SARFAESI not meant to override rent control laws

By Vivek Vashi, Shreya Ramesh, Bharucha & Partners

In a judgment delivered on 20 January in Vishal N Kalsaria v Bank of India and connected civil appeals, the Supreme Court considered the clash between the scope and application of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), and the Maharashtra Rent Control Act, 1999, and/or other state rent laws.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Shreya Ramesh is an associate.
Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Shreya Ramesh is an associate.

The difficulty arose since the SARFAESI Act, enacted with the express object of providing banks with means to recover their security interest and collateral assets from debtors, contains a non obstante clause at section 35 which gives the provisions of the SARFAESI Act an overriding effect over any inconsistent provisions contained in any other act in force.

Misplaced reliance

In the instant case, the chief metropolitan magistrate and the high court, through a misplaced reliance on the Supreme Court’s judgment in Harshad Govardhan Sondagar v International Assets Reconstruction Co Ltd (2014), held that unless tenants demonstrate proof of execution of a registered instrument of tenancy in their favour, they are not protected under the rent control laws.

After a comprehensive analysis of the object and purpose of the SARFAESI Act and the Rent Control Act, the Supreme Court concluded that in the face of a direct conflict between two laudable purposes, i.e. the smooth and efficient recovery of non-performing assets to boost a beleaguered economy as against securing the rights of tenants against unscrupulous landlords, the doctrine of pith and substance must guide interpretation.

Essentially, the scope of the non obstante clause of the SARFAESI Act must be construed purely in the sphere in which it seeks to operate. The court observed that the SARFAESI Act and the Rent Control Act exist in completely different spheres and the non obstante clause in the SARFAESI Act cannot be used to “bulldoze statutory rights that are vested on the tenants under the Rent Control Act”. Such an interpretation would be tantamount to overriding state legislation through an incorrect reading of central laws.

Monthly tenants protected

The court held that even in the absence of a valid and registered lease deed, the relationship of monthly tenancy can be established by virtue of payment of rent and possession of the property. When considered in the context of the object and purpose of the Rent Control Act, it is well settled that even a monthly tenant is entitled to the protection offered under the act.

Section 15 of the Rent Control Act clearly protects tenants against unjust evictions by denying the landlord the right to recovery of possession of any premises so long as the tenant pays, or is ready and willing to pay, the amount of the standard rent or any rise in the rent and performs all other obligations of the tenancy. Landlords cannot be permitted to do indirectly what they have been barred from doing under the Rent Control Act, more so when the two laws operate in completely different fields and such a reading would stultify the protection afforded to a tenant.

Finally, the Supreme Court also deplored the tendency to misinterpret judgments, such as in the case of Harshad Sondagar, by quoting “random sentences” out of context to warp the very purport of the judgment. Words and phrases, divorced from context, are not and must not be treated as a full exposition of the law on a subject.

Succession of a widow under the Hindu Law Women’s Rights Act

In a series of civil appeals before the Supreme Court, a question was raised regarding the succession to a Hindu male dying intestate under the provisions of the Hindu Law Women’s Rights Act, 1933.

In the instant case, ancestral and coparcenary property of a joint Hindu family was partitioned and divided between two brothers, Thimmappa and Mahabalaiah. After the demise of Thimmappa, his widow executed a will bequeathing her share in the joint family property in favour of one of her three daughters. Sunanda, one of the two remaining daughters, brought a suit to claim a share of the joint family property.

The Supreme Court held that in view of the order of succession prescribed in section 4 of the Hindu Law Women’s Rights Act, succession to a male dying intestate would vest, in the absence of any male issue, in the widow of the deceased to the exclusion of and in preference to all others.

Both sides led arguments on whether the joint family property devolved by survivorship or by partition. The court rejected the arguments in favour of the applicability of section 8, which sets out the class of females entitled to shares on partition, and held that the widow was entitled to succession to the exclusion of all others.