Allahabad High Court: Borrower Can't Wiggle Out Liability By Filing Suit Through Tenant After Completion Of Proceedings U/s. 14 SARFAESI Act

The Allahabad High Court has held that a borrower can't wiggle out his liability by filing a Civil Suit through tenant after passing of an order under Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

The Court was considering a Writ Petition seeking directions to the Sub- Divisional Magistrate to take physical possession of the property in question in pursuance of the order passed under Section 14 of the SARFAESI Act.

The Division Bench of Justice Shekhar B. Saraf and Justice Praveen Kumar Giri held, "In our view, once an order has been passed under Section 14, the authorities are required to act in pursuance of the same and as per the provisions of the Act. The mechanism used by the borrowers to wiggle out of their liability cannot be countenanced by us."

The Petitioner was represented by Advocate Arpita Tarmali, while the Respondent was represented by C.S.C.

Facts of the Case

The Borrowers in the present case created a mortgage of the property after the grant of the loan to them. A tenant of the Borrowers filed a suit and obtained a stay order from the Civil Court without making the Petitioner Bank a party in the said suit.

Counsel for the Petitioner submitted that in spite of an order passed under Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, physical possession of the property was not provided to the Petitioner. It was further submitted that the order passed by the Civil Court is non-est in law as the same is barred by Section 34 of the SARFAESI Act. Reliance was placed on Bajarang Shyamsunder Agarwal vs. Central Bank of India & Anr. (2019).

Reasoning By Court

The Court at the outset observed that tenancy was created during the pendency of the mortgage without permission of the secured creditor, that is, the bank and the same 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.

Pointing out that the Tenant was required to move an Application under Section 17 before the DRT for asserting his rights under such a registered document, the Court held, "In the present case, it is patently clear that the loan was taken by the borrowers, and subsequently, the registered lease deed was executed by the borrower, without the knowledge of the bank. In such a case, it was for the tenant to approach the DRT and obtain necessary orders therein. However, the tenant in the present case has obtained an order of status quo/stay from the Civil Court by alleged suppression of material facts including mortgage of the property by the borrower without reference to the secured creditor, that is, the petitioner bank."

It was thus of the view that the authorities should act in accordance with the judgment of the Supreme Court in Bajarang Shyamsunder Agarwal (supra) and give possession to the Petitioner Bank.

"We make it clear that order obtained by the tenant, wherein the petitioner bank has not been made a party is, in a manner of speaking, non-est in law as it contravenes the provision of Section 34 of the Act", the Court ruled.

The Petition was accordingly disposed of.

Cause Title: Axis Bank Ltd. vs. State Of U.P. And 6 Others (2025:AHC:135653-DB)

Appearances:

Petitioner- Advocate Arpita Tarmali, Advocate Sanjay Kumar Gupta

Respondent- C.S.C.

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