In a case where a tenant failed to produce rent receipts and other evidence regarding continued possession prior to issuance of a demand notice under section 13(2) of the SARFAESI Act, the Supreme Court has set aside an order directing restoration of possession in the tenant’s favor.

The Appellant approached the Apex Court assailing the judgment of the High Court whereby the secured asset, whose possession was taken by the Appellant, was directed to be handed back to the first Respondent.

The Division Bench of Justice Pamidighantam Sri Narasimha and Justice Joymalya Bagchi observed, “A mandatory order restoring status quo ante necessitates a compelling cast iron case which 1st Respondent has failed to establish. His indifferent conduct and failure to produce rent receipts and/or other evidence regarding continued possession prior to issuance of demand notice under section 13(2) of SARFAESI does not justify a mandatory order.

Senior Advocate Shikhil Suri represented the Appellant while Senior Advocate Jaideep Gupta represented the Respondent.

Factual Background

The first respondent claimed to be a tenant of the secured asset. He had entered into an unregistered tenancy agreement with M/s Janapriya Finance and Industrial Investment (India) Pvt. Ltd. for 5 years. In 1992, the term of tenancy expired. The first Respondent alleged he continued as a monthly tenant under the original landlord. In 2007, the original landlord sold the secured asset to the second Respondent. When the second Respondent i.e. the new landlord called upon the first Respondent to pay rent, the second Respondent continued to occupy the secured asset as a tenant.

In 2017, the second Respondent took a loan from the Appellant against the creation of the security interest on the premises. A second loan was also taken. The loan account was not serviced and became a Non­-Performing Asset (NPA). The Demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 20023 was issued to the the second Respondent, requiring the latter to pay Rs.3,09,65,636.97. When no payment was made, the second respondent instituted an ejectment suit and recovery measures were initiated against the SARFAESI Act. Later, physical possession was taken by the Deputy Magistrate and handed over to the Appellant.

The Respondent filed a securitisation application seeking the handing back of possession of the secured asset. An interim application seeking a stay of notice and other reliefs was also filed. The DRT dismissed the applications. When the first respondent filed an appeal, the High Court allowed the same and directed the restoration of possession. The appeal, thus, came to be filed in such circumstances.

Reasoning

The Bench was in wholesome agreement with the submission of the Appellant that the High Court ought not to have entertained the matter in view of the existence of appellate remedy under section 18 of SARFAESI. Highlighting the fact that the SARFAESI Act was amended in 2016, the Bench said, “By the amending Act, section 17(4A) was introduced with effect from 01.09.2016, enabling any person claiming to be lessees/tenants in respect of secured assets to approach the DRT against measures under section 13(4) of SARFAESI, including taking possession of the secured asset. Tribunal was empowered to declare such measures invalid and restore possession. Order of DRT was made appealable before the appellate tribunal under section 18 of SARFAESI. In light of the aforesaid statutory scheme, this Court repeatedly deprecated interference of High Courts under Article 226/227 in matters pertaining to SARFAESI.”

The Bench was also not convinced by the evidence adduced by the first Respondent before the DRT with regard to prior tenancy. It was further noticed that the first respondent had only relied on documents showing the deposit of rent with Rent Controller from the duration after the demand notice was issued by the Appellant. “Mere reference to some pre­existing tenancy in the sale deed or issuance of letter of attornment by 2nd Respondent (who is also the borrower) unsubstantiated by independent and convincing possessory evidence would not establish a compelling case of pre­existing tenancy in favour of 1st Respondent. Given this situation, institution of the ejectment suit by 2nd Respondent may not be a determining factor as the possibility of setting up a sham and collusive suit to defeat the claim of the Appellant cannot be ruled out”, it said.

Thus, allowing the appeal, the Bench set aside the impugned order passed by the High Court and directed status quo in respect of the secured asset till the disposal of the securitisation application. “The application shall be disposed of within 2 months from the date of communication of this order without granting unnecessary adjournment to either of the parties”, it concluded.

Cause Title: PNB Housing Finance Limited v. Manoj Saha & Anr. (Neutral Citation: 2025 INSC 847)

Appearance:

Appellant: Senior Advocate Shikhil Suri, AOR R. N. Keswani, Advocates Ramesh N. Keswani, Pranav Singal, Ravi Raghunath Vachher, Arjun Vachher, Vinayak Sharma, Akshat Vachher, Saurabh Jha, Rahul

Respondent: Senior Advocate Jaideep Gupta, AOR Siddharth, Advocates Racheeta Chawla, Riddhi Bose, Sampriti Baksi,Rishi Aggarwal, Prateek Goyal, Harshit Manwani

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Justice Pamidighantam Sri NarasimhaJustice Joymalya Bagchi

Tulip Kanth

Assistant Editor

Tulip Kanth is an Assistant Editor at Verdictum having over 5 years of experience in the field of legal journalism and editing. She extensively covers judgments of the Supreme Court, High Courts as well as Tribunals. She has previously worked with a legal publishing website where she oversaw the work of other editors and has also created updates on notifications of different Government Ministries. She holds an English Honours Degree from SGTB Khalsa College, Delhi University and has completed her LLB course with specialisation in Corporate Law from Amity University.