Unregistered Tenancy Claim Fails to Block Secured Creditor’s Possession under SARFAESI: Supreme Court

The Supreme Court held that an unregistered tenancy claim could not defeat the secured creditor’s right to take possession of the property under the SARFAESI Act.

On 15 July 2025, the Supreme Court Bench comprising Justice Pamidighantam Sri Narasimha and Justice Joymalya Bagchi, while deciding a civil appeal, held that a tenant claiming rights under an unregistered or oral lease must establish the existence of tenancy through clear and pre-existing evidence prior to the issuance of the SARFAESI demand notice. In the absence of such proof, the tenant is not entitled to possession, and interference by the High Court under Article 227 is unwarranted, especially when alternate statutory remedies under the amended SARFAESI Act are available.

The Supreme Court allowed the appeal challenging the judgment of the High Court, which had directed the appellant to restore possession of a secured asset to the first respondent, who claimed tenancy rights over the premises. The first respondent contended that he was a tenant under an unregistered lease agreement from 1987 and had continued as a monthly tenant even after the expiry of the lease. However, he failed to substantiate the claim with sufficient evidence, such as rent receipts, tax or electricity bills, predating the issuance of the demand notice under Section 13(2) of the SARFAESI Act. The appellant, a secured creditor, had taken symbolic possession in 2021 and physical possession in 2023 following default in loan repayment by the borrower, i.e., the second respondent.

The Debt Recovery Tribunal (DRT) had earlier rejected interim relief sought by the first respondent on the ground that the tenancy was unregistered and not disclosed to the lender at the time of the mortgage. The High Court, however, set aside the DRT’s order and granted interim relief to the first respondent, holding that his eviction without due process of law was impermissible, and that tenancy-related claims warranted adjudication in the securitisation application. The Supreme Court found the High Court's interference under Article 227 unjustified, particularly in view of the amended SARFAESI framework post-2016, which allowed tenants and lessees to challenge possession actions directly before the DRT under Section 17(4A), with a further right of appeal under Section 18.

The Court held that the High Court had erroneously relied on the decision in Harshad Govardhan Sondagar v. International Assets Reconstruction Company Limited and Others, REEDLAW 2014 SC 04201, which was based on the unamended SARFAESI regime, and failed to consider later authoritative rulings including Bajarang Shyamsunder Agarwal v. Central Bank of India and Another, REEDLAW 2019 SC 09202, where it was held that tenancies based on oral or unregistered agreements cannot extend beyond one year after the issuance of notice under Section 13(2). The Court further noted that the first respondent neither disclosed his tenancy to the appellant when symbolic possession was taken, nor did he take timely legal action. His claim, supported only by recent rent deposits with the Rent Controller, failed to establish a compelling case warranting a mandatory restoration of possession.

Accordingly, the Supreme Court set aside the impugned High Court order and directed maintenance of the status quo in respect of the secured asset until the final disposal of the securitisation application pending before the DRT, which was directed to be concluded within two months.

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REEDLAW 2025 SC 07202