cannot be construed in a manner that would destroy
these statutory or contractual rights vested with the 1st Respondent.
This being the case, and considering the fact that whether the
termination of the lease was valid or otherwise is something that will
be adjudicated upon under the provisions of the PP Act, there is no
doubt that the Estate Officer was well within his jurisdiction to issue
the SCNs impugned herein.
12.
Additionally and without prejudice to the aforesaid
arguments, Mr Bharucha submitted that the present Writ Petition
was also premature and not maintainable. He submitted that, in the
present Petition what has inter alia been challenged are the two SCNs
issued by the 4th Respondent. These SCNs do not per se decide any
rights of the Petitioner, but merely call upon the noticees to show
cause before the Estate Officer as to why they ought not to be evicted.
He submitted that the practice of challenging SCNs by way of a Writ
Petition, has been deprecated by the Courts on a number of occasions.
In this regard, Mr Bharucha placed reliance on a decision of the
Supreme Court case in the case of Union of India and Anr. Vs.
Kunisetty Satyanarayana8. He submitted that the Supreme Court
has in clear terms stated that the issuance of a mere SCN does not
8 AIR 2007 Supreme Court 906(1)
Pg 23 of 37
wp.17.2014 (Colabawalla).doc
give rise to any cause of action because it does not amount to an
adverse order which affects the right of the party. The only the
possible ground of challenge could be in a case where the SCN is
issued by a person having no jurisdiction. In the facts of the present
case, Mr Bharucha submitted that the Estate Officer clearly had
jurisdiction to issue the impugned SCNs, and therefore, the challenge
to the same was premature at this stage. For all the aforesaid
reasons, Mr Bharucha submitted that there is no merit in this Writ
Petition and the same ought to be dismissed with costs.
13. We have heard the learned Advocates at length and
perused the papers and proceedings in the Writ Petition along with
the annexures thereto. Before we deal with the rival contentions, it
would be necessary to understand the purpose for which both the
enactments, namely the SARFAESI Act and the PP Act, were brought
into force. The statements of object and reasons of the SARFAESI Act
indicate that the financial sector, being one of the key drivers in
India's efforts to achieve success in rapidly developing its economy,
did not have a level playing field as compared to other participants in
the financial markets of the world. There was no legal provision for
facilitating securitisation of financial assets of banks and financial
institutions, and unlike international banks, the banks and financial
Pg 24 of 37
wp.17.2014 (Colabawalla).doc
institutions in India did not have the power to take possession of
securities and sell them. The Legislature felt that our existing legal
framework had not kept pace with the changing commercial
practices and financial sector reforms, which resulted in delays in
recovery of defaulting loans. This in turn had the effect of mounting
levels of non-performing assets of banks and financial institutions. In
order to bring the Indian Banking Sector on par with International
Standards, the Government set up two Narasimhan Committees and
the Andhyarujina Committee for the purposes of examining banking
sector reforms. These Committees inter alia suggested enactment of a
new legislation for securitization and empowering banks and
financial institutions to take possession of the securities and to sell
them without the intervention of the Court. Accepting these
recommendations, the SARFAESI Act was brought into force with
w.r.e.f. 21-06-2002.
14. On the other hand, the PP Act was brought into force to
provide for eviction of unauthorized occupants from public premises
and for certain other incidental matters. Originally, the Public
Premises (Eviction of Unauthorized Occupants) Act, 1958 was
enacted to provide for a speedy machinery for eviction of
unauthorized occupants of public premises. Section 5 of the Act
Pg 25 of 37
wp.17.2014 (Colabawalla).doc
provided for taking possession of public premises which were in
unauthorized occupation and Section 7 provided for recovery of rent
or damages in respect of public premises from persons who were in
unauthorized occupation thereof. The vires of certain provisions of
the 1958 Act were challenged in different Courts all over country as
being unconstitutional, and which challenges were upheld. Since,
these Court decisions had created serious difficulties for the
Government and it had become impossible for the Government to
take expeditious action, even in flagrant cases of unauthorized
occupation of public premises, it was therefore considered imperative
to restore a speedy machinery for eviction of persons who were in
unauthorized occupation of public premises. Accordingly, it was
proposed to re-enact the Public Premises Eviction (Unauthorized
Occupants) Act, 1958, as amended from time to time, after removing
the vice which led to it having been declared as void. This is how the
Public Premises (Eviction of Unauthorized Occupants) Act, 1971 (the
PP Act) came on the Statute Book. There have been several
amendments to the PP Act thereafter which are not really germane
to decide the issues raised in this Writ Petition.
15. Having noted the purposes of the two Acts, it is quite clear
that both operate in different fields. As far as the SARFAESI Act is
Pg 26 of 37
wp.17.2014 (Colabawalla).doc
concerned, it provides a mechanism for a secured creditor to recover
its secured debt by selling the securities without the intervention of
the Court. It does not, in any way, destroy the rights that were
created in favour of a third party prior to the security being created
in favour of the secured creditor. On the other hand, the PP Act
provides a mechanism for evicting unauthorized persons from public
premises. If a statutory authority (as defined under the PP Act) finds
that any of its public premises are in unauthorized occupation of any
person, that statutory authority can put in motion, proceedings for
evicting that person under the provisions of the PP Act.
16. Coming to the facts of the present case, we find
considerable force in the arguments of Mr Bharucha that there is no
conflict between the provisions of the SARFAESI Act and the PP Act.
It is an admitted fact that what has been mortgaged with the
Petitioner are only the leasehold rights of Respondent No.2. It is not
the case of the Petitioner that the ownership rights of the 1st
Respondent in the said property have been mortgaged with the
Petitioner. These ownership rights, including the right to terminate
the lease, cannot be affected by the provisions of the SARFAESI Act.
In the facts of the present case, the 1st Respondent, as a lessor has a
right to terminate the lease on the grounds more particularly set out
Pg 27 of 37
wp.17.2014 (Colabawalla).doc
in the said lease deed. Whether that termination is valid or
otherwise, is the subject matter of the proceedings before the 4th
Respondent. To our mind, the DRT under Section 17 of the
SARFAESI Act can never decide this issue. All that the DRT is
supposed to decide (under Section 17) is whether the measures
taken under Section 13(4) of the SARFAESI Act by the secured
creditor is in accordance with the provisions of the said Act or
otherwise. The question whether the 1st Respondent has validly
terminated the lease granted in favour of Respondent No.2, can only
be decided under the provisions of the PP Act. This is also clear from
Section 15 of the PP Act which stipulates that no Court shall have
jurisdiction to entertain any suit or proceeding in respect of (a) the
eviction of any person who is in unauthorized occupation of any
public premises, or (b) the removal of any building, structure or
fixture or goods, cattle or other animal from any public premises
under Section 5-A, or (c) the demolition of any building or other
structure made, or ordered to be made, under Section 5-B, or (d) the
sealing of any erection or work or of any public premises under
Section 5-C, or (e) the arrears of rent payable under sub-section (1)
of section 7 or damages payable under sub-section (2), or interest
payable under sub-section (2-A), of that section, or (f) the recovery of
(i) costs of removal of any building, structure or fixture or goods,
Pg 28 of 37
wp.17.2014 (Colabawalla).doc
cattle or other animal under section 5-A, or (ii) expenses of
demolition under section 5-B, or (iii) costs awarded to the Central
Government or statutory authority under sub-section (5) of section
9, or (iv) any portion of such rent, damages, costs or removal
expenses of demolition or costs awarded to the Central Government
or the statutory authority. This being the case, we are unable to agree
with the submission of Mr Kamdar that in the facts of the present
case, the provisions of the SARFAESI Act override the provisions of
the PP Act, and consequently the 4th Respondent (the Estate Officer)
had no jurisdiction to issue impugned show cause notices.
17. The proposition that the SARFAESI Act does not destroy
the pre- existing rights that were created prior to the creation of the
mortgage/ security is clearly laid down by the Supreme Court in the
cases of Harshad Govardhan Sondagar7 and Vishal N. Kalsaria.5
Both these decisions take the view that the SARFAESI Act does not
destroy the rights of the tenant, which tenancy was created prior in
point of time to the mortgage / security being created in favour of the
secured creditor. Paragraphs 26 to 30 in the case of Vishal N.
Kalsaria5 are very instructive in this regard and read as follows:
7 (2014) 6 SCC 1
5 (2016) 3 SCC 762
Pg 29 of 37
wp.17.2014 (Colabawalla).doc
"26. Providing a smooth and efficient recovery procedure to enable
the banks to recover the non-performing assets is a laudable object
indeed, which needs to be ensured for the development of the
economy of the country. What has complicated the matters, however,
is the clash of this laudable object with another laudable object,
namely, to secure the rights of the tenants under the various Rent
Control Acts. The history of these Rent Control Acts can be traced to
as far back as the Second World War. At that time, due to the
massive inflation and shortage of commodities, not only had the cost
of living risen exponentially, the tenants were also often left to the
mercy of the landlords as far as evictions or prices of rent were
concerned. The Rent Control Acts have been enacted by the different
State Legislatures to secure the rights of the weaker sections of the
society viz. the tenants. Krishna Iyer, J. aptly observed in Santosh
Mehta v. Om Prakash [Santosh Mehta v. Om Prakash, (1980) 3
SCC 610] : (SCC p. 611, para 2)
"2. Rent control laws are basically designed to protect tenants because
scarcity of accommodation is a nightmare for those who own none and, if
evicted, will be helpless."
27. The Preamble of the Rent Control Act reads as under:
"An Act to unify, consolidate and amend the law relating to the control of
rent and repairs of certain premises and of eviction and for encouraging
the construction of new houses by assuring a fair return on the
investment by landlords and to provide for the matters connected with the
purposes aforesaid."
It becomes clear from a perusal of the Preamble of the Act that the
ultimate object behind the enactment of this legislation is to control
and regulate the rate of rent so that unnecessary hardship is not
caused to the tenant, and also to provide protection to the tenants
against arbitrary and unreasonable evictions from the possession of
the property.
28. The protection of the tenants against unjust evictions becomes
even more pronounced when examined in the light of Section 15 of
the Rent Control Act, which reads as under:
"15.No ejectment ordinarily to be made if tenant pays or is ready and
willing to pay standard rent and permitted increases.--(1) A landlord
shall not be entitled to the recovery of possession of any premises so
long as the tenant pays, or is ready and willing to pay, the amount of the
standard rent and permitted increases, if any, and observes and performs
the other conditions of the tenancy, insofar as they are consistent with
the provisions of this Act."
Section 15, thus, restricts the right of a landlord to recover
possession of the tenanted premises from a tenant.
29. When we understand the factual matrix in the backdrop of the
Pg 30 of 37
wp.17.2014 (Colabawalla).doc
objectives of the above two legislations, the controversy in the
instant case assumes immense significance. There is an interest of
the Bank in recovering the non-performing asset on the one hand,
and protecting the right of the blameless tenant on the other. The
Rent Control Act being a social welfare legislation, must be
construed as such. A landlord cannot be permitted to do indirectly
what he has been barred from doing under the Rent Control Act,
more so when the two legislations, that is the SARFAESI Act and the
Rent Control Act operate in completely different fields. While
the SARFAESI Act is concerned with non-performing assets of the
banks, the Rent Control Act governs the relationship between a
tenant and the landlord and specifies the rights and liabilities of
each as well as the rules of ejectment with respect to such tenants.
The provisions of the SARFAESI Act cannot be used to override the
provisions of the Rent Control Act. If the contentions of the learned
counsel for the respondent Banks are to be accepted, it would render
the entire scheme of all Rent Control Acts operating in the country
as useless and nugatory. Tenants would be left wholly to the mercy of
their landlords and in the fear that the landlord may use the tenanted
premises as a security interest while taking a loan from a bank and
subsequently default on it. Conversely, a landlord would simply have
to give up the tenanted premises as a security interest to the creditor
banks while he is still getting rent for the same. In case of default of
the loan, the maximum brunt will be borne by the unsuspecting
tenant, who would be evicted from the possession of the tenanted
property by the Bank under the provisions of the SARFAESI Act.
Under no circumstances can this be permitted, more so in view of the
statutory protections to the tenants under the Rent Control Act and
also in respect of contractual tenants along with the possession of
their properties which shall be obtained with due process of law.
30. The issue of determination of tenancy is also one which is well
settled. While Section 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 Section 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 non-registration 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
Pg 31 of 37
wp.17.2014 (Colabawalla).doc
of the premises as tenants by producing such evidence in the
proceedings under Section 14 of the SARFAESI Act before the learned
Magistrate. Further, in terms of Section 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."
18. While deciding the case of Vishal N. Kalsaria5, the
Supreme Court was called upon to decide as to what would be the
rights of the tenants that existed in the property prior to the same
being mortgaged in favour of the secured creditor. The Supreme
Court (in paragraph 29) held that the two legislations, namely, the
SARFAESI Act and the Rent Control Act operate in completely
different fields. While the SARFAESI Act is concerned with non-
performing assets of the banks, the Rent Control Act governed the
relationship between a tenant and the landlord and specified the
rights and liabilities of each, as well as the rights of ejectment with
respect to such tenants. The Supreme Court, therefore, held that the
provisions of the SARFAESI Act cannot be used to override the
provisions of the Rent Control Act. Applying this ratio to the facts
before us, we have no hesitation in holding that even the provisions
of the SARFAESI Act and the PP Act operate in completely different
fields. The SARFAESI Act is concerned with non-performing assets of
banks whereas the PP Act governs the relationship between the
Pg 32 of 37
wp.17.2014 (Colabawalla).doc
statutory authority (as defined under the PP Act) which owns public
premises, on the one hand, and the occupants of those public
premises on the other. On the same parity of reasoning as given by
the Supreme Court, the provisions of the SARFAESI Act cannot be
used to override the provisions of the PP Act. If the contentions of Mr
Kamdar were to be accepted, it would render the entire scheme of the
PP Act useless and nugatory. We, therefore, have no hesitation in
holding that the provisions of the SARFAESI Act cannot destroy the
rights of the 1st Respondent (landlord in the present case) who has
admittedly not mortgaged its ownership rights in favour of the
Petitioner (the secured creditor). In other words, if the 1st
Respondent (landlord) has a right to terminate the lease, that right
cannot be destroyed and remains unaffected by any action taken by
the Petitioner (the secured creditor) for selling the leasehold interest
in said property and which was mortgaged in its favour. In the facts
of the present case, it is this very right that the 1st Respondent has
sought to exercise by terminating the lease granted in favour of
Respondent No.2. Merely because Respondent No.2 has mortgaged
its leasehold rights in favour of the Petitioner, cannot take away the
right of the landlord (the 1st Respondent herein) to terminate the
lease, if Respondent No.2 has breached the terms thereof. At the cost
of repetition, we must state that whether this termination is valid or
Pg 33 of 37
wp.17.2014 (Colabawalla).doc
otherwise will be the subject matter of the proceedings under the PP
Act. We have not opined one way or the other, as to whether the said
termination is valid or otherwise and consequently rendering the
occupation of the said property unauthorized. That is an issue that
will be inquired into by the Estate Officer after hearing all the parties
concerned and after allowing the parties to lead their respective
evidence. To our mind, in the facts of the present case, there being no
conflict between the provisions of the SARFAESI Act and the PP Act,
there is no question of the provisions of the SARFAESI Act overriding
the provisions of the PP Act. We, therefore, have no hesitation in
holding that Respondent No.4 (the Estate Officer) was well within his
jurisdiction to issue the impugned SCNs.
19. Having held so, we also find considerable force in the
argument of Mr Bharucha that the present Petition is premature and
not maintainable. In the present case, what has been challenged are
the 2 SCNs issued by the 4th Respondent. These SCNs do not per se
decide any rights of the Petitioner, but merely call upon noticees to
show cause before the Estate Officer (4th Respondent) as to why they
ought not to be evicted. The practice of challenging SCNs by way of a
Writ Petition has been deprecated time and again as clearly spelt out
Pg 34 of 37
wp.17.2014 (Colabawalla).doc
by the Supreme Court in the case of Kunisetty Satyanarayana.8
Paragraphs 13 to 16 (SCC Report) of this decision read thus:
"13. It is well settled by a series of decisions of this Court that
ordinarily no writ lies against a charge-sheet or show-cause notice
vide Executive Engineer, Bihar State Housing Board v. Ramesh
Kumar Singh [(1996) 1 SCC 327 : JT (1995) 8 SC 331] ,Special
Director v. Mohd. Ghulam Ghouse [(2004) 3 SCC 440 : 2004 SCC
(Cri) 826 : AIR 2004 SC 1467] , Ulagappa v. Divisional Commr.,
Mysore [(2001) 10 SCC 639] ,State of U.P. v. Brahm Datt
Sharma [(1987) 2 SCC 179 : (1987) 3 ATC 319 : AIR 1987 SC
943], etc.
14. The reason why ordinarily a writ petition should not be
entertained against a mere show-cause notice or charge-sheet is that
at that stage the writ petition may be held to be premature. A mere
charge-sheet or show-cause notice does not give rise to any cause of
action, because it does not amount to an adverse order which affects
the rights of any party unless the same has been issued by a person
having no jurisdiction to do so. It is quite possible that after
considering the reply to the show-cause notice or after holding an
enquiry the authority concerned may drop the proceedings and/or
hold that the charges are not established. It is well settled that a writ
petition lies when some right of any party is infringed. A mere show-
cause notice or charge-sheet does not infringe the right of anyone. It
is only when a final order imposing some punishment or otherwise
adversely affecting a party is passed, that the said party can be said
to have any grievance.
15. Writ jurisdiction is discretionary jurisdiction and hence such
discretion under Article 226 should not ordinarily be exercised by
quashing a show-cause notice or charge-sheet.
16. No doubt, in some very rare and exceptional cases the High
Court can quash a charge-sheet or show-cause notice if it is found to
be wholly without jurisdiction or for some other reason if it is wholly
illegal. However, ordinarily the High Court should not interfere in
such a matter."
(emphasis supplied)
8 (2006) 12 SCC 28 : AIR 2007 Supreme Court 906(1)
Pg 35 of 37
wp.17.2014 (Colabawalla).doc
20. As can be seen from the aforesaid decision, the Supreme
Court has in clear terms stated that ordinarily no writ lies against an
issuance of a SCN. The reason why ordinarily a writ petition should
not be entertained against the issuance of a mere SCN is that at that
stage, the writ petition may be premature. A mere SCN does not give
rise to any cause of action, because it does not amount to an adverse
order which affects the right of any party, unless the same has been
issued by a person having no jurisdiction to do so. It is quite possible
that after considering the reply to the SCN or after holding an
inquiry, the authority concerned may drop the proceedings and/or
hold that the charges are not established. It is well settled that a writ
petition lies when some right of any party is infringed. A mere SCN
does not infringe the right of any one. It is only when a final order
imposing some punishment or penalty adversely affecting a party is
passed, that the said party is said to be having some grievance. This
being the clear enunciation of the law, we have no hesitation in
holding that the present Petition is clearly premature as it merely
challenges the SCNs issued by the 4th Respondent (the Estate
Officer).
21. Having come to this conclusion, we do not see any useful
purpose in individually dealing with the decisions cited by Mr
Pg 36 of 37
wp.17.2014 (Colabawalla).doc
Kamdar and unnecessarily burdening this judgement. None of these
decisions hold that the provisions of the SARFAESI Act override the
provisions of the PP Act. These judgments, in the factual matrix
before us, are wholly irrelevant.
22. For all the aforesaid reasons, we find no merit in this Writ
Petition. Rule is accordingly discharged and the Writ Petition is
dismissed. However, in the facts and circumstances of the case,
there shall be no order as to costs.
( B.P. COLABAWALLA J. ) ( S.C. DHARMADHIKARI J. )
Pg 37 of 37
