Can a Bank Evict a Tenant After a Flat Auction?

The fight began over a 1,020 sq ft residential flat in Andheri West, Mumbai. The landlord deposited title deeds with Central Bank of India on May 20, 2000 to create an equitable mortgage and secure a credit facility. He stopped repaying, the bank classified the loan as a non-performing asset, and on April 30, 2011 it issued a statutory demand notice under Section 13(2) of the SARFAESI Act for Rs. 10,72,10,106.73.

The bank then applied under Section 14 of the SARFAESI Act to take physical possession. On March 9, 2012, the Chief Metropolitan Magistrate, Esplanade, Mumbai directed the Assistant Registrar to take over the flat and hand it to the bank. The man claiming to be the tenant stayed quiet during those proceedings. He first agitated his rights before the Small Causes Court only after that possession order.

His story kept changing. He told the Small Causes Court that he had been let into the flat in January 2000, but he produced only photocopies of rent receipts for 2001 to 2011. Before the Supreme Court, he said he entered into the tenancy in October 2005. The agreement was oral. The landlord had given the bank a non-encumbrance certificate and a legal scrutiny report described the flat as self-occupied by the landlord. The housing society later confirmed in a letter dated July 12, 2016 that no tenancy existed.

The Small Causes Court granted interim protection ex parte on September 18, 2012, but the Chief Metropolitan Magistrate rejected the tenant's later stay application on December 31, 2014. The Supreme Court agreed with the Magistrate. It found no good or sufficient evidence of a bona fide tenancy and held that the claim looked like an afterthought to defeat the bank's recovery.

The legal deadlock was whether a tenant could use the Rent Act to block a bank's SARFAESI possession. Earlier rulings protected a lessee with lawful possession under a valid lease, but they also distinguished registered and unregistered instruments. Section 107 of the Transfer of Property Act says a lease from year to year, for a term exceeding one year, or reserving a yearly rent can be made only by a registered instrument. Other leases may be made by a registered instrument or by oral agreement accompanied by delivery of possession.

This case turned on a sharper problem. Once a Section 13(2) notice is served, Section 13(13) of the SARFAESI Act stops the borrower from creating any further encumbrance without the secured creditor's written consent. That provision also extinguishes the borrower's right to lease the property under Section 65-A of the Transfer of Property Act. Here, the notice was issued on April 30, 2011, so any fresh oral tenancy reckoning beyond January 2012 was barred.

The tenant's own pleaded case made matters worse. He admitted an oral agreement. That kind of tenancy carries no implied covenant for renewal. Once the tenancy was determined, he was only a tenant in sufferance. The Court said such a person has no legal rights and is akin to a trespasser. The Rent Act cannot protect a tenant in sufferance against SARFAESI possession.

The Court laid down a clear reconciliation rule. It refused to treat every occupant as a protected tenant and also refused to let SARFAESI swallow all tenancy rights.

The Court closed two loopholes at once. A tenant cannot appear after the bank's Section 14 possession order and claim protection based on a completely different factual story. And an oral or unregistered agreement cannot support possession beyond the period allowed by Section 107 of the Transfer of Property Act: "In the absence of a registered instrument, if the tenant relies on an unregistered instrument or an oral agreement accompanied by delivery of possession, the tenant is not entitled to possession of the secured asset for more than the period prescribed under Section 107 T.P. Act."

• If you are a tenant, gather the registered lease deed first. If there is no registered deed, collect original or reliable proof of payment of rent, property tax, BMC tax, water tax and electricity charges, because xeroxed rent receipts alone failed in this case.
• If you are facing a Section 14 possession application, raise the tenancy before the Chief Metropolitan Magistrate or District Magistrate while the SARFAESI proceedings are pending; silence until after the possession order is fatal.
• The biggest mistake to avoid is letting a borrower stay silent about a tenancy during SARFAESI proceedings and then producing a fresh oral claim after the bank's possession order. The Court still ordered eviction within 12 weeks even though the alleged tenancy fight came seven years after the 2012 deadline.