In a big relief to tenants of a house hypothecated to a bank as collateral security for a loan, the Supreme Court has held that they cannot be evicted by the banks to make good the loan left unpaid by the landlord.
The court further directed the banks to continue to collect enhanced rent agreed to by the tenants and adjust it towards the debts of the landlord.
Protecting the rights of tenants under the Rent Control Act over that of banks under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI), 2002, the apex Bench of Justices V Gopala Gowda and Amitava Roy said, “A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to usurping the statutory rights of protection given to the tenant.”
The court was faced with the complex task of determining which Central Act among the two legislations will have an overriding effect.
On one hand, the court dealt with provisions of the Maharashtra Rent Control Act, 1999 devised to protect the interest of tenants, whom the court described as belonging to “weaker sections of society”.
Juxtaposed was SARFAESI Act, with Section 35 providing that the Act will override “any other law in force for the time being”.
A bunch of appeals to the court revealed the plight of several tenants who were caught unawares after they were asked by banks to vacate property offered as “collateral security” for a loan on which the debtor/landlord had defaulted. Some tenants approached the trial court and secured a stay against the eviction order. To remedy this situation where contrary orders were passed by courts under separate laws, the banks brought their plea to the apex court.
The Bench stood up for the “blameless tenant” and said, “A landlord cannot be permitted to do indirectly what he has been barred from doing under the Rent Control Act, more so when the two legislations - the SARFAESI Act and Rent Control Act, operate in completely different fields.”
It further noted, “Tenants would be left wholly at the mercy of their landlords and in the fear that the landlord may use the tenanted premises as a security interest while taking a loan from a bank and subsequently default on it…The provisions of SARFAESI Act cannot be used to override the provisions of the Rent Control Act.”
The banks further argued that a rent agreement is no valid document in the eyes of law since it is not a registered document unlike a lease.
The Bench was asked to determine whether rent agreement can be treated as a lease agreement. The Bench concluded by saying: “If regular rent is being paid and accepted, then the mere fact of non-registration of deed will not make the lease itself nugatory.”