K.A. Nazeer & Others v. State Bank of Travancore & Ors.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE CHIEF JUSTICE MR.J.CHELAMESWAR & THE HONOURABLE MR. JUSTICE K.T.SANKARAN & THE HONOURABLE MR. JUSTICE P.N.RAVINDRAN TUESDAY, THE 8TH JUNE 2010 / 18TH JYAISTHA 1932 WP(C).No. 32651 of 2004(K) -------------------------PETITIONERS: --------------- 1. K.A.NAZEER, ADVOCATE, RESIDING AT KATHUVELIL VEETTIL, KAZHUTHUMUTTIKARAYIL, ARYANKAVU VILLAGE, PATHANAPURAM TALUK (SHOP NO.P.M.XIII/264). 2. RAJAN THOMAS, PRATHEEKSHA, ELAMPALMURI, VILAKUDI VILLAGE, (SHOP NO.PM.XIII/264). 3. R.AJITH, KRISHNAVILASATHU VEETTIL, ELAMPALMURI, VILAKUDI VILLAGE (SHOP NO.PM.XIII/264). 4. J.KUNJUMMAN, KOCHAZHIKATHUMELETHIL VEETTIL, MATHRAMURI, KARAVALLOOR VILLAGE (SHOP NO.PM.XIII/264H). 5. P.I.THOMAS, MERIGRIL NEW VEETTIL, ELAMAPALMURI, VILAKUDI VILLAGE, PATHANAPURAM TALUK (SHOP NO.PM.XIII/264D). 6. DR.ARAVIND, KRISHNANILAYATHIL, THAZHAMMELMURIYIL, ANCHAL VILLAGE, PATHANAPURAM TALUK (SHOP NO.XIII/264B). BY ADV. SRI.B.KRISHNA MANI SRI.RAHUL VENUGOPAL SMT.S.SIBHA RESPONDENT(S): --------------- 1. THE STATE BANK OF TRAVANCORE, PUNALUR BRANCH, PUNALUR, KOLLAM DISTRICT. WP(C).No. 32651 of 2004(K) 2 ## 2. THE AUTHORISED OFFICER - (SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT 2002), STATE BANK OF TRAVANCORE, PUNALUR BRANCH, PUNALUR. ## 3. P.B.CHANDRAKUMAR, - RICE MERCHANT, MAIN ROAD, PUNALUR, KOLLAM DIST. ADV. SRI.T.SETHUMADHAVAN FOR R1 & R2 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 08/06/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **K.Balakrishnan Nair & P.N.Ravindran, JJ. ======================== W.P(C).No.32651 of 2004** ## **========================** ## **Dated this the 22[nd] day of May, 2008.** ## **REFERENCE ORDER** ## **Ravindran,J.** This writ petition was referred to a Division Bench by one of us (Balakrishnan Nair, J.) by order passed on 5.10.2005. The point that arises for consideration in this writ petition is whether the first respondent/bank can evict the tenants of a commercial building mortgaged to it by the land lord, by recourse to the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, hereinafter referred to as the "Securitisation Act" for short. Incidentally, the question whether the tenants are entitled to the protection of the Kerala Buildings (Lease and Rent Control) Act, 1965, hereinafter referred to as the " Rent Control Act" for short, also arises for consideration. 2. The petitioners are the tenants of a two storied commercial building erected in a parcel of land of six cents in WP(C) 32651/04 -: 2 :- extent, situated in Sy.No.477/16A of Punalur Village, Pathanapuram Taluk, Kollam District. Exts.P1 to P6 rent deeds produced along with the writ petition disclose that the petitioners are tenants in possession of the respective shop rooms. The rent deeds were executed during the period 2002-2004. 3. The third respondent in the writ petition is the owner of the land and the building. He had in July, 2000 availed a cash credit facility of Rs.15 lakhs from the first respondent/bank on the security of the land described above and the building therein. He had mortgaged the land and the building in favour of the bank, by deposit of title deeds. Since the third respondent defaulted repayment of the monies due to the bank, the authorised officer of the Bank issued Ext.P7 notice dated 10.9.2004 under Section 13(2) of the Securitisation Act calling upon the third respondent to discharge the liabilities in full within 60 days from the date of notice and reminding him that if he fails to discharge the loan in full, the Bank will exercise all or any of its rights detailed under sub-section (4) of Section 13 of the Securitisation Act. The third respondent was also informed that he shall not transfer by sale, lease or otherwise, the secured WP(C) 32651/04 -: 3 :- assets detailed in schedule 'C' to Ext.P7 notice without obtaining the written consent of the bank. It was in these circumstances that the petitioners filed this writ petition alleging that their land lord has deliberately defaulted repayment of the loan with a view to get them evicted by leaving the bank with no option but to invoke the provisions of the Securitisation Act. The petitioners contended that they are tenants in lawful possession and enjoyment of the respective shop rooms and that the provisions of the Securitisation Act do not empower or entitle the first respondent bank to evict them otherwise than in accordance with the provisions of the Rent Control Act. The petitioners have in this writ petition prayed for the following reliefs: "(i) Issue a writ of mandamus or any other appropriate writ direction or order directing the respondents not to evict the petitioners from the premises scheduled in Exts.P1 to P6 at the time of implementing Ext.P7. (ii) Issue a writ of mandamus or any other appropriate writ direction or order directing the respondents not to evict the petitioners other wise than under due procedure established by law. (iii) Issue an interim direction directing the WP(C) 32651/04 -: 4 :- respondents not to evict the petitioners at the time of implementing Ext.P7 from the premises scheduled in Exts.P1 to P6." 4. Respondents 1 and 2, who are the State Bank of Travancore and its authorised officer respectively have filed a counter affidavit contesting the writ petition. They contend that the third respondent, the defaulter, inducted the petitioners into possession of the shop rooms long after the equitable mortgage in favour of the bank was created. It is also contended that the lease is void and that as the Securitisation Act has overriding effect over the Rent Control Act, the Bank is entitled to evict the tenants without recourse to the Rent Control Act. 5. We heard Sri.B.Krishna Mani, the learned counsel appearing for the petitioners and Sri.M.Pathrose Mathai, the learned Senior Counsel appearing for respondents 1 and 2. The learned counsel for the petitioner brought to our notice a recent decision of the High Court of Calcutta in **Manager, UCO Bank** v. **Samar Sarkar & Ors** - A.I.R. 2008 Calcutta 9 and of the High Court of Karnataka in **Hutchison Essar South Ltd.** v. **Union Bank of India & another** - AIR 2008 Karnataka 14. The WP(C) 32651/04 -: 5 :- learned counsel for the petitioner also referred to and relied on the decisions of the Apex Court in **Ferozi Lal Jain** v. **Man Mal and another** - A.I.R. 1970 S.C. 794, **Nagindas Ramdas** v. **Dalpatram** - A.I.R. 1974 S.C. 471 and **Mani Subrat Jain** v. **Raja Ram Vohra** - A.I.R. 1980 S.C. 299 to contend that tenants cannot be evicted otherwise than in accordance with the Rent Control Act. The learned counsel for the petitioner contended that the overriding effect, which the Securitisation Act has over other laws can only be in relation to laws governing the same field and that as the Securitisation Act and the Rent Control Act operate in different fields, Section 35 of the Securitisation Act cannot abrogate the rights of tenants under the Rent Control Act. The learned counsel for the petitioner also contended that the decisions of this Court in **Business India Builders & Developers Ltd.** v. **Union Bank of India** - 2007(2) K.L.T. 237 and **Shameem** v. **City Police Commissioner** - 2005(4) K.L.T. SN 70 do not lay down the law correctly and therefore require reconsideration. 6. Per contra, Sri.M.Pathros Mathai, the learned Senior Counsel appearing for respondents 1 and 2 contended that on the WP(C) 32651/04 -: 6 :- terms of Section 65A of the Transfer of Property Act, 1882, the lease in favour of the writ petitioners is void and no rights flow therefrom. He also submitted that the provisions of the Securitisation Act have overriding effect over the provisions of the Rent Control Act. Our attention was drawn to Sections 35 and 37 of the Securitisation Act. The learned Senior Counsel for respondents 1 and 2 also referred to and relied on the decision of the Apex Court in **Transcore** v. **Union of India and another** - (2008) 1 SCC 125 and of this Court in **Business India Builders & Developers Ltd.** v. **Union Bank of India** and **Shameem** v. **City Police Commissioner** (supra). 7. The question whether tenants who are in possession of secured assets are liable to be evicted under the provisions of the Securitisation Act was considered by a Division Bench of this Court in **Business India Builders & Developers Ltd.** v. **Union Bank of India** - 2007(2) K.L.T. 237. Referring to and relying on an earlier Division Bench decision of this Court in **Shameem** v. **City Police Commissioner** - 2005(4) K.L.T. SN 70 the Division Bench in **Business India Builders & Developers Ltd.** (supra) held that the Securitisation Act has overriding effect over the WP(C) 32651/04 -: 7 :- Rent Control Act and that the parties would be governed by the former Act and not by the later Act. The Division Bench held that a lease is an encumbrance within the meaning of the said term occurring in Rule 9(9) of the Security Interest (Enforcement) Rules, 2002 and that as the tenants were inducted in violation of the stipulations in the declaration made by the borrower in favour of the bank, the bank was not obliged to invoke the provisions of the Rent Control Act to evict the tenants thus inducted. The Division Bench further held that though the tenants are not liable to be physically dispossessed at the time the notice under Section 13(2) of the Securitisation Act is issued, physical possession can be taken by the bank following the procedure laid down in Section 14 of the Securitisation Act or after the sale is confirmed. The Division Bench in **Business India Builders & Developers Ltd.** (supra) also relied on a decision of the Punjab and Haryana High Court in **Kalyani Sales Company** v. **Union of India** - A.I.R. 2006 P & H 107. 8. The matter had come up before one of us, (Balakrishnan Nair,J.) on 5.10.2005 before the decision of the Division Bench in **Business India Builders & Developers Ltd.** v. **Union Bank of** WP(C) 32651/04 -: 8 :- **India** - 2007(2) K.L.T. 237 was delivered. In the reference order passed on 5.10.2005, after noticing the contentions on either side and the decision of the Division Bench of this Court in **Antony** v. **Kerala Financial Corporation** - 1999(2) K.L.T. 457, it was observed as follows: "5. The learned counsel for the petitioners contended that the said decision is not applicable to the facts of this case. In the alternative, it is submitted that the said decision requires reconsideration. This Court, while rendering the decision, did not consider that the Rent Control Act was enacted by the President and therefore, will override all Central legislations as on that date, under the concurrent list of Schedule VII of the Constitution of India. Further, the Financial Corporations Act is enacted under Entry 43 of List I. The Rent Control Act is enacted under Entry Nos. 6, 7 and 13 of the concurrent list. There cannot be any repugnancy between an Act of Parliament under List I and an Act of State Legislature under List III. Repugnancy arises when a State legislation and a Central legislation under the concurrent list occupy the same field. In the absence of any repugnancy, it cannot be said that one Act will override another. Therefore, WP(C) 32651/04 -: 9 :- the finding that the provisions of the State Financial Corporations Act will override the provisions of the Rent Control Act requires reconsideration, it is contended. The petitioners also point out that all commercial complexes in cities and towns, occupied by tenants can be got evicted by the land lords, if the contention of the Bank is accepted. The land lord need need only give his building to the Bank by way of security and default to pay the amounts due to it. Then the Bank will take possession of the building, throwing out the tenants. Thereafter, the land lord can file an application before the DRT under Section 17 of the Securitisation Act, settle the matter there and get the building back free of tenants. 6. I feel that the contentions raised by the learned counsel for the petitioners require examination by this Court. There is no express provision in the Securitisation Act, which provides that pursuant to an order under Section 13(4), all the rights of the tenants will be extinguished. If that was the intention, the Act would have made specific provision for the same. But, it is not proper for a single Judge to examine the correctness of the law laid by the Division Bench of this Court, though, under another enactment. Therefore, I am referring this Writ Petition, to be heard by a Division Bench." WP(C) 32651/04 -: 10 :- 9. We have considered the rival submissions made at the bar. In **Antony** v. **Kerala Financial Corporation** - 1999 (2) K.L.T. 457, a Division Bench of this Court, interpreting Section 46B of the State Financial Corporations Act, 1951 which is pari materia with Sections 35 and 37 of the Securitisation Act held that the provisions of the State Financial Corporations Act will prevail over the provisions of any other law including the Rent Control Act. In **Shameem** v. **City Police Commissioner** (supra), a Division Bench of this Court held that in respect of transactions governed by the Securitisation Act, the overriding provisions effectively nullify the rights available to a tenant under the Rent Control Act for the reason that the Rent Control Act is subservient to a later Central enactment. In **Business India Builders & Developers Ltd.** v. **Union Bank of India** (supra), another Division Bench of this Court considered the very same issue and held that in view of Section 35 of the Securitisation Act, the said enactment has overriding effect over other laws including the Rent Control Act and that the parties would therefore be governed by the Securitisation Act. We have carefully gone through the aforesaid three decisions of this Court. WP(C) 32651/04 -: 11 :- All the three decisions referred to above, proceed on the basis that in view of Section 35 of the Securitisation Act and Section 46B of the State Financial Corporations Act, 1951, the provisions of the Rent Control Act cannot operate or govern the field. 10. As noticed by one of us (Balakrishnan Nair,J.) in the order of reference passed on 2.10.2005, there cannot be any repugnancy between an Act of Parliament under List I and an Act of the State Legislature under List II for the reason that the subject matter of the laws made by the Parliament and the State Legislature is different and they do not operate in the same field. Repugnancy would arise only if the legislations occupy the same field. The Rent Control Act is a law enacted under Entry Nos. 6, 7 and 13 of List III of the 7th Schedule to the Constitution of India. The State Financial Corporations Act is a law enacted under Entry No.43 of List I of the 7th Schedule to the Constitution. The State Financial Corporations Act and the Rent Control Act operate in different fields. In view of Article 254 of the Constitution of India the question of repugnancy between the two said enactments does not at all arise for the reason that they operate in different fields. The Securitisation Act was enacted to enable speedy WP(C) 32651/04 -: 12 :- recovery of debts due to banks and financial institutions by nonadjudicatory process. The Securitisation Act falls under entry 44 of List I of the VIIth Schedule to the Constitution of India. The Rent Control Act was enacted to prevent rack renting and forcible eviction of tenants. Further, we notice that the Rent Control Act was enacted by the President of India in exercise of the power conferred by Section 3 of the Kerala State Legislature (Delegation of Powers) Act, 1965, Act 12 of 1965. Article 254 of the Constitution would be attracted only if the legislations occupy the same field. Therefore, as the Rent Control Act and the Securitisation Act occupy different fields, there is no repugnancy in terms of Article 254 of the Constitution. Then the question is whether, by operation of Section 35 of the Securitisation Act, the provisions of the Rent Control Act recede into the background and have no effect. ## 11. In **Abhay Kumar Pandey** v. **State of Bihar** - A.I.R. 1997 Pat 160, the High Court of Patna held that a person in rightful occupation of the premises as a tenant cannot be dispossessed under Section 29 of the State Financial Corporations Act, 1951. It was held that Section 29 of the State Financial WP(C) 32651/04 -: 13 :- Corporations Act will not prevail upon the law governing eviction of tenants and that without a decree or order passed under the law governing eviction of tenants; tenants cannot be evicted from the tenanted premises. The Patna High Court held that the sale of a unit by the Financial Corporation under Section 29 of the State Financial Corporations Act, 1951 did not confer on the auction purchaser a better title than the owner and therefore if what is sold is tenanted property, the purchaser can evict the tenants only by recourse to the law governing eviction of tenants. In **Garlon Polyfab Industries Ltd. & others** v. **State Bank of India and another** - (2003) 3 BC 626, a Division Bench of the Allahabad High Court while repelling the challenge to Section 13 of the Securitisation Act held that the Securitisation Act being a special law, overrides any provision to contrary in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or any other earlier Act of the Parliament or of the State Legislature pertaining to the field it covers. (emphasis supplied) It was held that the purpose of enacting the Securitisation Act was to enable prompt recovery of debts due to banks and financial institutions and that the field occupied by the WP(C) 32651/04 -: 14 :- Securitisation Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 are different. A Division Bench of the Madras High Court has in **A.Stephen Samuel & Saraswathi Transports** v. **Union of India** - (2004) 118 Comp. Cases 82 held that where the tenants are in occupation in their own right and the premises are attached and sold under the Securitisation Act, the purchaser does not have the right to obtain vacant possession except in cases where the tenants were inducted by defaulter after the property was attached and possession taken over by the bank under the Securitisation Act. 12. In **Thane Janata Sahakari Bank Ltd** . v. **Commissioner of Sales Tax and others** - (2006) 132 Comp. Cas. 823 a Division Bench of the Bombay High Court, interpreting Section 35 of the Securitisation Act and Section 38C of the Bombay Sales Tax Act, 1959, both of which contain non obstante clauses, held that the Acts operate in different fields, that Section 35 of the Securitisation Act is a procedural provision for expeditious realisation of the security interest by a secured creditor in substitution of the normal process of recovery of debts through the Court or the Debts Recovery Tribunal, that it does WP(C) 32651/04 -: 15 :- not create a charge by itself much less a first charge; rather it provides for a process for enforcement of the charge that has been created under the contract in favour of the secured creditor and that Section 35 of the Securitisation Act has no effect whatsoever on the operation of Section 38C of the Bombay Sales Tax Act. The Division Bench of the Bombay High Court noticed that repugnancy between a law made by the Parliament and a law made by the State Legislature arises only in cases where the legislations occupy the same field with respect to one of the matters enumerated in the concurrent list and a direct conflict arises. The Division Bench of the Bombay High Court held that there being no provision in the Securitisation Act providing for a first charge in favour of the bank, Section 35 of the Securitisation Act cannot override Section 38C of the Bombay Sales Tax Act. The Division Bench noticed that the Securitisation Act has been enacted by the Parliament under Entry 54 (Sic for entry 44) of List 1 of the 7th Schedule to the Constitution of India to regulate the securitisation and reconstruction of financial assets and for enforcement of the security interest, while the Bombay Sales Tax Act is a law enacted by the State Legislature under entry 54 of WP(C) 32651/04 -: 16 :- List II. It was held that the enactments concerned have been enacted for different purposes and operate in different fields. The Division Bench of the Bombay High Court also referred to and relied on an unreported decision of a Division Bench of the Bombay High Court in Writ Petition No.639 of 2005 - **Janata Sahakari Bank Limited,** which considered the impact of Section 35 of the Securitisation Act on the provisions of the Employees Provident Funds and Miscellaneous Provisions Act. Dealing with the said point, in **Janata Sahakari Bank Limited** , a Division Bench of the Bombay High Court held that the Securitisation Act and the Employees Provident Fund and Miscellaneous Provisions Act operate in two different fields and that non obstante clauses are not always to be regarded as repealing clauses or as clauses which expressly or completely supersede any other provisions of law, but merely as clauses which remove all obstructions which might arise out of the operation of the enactment which contains a non obstante clause. It was held that the conflict in such cases has to be resolved on a consideration of the purpose and policy underlying the enactments and the language used in them. The Division Bench of the Bombay High Court in **Janata Sahakari** WP(C) 32651/04 -: 17 :- **Bank Limited** held that as the Securitisation Act and the Employees Provident Funds and Miscellaneous Provisions Act operate in different fields, Section 35 of the Securitisation Act does not affect the operation of the provisions of the Employees Provident Funds and Miscellaneous Provisions Act. ## 13. In **Hutchison Essar South Ltd.** v. **Union Bank of** **India & another** - A.I.R. 2008 Karnataka 14, the Karnataka High Court has held that if the secured asset is in the possession of a lessee or tenant, he cannot be thrown out by invoking Sections 13 and 14 of the Securitisation Act. In **Manager, UCO Bank** v. **Samar Sarkar & others** - A.I.R. 2008 Calcutta 9, the High Court of Calcutta has held that the provisions of the Securitisation Act do not authorise the bank to recover possession from a tenant under the borrower in the process of recovery of its dues from the borrower and that the bank cannot evict the tenant of a borrower from the mortgaged property by recourse to the provisions of the Securitisation Act. The Calcutta High Court held that a suit by the tenant against the bank is therefore not barred under Section 17 of the Securitisation Act. 14. Section 13(6) of the Securitisation Act states that the WP(C) 32651/04 -: 18 :- transfer of secured assets after possession or management thereof is taken under sub-section (4) by the secured creditor or by its manager will vest in the transferee all rights in relation to the secured asset as if the transfer had been made made by the owner thereof. Therefore, if tenanted premises is mortgaged by the land lord and on the land lord's failure to repay the loan, the security is sold under Section 13 of the Securitisation Act, the transferee will have to take the asset so transferred with the tenants in possession thereof. That apart, it is evident from Rule 9 of the Security Interest (Enforcement) Rules, 2002 that a transfer in terms of Section 13 of the Securitisation Act is not free from encumbrances. As noticed by us earlier, the Securitisation Act was enacted with the object of providing speedy recovery of debts due to banks and financial institutions by non-adjudicatory process. The mere failure of a borrower to repay the debt and to maintain the value of the security hypothecated in favour of the bank/financial institution gives rise to a right to initiate proceedings under the Securitisation Act. No process of adjudication is involved when the banks/financial institutions take steps under Section 13 of the Securitisation Act. WP(C) 32651/04 -: 19 :- In our opinion, these aspects have not been gone into or considered by this Court in **Antony** v. **Kerala Financial Corporation** or in **Shameem** v. **City Police Commissioner** or in **Business India Builders & Developers Ltd** . v. **Union Bank of India** . We also cannot overlook the fact that a large number of commercial complexes are being put up in towns and cities in in the State. If the land lords let out such buildings or portions thereof to tenants, as noticed by one us (Balakrishnan Nair,J.) in the order of reference, all that the land lords need do is to default repayment of loan if any availed by them, leaving the bank with no option but to take possession of the building under the Securitisation Act and thereby get the tenants evicted summarily, without having to institute proceedings under the Rent Control Act. Thereafter the land lord can pay off the debts due to the bank or the financial institution and get back possession of the building free from the occupation of his tenants. Further there is no express provision in the Securitisation Act which provides that once proceedings are initiated under Section 13 thereof, the rights of tenants if any in the security will stand abrogated or extinguished. If that had been the intention of the Securitisation WP(C) 32651/04 -: 20 :- Act, there would have been specific provision for the same. Further, if as contended by the learned Senior Counsel for respondents 1 and 2, the Securitisation Act has overriding effect over all other laws enacted earlier in point of time either by the State Legislature or by the Parliament, such overriding effect will apply to Section 65A of the Transfer of Property Act, 1882 as well, on which the learned Senior Counsel for respondents 1 and 2 has placed reliance. 15. For the reasons stated above, we are not persuaded to agree with the view taken by this Court in **Antony** v. **Kerala Financial Corporation** , **Shameem** v. **City Police Commissioner** and **Business India Builders & Developers Ltd.** v. **Union Bank of India** , wherein it was held that the State Financial Corporations Act/Securitisation Act have overriding effect over the provisions of the Rent Control Act and therefore tenants, irrespective of the point of time at which they were inducted in as tenants, have no right to remain in possession and are liable to be evicted in proceedings initiated under the said two enactments. The various aspects noticed by us above have not been considered by or placed before by the Division Benches of WP(C) 32651/04 -: 21 :- this Court which decided the aforesaid three cases. However in view of the fact that the decisions of this Court referred to above are decisions rendered by Division Benches of this Court, it would not be proper for us to finally pronounce on the issues arising for decision in this Writ Petition. We accordingly adjourn this Writ Petition to be heard and disposed of by a Full Bench. The Registry is directed to place the papers before the Hon'ble the Chief Justice for appropriate orders. K.Balakrishnan Nair, Judge. P.N.Ravindran, Judge. ess 30/4