The object of SARFASI Act, 2002 is very good aiming at reducing ‘Non-performing Asset”, the constitutional courts had to interpret 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 SARFASI 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 SARFASI Act and made the rigor of SARFASI 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 SARFASI Act, 2002 and the object of Tenant Protection Laws in a particular state, the issue of eviction of Tenant under Section 14 of SARFASI 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 SARFASI 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 SARFASI Act, 2002 are in brief, as follows
1. 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.
2. 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’.
3. From Tenants point of view, he or she may suffer an irreparable loss due to the action of the bank under SARFASI 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
4. 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 SARFASI proceedings. The DRT, may rule in favor of bank in many of these cases and the Tenant is carefully been scrutinized.
The present situation of third party rights in the SARFASI Act is that, possession of third parties cannot be taken by adopting measure under Section13(4). Third party is not given notice under 13(2), taking possession from a third party in such a manner is not contemplated in SARFASI. Here the Supreme Courts have played an important role in establishing third party rights, and giving symbolic possession to the Banks/FI. And if the Bank/FI needs to realize the secured assets they can do so according to law which governs the rights of tenant/lessee.
But as we know SARFASI Act was established to for the speedy recovery of ever mounting Non-Performing assets. And the banks are not meant to follow the local laws of the different states and go through the separate laws for separate cases. It is time consuming and create barriers for the bank in the realization of real value of the mortgaged assets, in the auction/sale and it is detrimental to the interest of borrower.
1. It has been seen that many times banks commit mistakes while mortgaging properties,
Banks need to be careful while mortgaging property against the loan, banks need to do proper inquiry of about the property and those interest are concerned with the property that is there any third party rights existed at the time of mortgaging, if yes the banks need to consult this with the person (mortgagor/lesser) and third party so that it may not create any problems in near future in case of realization of the value of property.
2. Reserve bank of India is the supreme authority and regulatory body in the banking sector of our Economy, which frames the policy and give direction in various issues in banking sector time to time for the betterment of banking industries. RBI has given many guidelines in the securitization of asset and declaration of assets as Non-performing assets. Now Reserve Bank of India should issue guidelines regarding the third party rights with SARFASI Act. Where the guideline should address each issues which creates hurdles for the banking sector in realization of mortgaged assets. And the relationship between the Bank and Third parties should be specified and with the mentioned term and conditions.
3. The bank should give notice of 60 days eviction to the borrower and the third parties whose interests are also concerned with the mortgaged property, DRT/Courts should have power to adjudicate the matter separately for the interest of the third parties, if it is found that third parties has legitimate interest in the mortgaged property then, bank should not go for the auction till the final adjudication of the property.
4. If third party rights are created after the mortgaging the property in the bank the borrower need to inform the bank about the third party and if the third party rights are created then the consultation of the bank should must be taken, and bank should dictate the terms to the third parties so that the third parties may not create problems in seizing and realizing the value of properties.