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Court has categorically held that if the tenancy claim is for any term exceeding one year, the tenancy can be made only by a registered instrument: The Supreme Court of India

If a valid tenancy under law is in existence even prior to the creation of the mortgage, such tenant’s possession cannot be disturbed by the secured creditor by taking possession of the property. If a tenancy under law comes into existence after the creation of a mortgage but prior to issuance of a notice under Section 13(2) of the SARFAESI Act, it has to satisfy the conditions of Section 65-A of the Transfer of Property Act, 1882. If a tenant claims that he is entitled to possession of a Secured Asset for a term of more than a year, it has to be supported by the execution of a registered instrument. The aforesaid has been relied upon by The Supreme Court of India while adjudicating the case of Hemraj Ratnakar Salian v. HDFC Bank Ltd. & Ors. [CRIMINAL APPEAL NO(s).843­844 OF 2021] which was decided upon by a single judge bench comprising Justice S. Abdul Nazeer on 17th August 2021.

The facts of the case are as follows. HDFC Bank had granted financial facility to respondent nos.2 and 3 (for short, ‘the Borrowers’) of Rs.5.50.00,000/- (Rupees Five Crore Fifty Lakhs). On 03.04.2013, the Borrowers had mortgaged a property bearing Flat. The accounts of the Borrowers were declared as performing assets (NPA) on 31.10.2013. On 25.01.2014, the Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “SARFAESI Act”) to the Borrowers. It is the case of the appellant that he is a tenant of the Secured Asset on a monthly rent of Rs.20,000/- since 12.06.2012 with an increase of 5% every year. He has been paying rent regularly to his landlord since inception of his tenancy.

The court perused the facts and arguments presented. It was of the opinion that “In the present case, first of all there is a serious doubt as to the bona fide of the tenant, as there is no good or sufficient evidence to establish the tenancy of the appellant. According to the appellant, he is a tenant of the Secured Asset from 12.06.2012 However, the documents produced in support of his claim are xerox coples of the rent receipts and the first xerox copy of the rent receipt is of 12.05.2013 which is after the date of creation of the mortgage. It is pertinent to note here that the Borrowers have not claimed that any tenant is staying at the Secured Asset. At the time of grant of facility, third-party valuers had also confirmed that the Borrowers were staying at the Secured Asset. Be that as it may. The appellant has pleaded tenancy from 12.06.2012 to 17.12 2018. This is not supported by any registered instrument. Further, even according to the appellant, he is a “tenant-in-sufferance”, therefore, he is not entitled to any protection of the Rent Act. Secondly, even if the tenancy has been claimed to be renewed in terms of Section 13(13) of the SARFAESI Act, the Borrower would be required to seek consent of the secured creditor for transfer of the Secured Asset by way of sale, lease or otherwise, after Issuance of the notice under Section 13(2) of the SARFAESI Act and, admittedly, no such consent has been sought by the Borrower in the present case.”

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