The Hindu Business Line : Securitisation Act bars borrower from asset sale: HC

Chennai March 23 The Madras High Court has ruled that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) operated as an attachment/injunction restraining borrower from disposing of secured assets, and, therefore, any tenancy created after such notice would be null and void.

Tenancy created by mortgager after mortgage in contravention of Section 65A would not be binding on bank/financial institution, which had lent money to the borrower, the First Bench held while dismissing a writ petition by Sree Lakshmi Products Ltd, Coimbatore, challenging their eviction from the property by State Bank of India.

The Bench, comprising the AP Chief Justice Mr Shah and Mr Justice K. Chandru, said that when petitioner was claiming a tenancy prior to creation of mortgage, and such tenancy was disputed by the bank, the remedy for petitioner was to approach the Debt Recovery Tribunal by under Section 17 of the Act.

The petitioner contended that they being a tenant and in physical possession of portion of building in Uthupalayam village, Palladam Taluk, by virtue of a lease deed dated April 5, 2003, duly executed by the principal borrower and mortgager of property, Sree Lakshmi Foundry, was fully protected under the TN Lease & Rent Control Act, and could not be dispossessed. SBI submitted that in cases where a secured creditor had taken action under Section 13(4), it would be open for the borrower to approach the DRT, and they could not invoke jurisdiction of this Court under Article 226 of Constitution.

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