Rent Act would not come to the aid of a "tenant­-in-sufferance" vis -à-­vis SARFAESI Act due to the operation of Section 13(2) r/w Section 13(13) of the SARFAESI Act: Supreme Court

By - Hiranmayi Gowravajhula*

A division bench of Supreme court, on Tuesday, addressed the important issue of whether the rent act would come to the assistance of a “tenant-in-sufferance” and held that a tenant in sufferance according to the Rent act is not qualified to any protection against Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (“SARFAESI Act”) proceedings. 

The tenant is not entitled to possession of the secured asset for more than the term specified under the requirements of the Transfer of Property Act if the tenant relied heavily only on an unregistered component or an oral concurrence facilitated by transfer of ownership in the lieu of a registered instrument, as per the bench.

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The appellant claimed, in the matter, that he was a protected tenant according to the Maharashtra Rent Control Act, 1999 and resided on the basis of an oral agreement of tenancy as from 12.06.2012 in the premises of the borrower. Action against the debtors was taken under the SARFAESI Act and the 2002 Security Interest Act. The appellants’ request for intervention was rejected by the Magistrate ruling that no registered holdings had been recorded. 

Referring to the ruling in the case of Harshad Govardhan Sondagar v. International Asset Reconstruction Co. Ltd. (2014) 6 SCC 1, the court observed that if the tenancy is for a period longer than one year, the tenancy can only be established through a registered document because “Section 107 of the Transfer of Property Act provides that a lease of immovable property from year to year, or for any term exceeding one year or reserving a yearly rent, can be made 'only by a registered instrument'.”

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Furthermore, the court considered the case of Bajarang Shyamsunder Agarwal v. Central Bank of India (2019) 9 SCC 94, in which the court held that if a legal tenancy under law exists prior to the establishment of the mortgage, such tenant's possession cannot be disrupted by the secured creditor taking possession of the property and that if a tenancy under law comes into existence after the creation of a mortgage but prior to issuance of a notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65­A of the Transfer of Property Act.

The court further stated that due to the operation of Section 13(2) read with Section 13(13) of the SARFAESI Act, the Rent Act would not come to the assistance of a “tenant in ­sufferance” in relation to the SARFAESI Act. The court found that there is a substantial question about the tenant's bona fide since there was no good or adequate evidence to prove the tenancy in the case.

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“...according to the appellant, he is a “tenant in sufferance”, therefore, he is not entitled to any protection of the Rent Act. Secondly, even if the tenancy has been claimed to be renewed in terms of Section 13(13) of the SARFAESI Act, the Borrower would be required to seek consent of the secured creditor for transfer of the Secured Asset by way of sale, lease or otherwise, after issuance of the notice under Section 13(2) of the SARFAESI Act and, admittedly, no such consent has been sought by the Borrower in the present case”, the bench observed while dismissing the appeal.

CLICK HERE TO READ JUDGMENT.

*Hiranmayi Gowravajhula is a 1st year student pursuing B.B.A.LL.B from Symbiosis Law School, Hyderabad.