Sureshbhai Devrajbhai Motadiya vs. District Magistrate, Rajkot District

Held

The Court dismissed the petition. It held that while the SARFAESI Act aims for efficient recovery of NPAs, it must be balanced with the rights of tenants. However, the Court found no evidence to support the petitioners' claim of being tenants prior to the mortgage. Petitioner No. 1 was the brother of the guarantor who had released his rights, and his claim was seen as an attempt to thwart proceedings. Petitioners No. 2 and 3 presented only tax invoices from 2017 with a different address, failing to establish their tenancy at the mortgaged property before the bank's action. The Court reiterated that tenancy rights, to be protected under SARFAESI, must be established by a proper registered deed predating the mortgage, and the onus was on the claimant. The Court found no material to suggest a lack of notice and noted the availability of an effective alternative remedy, leading to the dismissal of the petition.

Facts

The petitioners, Sureshsinh Devrajbhai Motadiya and two others, challenged an order dated June 15, 2018, passed by the District Magistrate, Rajkot. This order authorized the Executive Magistrate to take possession of properties under Section 14 of the SARFAESI Act, 2002. The petitioners claimed they were tenants in the property, which was ancestral and mortgaged by the guarantor, who was the elder brother of Petitioner No. 1. Petitioner No. 1 resided in part of the property, while Petitioners No. 2 and 3 operated businesses from there. The bank had initiated proceedings under SARFAESI after the loan account became Non-Performing. The District Magistrate's order was passed without hearing the petitioners, who contended they were third parties with tenancy rights. The physical possession was scheduled to be taken on August 16, 2018.

Key Issues

1. Whether the District Magistrate, while passing an order under Section 14 of the SARFAESI Act, 2002, is obligated to hear third parties claiming tenancy rights over the secured asset, and if not, whether such an order is violative of their rights. (Turning on Section 14 of SARFAESI Act, 2002 and principles of natural justice). Petitioner's Arguments: The petitioners argued that the District Magistrate's order was illegal and arbitrary as it was passed without providing them an opportunity to be heard, despite their status as tenants in possession. They relied on the Supreme Court's decisions in Vishal N. Kalsaria vs. Bank of India and Indian Bank vs. Nippon Enterprises South, asserting that tenants cannot be arbitrarily evicted and must be heard. They also contended that their businesses would be ruined and their families rendered shelterless. Revenue's Arguments: The Assistant Government Pleader argued that the petitioners had not produced any evidence to establish their tenancy prior to the mortgage. They also pointed out that the petitioners had an effective alternative remedy. The court noted that notices had been issued to the guarantor and affixed at the property, suggesting compliance with notice requirements.