Borrower Can't File Civil Suit Through Tenant To 'Wiggle Out' Of Liability Once Order U/S 14 Of SARFAESI Act Had Been Passed: Allahabad High Court
The Allahabad High Court has held that once an order under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has been passed granting possession to the secured creditor, i.e., bank, the borrower cannot, through a tenant, obtain a stay from the Civil Court to escape liability.The bench of Justice Shekhar B. Saraf and...
The Allahabad High Court has held that once an order under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has been passed granting possession to the secured creditor, i.e., bank, the borrower cannot, through a tenant, obtain a stay from the Civil Court to escape liability.
The bench of Justice Shekhar B. Saraf and Justice Praveen Kumar Giri held
“Tenancy that has been created during the pendency of the mortgage without permission of the secured creditor, that is, the bank would be subject to the condition of Section 65A of the Transfer of Property Act and whether these conditions are satisfied will have to be decided by the Debts Recovery Tribunal (hereinafter referred to as 'the DRT') only. A tenant is required to move an application under Section 17 before the DRT for asserting his rights under such a registered document.”
Petitioner- Axis Bank approached the High Court seeking a writ of mandamus to the Sub-Divisional Magistrate (SDM), Dhoulana, District- Hapur, for taking possession of the property mortgaged. Counsel for the petitioner contended that despite the order of the DRT under Section 14, the possession was not being transferred to the Bank as the tenant of the borrower had obtained a stay from the Civil Court.
In M/S Trilokchand Fabrication Pvt. Ltd. vs. State of U.P. and Others, a bench headed by Justice Saraf had held that a tenant intending to take possession of the secured asset when proceedings under Section 14 of the SARFAESI Act have already been initiated, must do so by way of a registered instrument executed in his favour. It further held that there is a specific bar against civil suits in respect of in respect of grievance against any measures taken under Section 13(4) of the SARFAESI Act.
Further relying on the judgment of the Supreme Court in Bajarang Shyamsunder Agarwal vs. Central Bank of India and another, the Court held that where the tenancy was without the permission of the secured creditor, the tenant will have to file an application under Section 17 [Application against measures to recover secured debts] before the DRT for asserting his rights.
Observing that the tenant has also filed an application under Section 17 before the DRT, the Court held that stay order obtained from the Civil Court was non-est in law. The Court directed that if the stay is granted by the DRT, then it must be complied with.
Case Title: Axis Bank Ltd. v. State Of U.P. And 6 Others [WRIT - C No. - 21492 of 2025]