DRAT held that a lease deed executed without the secured creditor's consent was invalid under the SARFAESI Act.
The Debts Recovery Appellate Tribunal 9DRAT), Kolkata Bench headed by Justice Anil Kumar Srivastava (Chairperson) addressed an appeal and held that a lease deed executed after the creation of a mortgage, without the consent of the secured creditor and in violation of Section 65-A(2) of the Transfer of Property Act, 1882, is void against the creditor and cannot confer any rights upon the lessee to resist measures under Section 13(4) of the SARFAESI Act, 2002.
The Debt Recovery Appellate Tribunal (DRAT) adjudicated an appeal filed by Sri Dilip Agarwal against the judgment and order dated 21.03.2017 passed by the Debt Recovery Tribunal-II, Hyderabad, in SARFAESI Application No. 676 of 2013. The Learned DRT had dismissed the securitization application challenging the possession notice dated 04.11.2013 issued by the secured creditors, State Bank of Hyderabad and others, against the scheduled property. The appellant contended that he had been a tenant in lawful possession of the secured property since January 2012 under a registered lease deed and could not be dispossessed without due process of law. However, the secured creditors argued that the lease deed was collusive, executed without their consent, and in violation of Section 65-A of the Transfer of Property Act, 1882, rendering it non-binding upon them.
The DRT, relying on precedents such as Indian Bank v. Nippon Enterprises and Kandimalla Srinivasa Rao v. Kandimalla Raghavaiah & Co., found that the original mortgage over the secured property was created in 2006 and subsequently extended, most recently in December 2012. The lease deed, executed in March 2013, was created without the consent of the secured creditors, contravening Section 65-A(2) of the Transfer of Property Act. The DRT concluded that the appellant could not derive any rights from the lease deed, which violated statutory provisions, and dismissed the securitization application.
In the appeal, the DRAT upheld the DRT’s findings, emphasizing that the lease deed lacked the requisite consent from the secured creditors and was therefore void against them. The DRAT referred to the Supreme Court’s rulings in Vishal N. Kalsaria v. Bank of India and Bajrang Shyam Sundar Agarwal v. Central Bank of India, which affirmed that leases executed after the creation of a mortgage without the consent of the mortgagee are not binding and cannot confer any rights on the lessee. It further noted that the unregistered lease deed did not meet the requirements under the Transfer of Property Act, particularly as it purported to create a tenancy for ten years, exceeding the statutory limit of three years.
The DRAT also observed that even if the lease deed were valid, it would have expired in 2018, rendering the appellant a tenant at sufferance without any legal protection. Citing R.V. Bhupal Prasad v. State of Andhra Pradesh, the Tribunal highlighted that tenants at sufferance are akin to trespassers with no lawful rights. Consequently, the DRAT dismissed the appeal, affirming the DRT’s order, and held that the appellant could not resist the measures taken by the bank under Section 13(4) of the SARFAESI Act.
The DRAT’s judgment underscores the principle that leases created in contravention of statutory requirements or without the secured creditor’s consent do not bind the creditor and cannot obstruct recovery proceedings under the SARFAESI Act. The appeal was dismissed as devoid of merit, and the DRT’s order was confirmed.
Mr. Nemani Srinivas, Advocate represented the Appellant
Ms. Mekhala Kanji, Advocate appeared for the Respondent Bank.
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