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SAIFUDEEN, ZION COLLECTIONS versus THE REGIONAL MANAGER, UNION BANK OF

High Court of Kerala

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SAIFUDEEN, ZION COLLECTIONS v. THE REGIONAL MANAGER, UNION BANK OF - WP(C) No. 7107 of 2006(U) [2006] RD-KL 379 (1 August 2006)

IN THE HIGH COURT OF KERALA AT ERNAKULAM

WP(C) No. 7107 of 2006(U)

1. SAIFUDEEN, ZION COLLECTIONS,
... Petitioner

2. ANISH ALAYIL, UNITED STATIONERY

3. MOHAMMED NAVAZ, ALFA ELECTRONICS

4. S. JAHIR HUSSAIN, SIEMENS SHIRTS,

5. SALIM, S.S. ENTERPRISES

Vs

1. THE REGIONAL MANAGER, UNION BANK OF
... Respondent

2. THE UNION BANK OF INDIA REPRESENTED

3. THE BRANCH MANAGER, UNION BANK OF INDIA

4. GEOGY.D. MADAPAT, AUTHORISED OFFICER

5. P.A. SUBAIR, PUTHENPARAMBIL HOUSE,

For Petitioner :SRI.A.K.ALEX

For Respondent :SRI.A.S.P.KURUP, SC, UBI

The Hon'ble MR. Justice S.SIRI JAGAN

Dated :01/08/2006

O R D E R

S.SIRI JAGAN, J

W.P.(C) NO. 7107 Of 2006 Dated this 1st day of August, 2006

J U D G M E N T

The petitioners are tenants in a building owned by the 5th respondent which building and the property on which the same is situated stands mortgaged to the 2nd respondent-bank for loan amounts advanced to the 5th respondent by the 2nd respondent the lease in respect of which was executed is after the creation of the mortgage in favour of the bank. In fact the bank submits that the building in question was constructed with the aid of the loan granted by the bank as security for which the mortgage was created. The 5th respondent defaulted repayment of loan amounts. The 2nd respondent bank initiated proceedings for recovery of the amounts including proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 referred to as the 'Act', hereinafter. Pursuant to the same, notices were issued to the 5th respondent landlord under Section 13(4) of the Act for taking over the possession of the land. After taking possession the same was initially handed over to the 5th respondent as a trustee of the bank. W.P.(C) NO. 7107 Of 2006 2 Since he did not comply with the conditions of such entrustment, the Bank repossessed the same. Pursuant to such repossession the 2nd respondent issued Exts.P2 to P6 notices to the petitioners who are the tenants in the building, which is part of the security interest, directing them to vacate the premises within 30 days and to hand over the shop's key to the Branch Manager of the 2nd respondent bank. The petitioners are challenging Exts.P2 to P6 notices issued to the petitioners.

2. The main challenge against the impugned notices is that since the petitioners are tenants who are entitled to protection of the provisions of the Kerala Buildings (Lease and Rent Control) Act,(herein after referred to as the Rent Control Act.) they cannot be evicted from the shop rooms except in accordance with the provisions of that Act. The petitioners have other contentions also. According to them there is no provision in the Act enabling the bank to evict tenants like the petitioners from the premises in question. According to the counsel for the petitioners, once the bank takes over the possession of the building, the bank only steps into the shoes of the land lord as against the tenents and therefore the bank does not have any better right than those of the land lord, which rights are circumscribed by the W.P.(C) NO. 7107 Of 2006 3 Rent Control Act. The petitioners would further contend that by virtue of Section 31(a) of the Act, all transactions referred to therein are exempt from the purview of the Act and since the petitioners' relationship with the 5th respondent is one under the Indian Contract Act, the same cannot be affected by the provisions of the Act. Yet another contention of the petitioners is that going by Section 37 of the Act, application of other laws are not barred since the provisions of the Act is in addition and not in derogation of other laws and therefore the application of the Rent Control Act is expressly saved by the act itself. The petitioners further contention is that in view of Section 35, only if there is anything in the Act, inconsistent with the Rent Control Act, then only the Act would override the provisions of the Rent Control Act. Lastly the petitioners would contend that Sections 13 and 15 of the Act, which enables the 2nd respondent to take over possession of management of business of the 5th respondent is only against the borrower and since the petitioners are not borrowers, the provisions of the Act cannot be made applicable to them.

3. In answer to these, the learned counsel for the 2nd respondent-bank raise a preliminary objection that since the petitioners have a right of appeal against the action taken by the 2nd W.P.(C) NO. 7107 Of 2006 4 respondent under the Act under per Section 17 of the Act, he must be relegated to that remedy. In this connection the respondents would also draw my attention to the decision of the Supreme Court in Merdia

Chemicals Vs.Union of India reported in 2004 (4) SCC 312 wherein,

the Hon'ble Supreme Court had cautioned the High Court against entertaining writ petitions against proceedings under the Act and had held that the proceedings initiated under the Act should be left to be challenged in appeal before the Debt Recovery Tribunal. The counsel for the bank would submit that the provisions of the Act has overwriting effect on all other legislations including the Rent Control Act by virtue of Section 35 of the Act. He would also draw my

attention to the decision in S.Shameem Vs. The City Police

Commissioner and others reported in 2005(4)KLT SN 96,wherein a Division Bench of this court has held that the overriding provisions of the Act effectively nullify the rights normally admissible even to a tenant, as available under the Rent Control Act, as it can be only subservient to a later Central enactment. Relying on the said decision the counsel for the 2nd respondent - bank would contend that petitioners are not entitled to the protection of the provisions of the Rent Control Act and as such the writ petition itself is not maintainable. Regarding the contentions based on Section 13, the W.P.(C) NO. 7107 Of 2006 5 bank's counsel would contend that there is nothing whatsoever in Section 13 or Section 15 prohibiting the the bank from proceeding against the tenants of the security interest, for evicting them from the premises to take possession of the Security Interest. In fact the learned counsel would draw my attention to Section 13(4)(a) which gives a secured creditor power to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured assets. According to the counsel since he has the right to take possession and even to transfer by way of lease, the secured assets, the bank is perfectly justified in directing the petitioner to vacate the premises in question. Regarding the arguments on the basis of Section 37, the learned counsel for the bank would submit that, that is a provision which enables the bank to proceed under other laws also in addition to the Act and not a provision barring the bank from proceeding against the security interest in view of the Rent Control Act.

4. I have considered the arguments of the Counsel in detail:

5. First I shall deal with the preliminary issue raised by the learned counsel for the bank regarding alternate remedy by way of appeal. According to him the petitioners have a right of appeal before the Debt Recovery Tribunal under Section 17 of the Act. The counsel W.P.(C) NO. 7107 Of 2006 6 for the petitioner would contend that the petitioners have no right of appeal since only if a person is aggrieved by any of the measures in sub-section 4 of Section 13 taken by the secured creditor alone, appeal lies. According to him the notices issued to the petitioners are not covered under any of the provisions of Section 13(4) of the Act. Sections 13(4) and Section 17 of the act are extracted below for convenience. Section 13(4) reads thus:-

"In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-

a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset;

b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realize the secured asset;

c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. Section 17 reads thus: W.P.(C) NO. 7107 Of 2006 7 Right to appeal:- 1) Any person (including borrower), aggrieved by any of the measures referred to in sub- section(4) of section 13 taken by the secured creditor or his authorized officer under this Chapter, may prefer an appeal to the Debts Recovery Tribunal having jurisdiction in the matter within fort five days from the date on which such measures had been taken. 2) Where an appeal is preferred by a borrower, such appeal shall not be entertained by the Debts Recovery Tribunal unless the borrower has deposited with the Debts Recovery Tribunal seventy five percent of the amount claimed in the notice referred to in sub-section (2) of section 13; Provided that the Debts Recovery Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under this section. 3) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993( 51 of 1993) and rules made there under."

6. After reading both these sections together I am not able to agree with the contentions of the petitioners. Section 13(4)(a) specifically authorizes the secured creditor to take possession of the secured assets of the borrower including the right to transfer by way of asset ascertaining for realizing the secured assets. I am of the W.P.(C) NO. 7107 Of 2006 8 opinion that the notices issued to the petitioners amount to exercising the right of the bank to take possession of the secured assets of the borrower by the secured creditor.

7. The learned counsel for the petitioners submits that going by Section 13(3), notice referred to in sub-section 2 shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of the secured debts by the borrower and since those ingredients are absent in the impugned notices issued to the petitioner, the same cannot be considered as a notice under Section 13 and therefore no appeal would lie. The petitioner would further contend that in the absence of any amount shown therein valuation of the appeal and payment Court Fee also would be impossible. For that reason also according to the counsel for the petitioners no appeal would lie. To say the least this contention is without any merit. What is contemplated under Sub Rule 13 is a notice issued to the borrower and not one issued to the tenant. The question of the bank issuing notice giving details of amount payable by the borrower can only be against the borrower and not against the tenant. Further what Section 17 says is that any person aggrieved by any of the measures W.P.(C) NO. 7107 Of 2006 9 referred to in subsection 4 to Section 13, taken by the secured creditor may prefer an appeal. As I have already held, the measures now taken against the tenant is under Section 13(4)(a) and not under Section 13(3) and as such certainly an appeal lies against the impugned notices under Section 17. Therefore, I am of the opinion that the petitioner should be relegated to the alternative remedy by way of appeal available under Section 17 of the Act.

8. Although, the above finding alone is sufficient to non-suit the petitioners, I am inclined to deal with other contentions also since elaborate arguments have been advanced before me by both sides on those also.

9. First I shall deal with the contentions, regarding applicability of the Rent Control Act in the matter of eviction of the petitioners. Although the decision cited before me contains only short notes, the learned counsel for the petitioner has made available to me an ordinary copy of the full text of the judgment. According to the petitioners that judgment is not applicable to the facts of the present case. The counsel for the petitioners would state that in that case the tenant himself was the borrower and therefore the decision in that W.P.(C) NO. 7107 Of 2006 10 case should be confined to the facts of that case alone, since in this case the tenants are not the borrowers. Such a contention would militate against the law of precedents. The Division bench, although on a particular set of facts was declaring the law as to the applicability of the Rent Control act in respect of the rights of a secured creditor under the Act for taking possession of a secured asset. The division bench has in the above decision held as follows:- Under Section 13(4) of the Securitisation Act, in case the borrower falls to discharge his liability, the secured creditor is authorized to take recourse to the measures stipulated by the section. This is in recognition of the provisions of the Act that any security interest created in favour of the secured creditor may be enforced without the intervention of the court or Tribunal. Thus, a creditor is entitled to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset. The right also includes taking over management of the secured assets by right to transfer by way of lease, assignment or sale. The appointment of a person to manage the secured assets, the possession of which has been taken over by the secured creditor is also contemplated. Sub- section(6) also lays down that ny transfer of secured asset after taking possession thereof shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. The only circumstance that the guarantor (third respondent herein) was the owner of the secured asset need not saddle him with any disability. In any case, the Act does not provide for any such restriction. By the operation of the section, the transfer brings with it all the proprietary rights that are usually available in respect of the holding. Although it is contended by Sri.Jayakumar that so far as a tenanted premises, to which provisions of the Kerala Buildings(Lease W.P.(C) NO. 7107 Of 2006 11 and Debt Control) Act applies, the tenancy could have been terminable only in the manner authorised by the said law, we do not think the above argument can have any relevance in view of section 35 of the Securitisation Act. The provisions of the Securitisation Act shall have effect not with standing anything inconsistent therewith contained in any other law for the time being in force. In respect of transactions governed by the said Act, the overriding provisions effectively nullify the rights normally admissible even to a tenant, as available under the Rent Control Act, as it can be only subservient to a later Central enactment.

10. The Division Bench has, on the basis of the overriding provisions under Section 35 of the Act categorically found that provisions of the act would override provisions of the Rent Control Act. On a reading of the decision as above, despite the difference in facts, if any, I do not find there anything distinguishable in the matter of application of the general law, laid down in that decision, to the facts of the present case. Therefore, I have absolutely no hesitation to hold that the petitioner cannot rely on the provisions of the Rent Control Act to resist Ext.P2 to P6 notices. In fact, this decision would be sufficient to dismiss the writ petition on merits also. However, as I said earlier, since the petitioners' counsel insisted on arguing at length on each and every point raised by him, I am bound to deal with the same.

11. The counsel for the petitioners raised a contention based on Section 31(a). Section 31(a) reads as thus:- W.P.(C) NO. 7107 Of 2006 12 Provisions of this Act not to apply in certain cases - The provisions of this Act shall not apply to " a lien on any goods, money or security given

by or under the Indian Contract Act,1872 (9 of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or any other law for the time being in force."

12. I must say that the said section has absolutely no application whatsoever, to the facts of the case. Simply because the relationship between petitioners and the 5th respondent is one under the contract Act, that does not ipso facto bring the relationship within the embargo under Section31(a). For application of Section 31(a) it is not merely sufficient that the relationship should have been under the Indian contract Act. It should be specifically relating to a lien on any goods, money or security given by or under the Indian Contract Act. The petitioners have no case that they have any lien on any goods, money or security belonging to the 5th respondent borrower. As such, I have no hesitation to hold that Section 31(a) has no application whatsoever on the facts of this case.

13. The next contention of the petitioner is based Section 37 of the Act. Section 37 reads as under:-

"Application of other laws not barred.- The provisions of this Act or the rules made thereunder shall be in addition to, and not in W.P.(C) NO. 7107 Of 2006 13 derogation of, the Companies Act,1956( 1 of 1956), the Securities Contracts (Regulation)Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act,1993(51 0f 199) or any other law for the time being in force."

14. It needs no second reading to convince oneself that this section is in fact in favour of the bank rather than the petitioners. This Section gives a right to the secured creditor to proceed against under other laws as well in addition to the Act and does not put an embargo on the secured creditor in view of the provisions of any other Act like the Rent Control Act. In the above circumstances I do not find any merit in the writ petition and accordingly the same is dismissed.

S.SIRI JAGAN, JUDGE

sj W.P.(C) NO. 7107 Of 2006 14


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Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites

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