Page 36 - BANKING FINANCE OCTOBER 2021

ARTICLE

Vs. Central Bank of India [(2019)9SCC94] that SARFAESIA the procedure of enforcement of securities. In the case of
cannot override rent control legislations, the import of Mathew Varghese Vs. M. Amritha Kumar [2014 (2) SCALE
which is that a tenant can be evicted as per the rent control 331], and GM Siddeshwara Cooperative Bank Ltd. Vs. Iqbal
legislations alone which is time consuming and expensive. [2013(4)CDR989(SC)], Supreme Court held that compliance
with these rules are mandatory in nature and violation of
However, Parliament had not provided for determination of the same renders the enforcement action to be null and
tenancy, whether created before or after creation of void.
mortgage, on issuance of notice under Section 13(2) and it
is because of such lacuna that the Supreme Court had held These rules are very intricate and ambiguous. It is
that SARFAESIA did not override rent control legislations. interesting to note that the proviso to Rule 9(2) states that
[refer to the decision of Harshad Govardhan Sondagar cited no sale shall be confirmed if the amount offered by sale
above]. Further, instead, Parliament amended SARFAESIA price is lesser than the reserve price whereas the second
and inserted Section 17 (4A) providing thereby that where proviso states that if the authorized officer fails to obtain a
a person claims tenancy may approach Debt Recovery price higher than the Reserve Price, such sale can effected
Tribunal and the DRT has been empowered to verify as to with the consent of the borrower and the Secured Creditor.
whether the lease or tenancy (a) had expired or stood Hence, it is not clear whether a tender/bid received exactly
determined, (b) is contrary to Section 65-A of the Transfer matching the reserve price can be given effect to or not. In
of Property Act, 1882, (c) is contrary to the terms of the case of K. Ramaselvam Vs. Indian Overseas Bank [AIR
mortgage or (d) is created after issuance of notice under 2010 MAD 93] and in the case of A. Varalaxmi Vs. Punjab
Section 13(2) of the Act; and pass orders as it may deem fit. National Bank, it was held by the Madras High Court that
Therefore, in cases where the issue of enforcement of in the event of acceptance of bid on exactly Reserve price,
security by Banks and lease/tenancy of lessees/tenants is the consent of the borrower was necessary.
involved, the jurisdiction of rent control courts is now vested
in DRT instead of rent control/civil courts. However, in the case of Varghese Ukken Vs. State Bank of
India [AIR 2011 KER.41], Kerala High Court and in the case
But, Section 17 (4A) provides that the DRT has been of K. Sundar Babu Vs. Union of India, Karnataka High Court
empowered to examine about the genuineness or otherwise had held that no such consent of the borrower was
of the tenancy/lease of the tenants/lessees on filing of necessary. The decision of the Karnataka and Kerala High
application before the DRT by any person who claims such Courts appears to be sound. It is very difficult to get bids for
rights upon the secured assets, i.e., tenants/lessees. But, the secured assets and as such following Madras High Court's
there is no provision in the Act for the Secured Creditor decision would further stall and delay the recovery action
Banks to file application against a tenant or alleged tenant of the Banks. Therefore, there is a case for amendment of
for determination of his tenancy rights. If a tenant/lessee the rule 9(2) to provide for that only when a bid is not equal
does not approach the DRT nor handover possession of the to or higher than the Reserve Price that the consent of the
property, the secured creditor has no other remedy but to
wait indefinitely for him to adopt such measures and since
the jurisdiction about tenancy is now vested with the DRT,
the CMM/DM or Civil courts cannot exercise jurisdiction to
decide about tenancy wherever claim of tenancies are
involved. This would indefinitely delay the proceedings.
Therefore, Section 17 (4A) of SARFAESIA may be amended
to enable a secured creditor also to move the DRT against
the tenant/lessee for adjudicating their tenancy/lease rights.

Security Interest (Enforcement) Rules,

2002 :
In aid of the Act, elaborate rules have been framed detailing

36 | 2021 | OCTOBER | BANKING FINANCE