Tenancy Must Precede Mortgage To Contest Eviction: Supreme Court Clarifies Under SARFAESI Act

The Supreme Court, in a significant ruling favouring secured creditors, held that a tenant cannot resist eviction under the SARFAESI Act unless the tenancy was established prior to the creation of the mortgage.

In this case, Respondent No. 1 claimed tenancy since 1987 under an unregistered lease. After the property was mortgaged to PNB Housing in 2017 and default occurred, PNB took possession under the SARFAESI Act. The Calcutta High Court restored possession to the tenant citing tenancy protection. PNB then appealed to the Supreme Court.

The bench of Justices P.S. Narasimha and 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.”

The Court cited Bajarang Shyamsunder Agarwal v. Central Bank of India (2019) and clarified that Vishal Kalsaria v. Bank of India (2016) protects only bona fide tenants with documented tenancy prior to the mortgage. Since Respondent No. 1’s tenancy wasn’t established before the mortgage, the Court held Vishal Kalsaria’s ruling wouldn’t apply to him.

The Court observed that as per Bajarang Shyamsunder Agarwal, tenants relying on oral or unregistered agreements must produce evidence like rent receipts, tax records, or electricity bills to prove valid tenancy. Even then, such tenancy does not continue beyond one year after a notice under section 13(2) of the SARFAESI Act, after which the tenant is treated as a 'tenant in sufferance.'

The Court emphasized the need for clear, documented tenancy predating the mortgage to seek protection. Accordingly, the Court allowed the appeal and set aside the High Court's order restoring possession to Respondent No. 1.

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