Banks can’t evict tenants of loan defaulters
New Delhi/Mumbai : In a major relief to tenants of the mortgaged properties in Mumbai, the Supreme Court has held that the banks can’t evict them for recovery of the loans defaulted by the landlords.
The verdict delivered last Wednesday will have effect on the tenant’s right under the rent control acts of various states as the Court held them to supersede the law enacted by the Parliament to empower banks to recover dues from the defaulters.
Allowing 20 criminal and civil appeals by such tenants, the Bench of Justices V Gopala Gowda and Amitava directed the banks to adjust the enhanced rent deposited by the tenants towards the debt dues of the landlords.
The Apex Court had, in its conditional interim orders, asked the tenants to continue to pay an enhanced rent to the banks directly or deposit it with the court of chief metropolitan magistrate or magistrate.
It gave relief to the tenants on the basis of the Maharashtra Rent Control Act, 1999, successor of Bombay Rent Act of 1947, setting aside all orders of the Bombay High Court and the Chief Metropolitan Magistrate of Esplanade Court in Mumbai for the banks to take possession of the properties under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) – 2002.
The Apex Court held that SARFAESI Act cannot override the rent control act. The moot issue before it was how to preserve the right of the tenant protected under the rent control act in cases where the debtor-landlord secures loan by mortgaging the same property as a security to banks or financial institutions.
It held that allowing a bank to evict a tenant from the tenanted premises just because they became a secured asset of the bank after default of loan by the landlord under the SARFAESI Act would amount to subverting the rent control law enacted by the State Legislature. “Surely, such a situation was not contemplated by the Parliament while enacting the SARFAESI Act,” the court said.
The test case of the criminal appeal of tenant Vishal N Kalsaria against the Bank of India has been discussed in the 40-page judgment. He came in appeal after the Chief Metropolitan Magistrate of Esplanade Courts in November 2014 dismissed his application to implead him as an intervener in the order issued by him in April 2011 allowing the bank to take possession of the mortgaged properties that were in actual possession of Kalsaria as the landlords failed to pay the bank dues within stipulated time and as such their account had become a non-performing asset under the SARFAESI Act.
In May 2011, the landlord served notice on Kalsaria to vacate the premises in which he was residing within 15 days. Fearing eviction, Kalsaria filed a rent suit and secured an interim stay from the Small Causes Court, restraining the landlord from obstructing his possession of the premises. On the strength of the stay, Kalsaria moved the CMM to become an intervener in the case between the bank and the landlord.
The CMM, however, dismissed his application, holding that no injunction can be granted under the rent control act when the bank has to recover its money by selling the property in public auction under the SARFAESI Act. He also held that the order passed by the Small Causes Court cannot be binding on the bank since it was not a party to the proceedings.
