Tenancy Created After Mortgage Cannot Defeat Bank’s Rights Under SARFAESI Act: High Court Rules Possession Must Be Handed to Secured Creditor
- REEDLAW
- Aug 21
- 3 min read
REEDLAW Legal News Network reports: In a crucial ruling, the Allahabad High Court held that a tenancy created after the execution of a mortgage cannot override the rights of a secured creditor under the SARFAESI Act, 2002. The Court clarified that once an order under Section 14 is passed, the secured creditor is entitled to take physical possession of the mortgaged property, and any disputes relating to alleged tenancy must be adjudicated exclusively before the Debts Recovery Tribunal (DRT) under Section 17 of the Act.
The Allahabad High Court Division Bench, comprising Justice Shekhar B. Saraf and Justice Praveen Kumar Giri, adjudicated a writ petition and ruled that a tenancy claimed to have been created after the mortgage, without the consent of the secured lender, cannot defeat the bank’s rights to enforce a security interest under the SARFAESI Act. The Bench further emphasised that the District Magistrate is bound to deliver possession to the secured creditor in compliance with an order under Section 14, leaving any tenancy disputes to be examined solely by the DRT in proceedings under Section 17.
The High Court heard the counsels for the petitioner bank and the State in a writ petition filed under Article 226 of the Constitution of India. The petitioner bank sought a writ of mandamus directing the Sub-Divisional Magistrate, Hapur, to take physical possession of the mortgaged property pursuant to an order passed under Section 14 of the SARFAESI Act, 2002. It was submitted on behalf of the petitioner that despite such an order dated 17.02.2025, physical possession had not been delivered.
The State, however, contended that the borrowers had created a mortgage of the property after obtaining the loan, and subsequently, a tenant of the borrowers had obtained a stay order from the Civil Court without impleading the petitioner bank. The petitioner argued that such an order of the Civil Court was barred under Section 34 of the SARFAESI Act and was therefore non-est in law. Reliance was placed on the judgment of this Court in M/s Trilokchand Fabrication Pvt. Ltd. v. State of U.P. and on the principles laid down by the Hon’ble Supreme Court in Bajarang Shyamsunder Agarwal v. Central Bank of India and Another, REEDLAW 2019 SC 09202, to emphasize that tenancies created post-mortgage without consent of the secured creditor were subject to Section 65A of the Transfer of Property Act, and any claim of tenancy must be adjudicated only by the Debts Recovery Tribunal under Section 17 of the SARFAESI Act.
The Court observed that the mechanism adopted by the borrowers to defeat the bank’s claim could not be entertained. Since the lease deed in question was executed after the creation of the mortgage and without the bank’s consent, it was for the tenant to approach the DRT. The Civil Court’s order, obtained without impleading the bank, was declared non-est in law as it contravened Section 34 of the Act. The Court held that once an order under Section 14 had been passed, the authorities were bound to act in pursuance thereof and hand over possession to the secured creditor, subject only to any order that may be obtained by the tenant from the DRT under Section 17.
Accordingly, the Court directed the authorities to deliver possession of the property to the petitioner bank within eight weeks, unless restrained by a lawful stay order passed by the DRT. The writ petition was disposed of with these directions.
Mr. Sanjay Kumar Gupta and Ms. Arpita Tarmali, Advocates, represented the Appellant Bank.
Chief Standing Counsel appeared for the Respondents.
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