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Creditor cant oust tenants from mortgaged property:


Dhananjay Mahapatra, TNN | Apr 4, 2014, 12.50AM IST
NEW DELHI: In a relief to traders and restaurateurs operating from rented premises in
Mumbai, the Supreme Court on Thursday ruled that the securitization law didn't
permit creditors to throw out tenants from mortgaged premises if the tenancy lease pre-
dated owners' loan agreements.

The judgment came from a bench of Justices A K Patnaik and V Gopala Gowda while
deciding 70 such appeals.

The securitization lawSarfaesi Act 2002empowers a secured creditor to take
possession of the mortgaged property if the borrower fails to pay up even 60 days after
notice for default of loan repayment. If the tenancy lease was prior to the mortgage of
the property or the notice, "the lessee (tenant) shall have the right to enjoy the leased
property in accordance with the terms and condition of the lease irrespective of whether
a subsequent mortgagee (banks or financial institutions) of the immoveable property
has knowledge of such a lease or not," said Justice Patnaik.
The tenants would also not be ousted by creditors if the agreement for mortgage of the
premises did not prohibit the owner from renting out the place and it was leased out
prior to the notice on default of repayment, the court said. The bench said, "Where the
lawful possession of the secured asset is not with the borrower, but with the lessee under
a valid lease, the secured creditor cannot take over possession of the secured asset until
the lawful possession of the lease gets determined." It clarified that a borrower, who
mortgaged his premises as security, was barred from leasing it out without the creditor's
prior written consent.

Setting aside the Bombay high court order, the bench said, "The HC has failed to
appreciate that the provisions of Section 13 of the Sarfaesi Act does not override the
provisions of the Transfer of Property Act relating to the rights of a lessee under a lease
created before the receipt of notice under Section 13 of the Sarfaesi Act by a borrower."