SARFAESI ACT, 2002 & THIRD PARTY RIGHTS

The object of the Act, is aiming at reducing ‘Non-performing Asset” of the banks. The courts in our country have interpreted the provisions of the Act dealing with many complicated issues and keeping in view the interest of the borrowers. Many issues under the provisions of SARFAESI Act, 2002 are settled now. The two most important cases in that process are Mardia Chemicals Ltd v. Union of India and Transcore v. Union of India. Where the Supreme Court has settled the legal position substantially with regard to the SARFAESI Act and made the rigor of SARFAESI Act for the recovery of NPAs effective in letter and spirit. however, the issue of eviction of Tenant using the authority or the power under Section 14 remains very significant. Many states have special laws protecting the interests of the Tenants and it has a very great object despite criticism. There need not to be any written agreement or registered Lease Deed etc. for availing the protection under Tenant Protection laws in a particular state and the provision of tenant protection law will prevail. In the light of the object of SARFAESI Act, 2002 and the object of Tenant Protection Laws in a particular state, the issue of eviction of Tenant under Section 14 of SARFAESI Act, 2002 occupies significance. There can be complications if the bank is asked to approach the Rent Control Courts to evict the Tenant. Again, there can serious issues if the bank is allowed to proceed against the Tenant under Section 14 of the SARFAESI Act, 2002 without having any regard to the Lease Agreement, understanding or the Lease Deed. The complications with the eviction of Tenant by the bank in the course of its action under the provisions of SARFAESI Act, 2002 are in brief, as follows:-

·        If the bank is not allowed to proceed against the Tenant under Section 14 to take physical possession of the property, then the ‘Secured Asset’ may not fetch good value when it goes for auction. It can be detrimental to the interests of the borrowers and also can be detrimental to the interests of the banks too in some cases. The bidders may definitely discount the risk of eviction while bidding for the property in auction. If the property is not fetching the market value, then, It may provide a right to the borrower or the owner of the property to challenge the auction.

·        If the bank is asked to approach Rent Control Courts or Rent Control Tribunal under the special State law dealing with the protection of Tenants, then, it would be interesting to see as to the grounds available to the Banks to ask for the eviction of Tenants from the ‘Secured Asset’.

·        From Tenants point of view, he or she may suffer an irreparable loss due to the action of the bank under SARFAESI Act, 2002 and the Tenant may find it difficult to proceed against the owner of the property in getting the Advance amount back or in claiming the damages. There is a justification from Tenants point of view and it will be definitely difficult to the Tenant to vacate the premises immediately as against their plans. Who will compensate the Tenant in genuine cases.

·        We cannot also rule-out the possibility of fictitious arrangements or Agreements if the protection is provided to the Tenants and it is held that the banks cannot take physical possession of the ‘Secured Asset’ under Section 14. We know many cases pending before Rent Control Courts or Tribunal for years. In many cases, Tenants used to approach Debt Recovery Tribunal now under Section 17 as soon as they come to the knowledge of SARFAESI proceedings. The DRT, may rule in favor of bank in many of these cases and the Tenant is carefully been scrutinized.