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By Privileging Tenant Rights Over Lenders Rights, SC May Have Given Crooks An Advantage
S Murlidharan
Feb 08, 2016, 11:54 PM | Updated Feb 12, 2016, 05:19 PM IST
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Alas the Supreme Court too has fallen a prey to the common stereotyping of landlords and tenants – the former as merciless and greedy mercenaries and the latter as poor innocents with no shelter over their heads.
The Supreme Court recently set a bad precedent, unwittingly though it seems. In Vishal N Kalsaira vs Bank of Indiaand others the Apex Court was considering a matter emanating out of the Securitisation Act, 2002, the main plank of which is to enable harried secured creditors to seize mortgaged assets without court intervention in order to overcome the festering problem of non-performing assets (NPA).
Indeed, it is a landmark legislation that doesn’t allow secured creditors’ rights to be subjugated to those of borrowers through the dilatory, nay near impossible process of telling between genuine and contrived reasons for default. Peremptory solutions are desirable for intractable problems.
The mortgaged property was rented out. The tenant, to be sure, enjoyed protection under the rent control law of the concerned state. One, of course, does not know if he was a frontman propped up by the defaulting borrower.
But his plight moved the apex court so much that it held that the securitisation law, despite containing an overriding (non-obstante) clause, could not override rent control laws, a social welfare legislation. Touché!
Alas the Supreme Court too has fallen a prey to the common stereotyping of landlords and tenants – the former as merciless and greedy mercenaries and the latter as poor innocents with no shelter over their heads.
In the event, the Court has committed two grievous errors, which can only help crooks and defaulters. First, holding the Securitisation Act as yielding, and subservient, to rent control laws despite containing the overriding provision in the section dealing with seizure of mortgage property is oxymoronic, to say the least.
Secondly, mixing up the issues – lender-borrower vis-à-vis landlord-tenant. The Securitisation Act is all about lender-borrower. Anyone can frustrate its objects by propping up a ‘shikandi’ the way Arjuna did to kill Bhishma at Kurukshetra. Arjuna knew Bhishma would not fight a woman. So he put up Shikandi, a half-man, half-woman, in the front and rained arrows from behind. Defaulters can put up latter day shikandis to frustrate banks.
To be sure, there can be genuine tenants as well. But a peremptory law should not be made to distinguish between the genuine and the contrived lest its objects are frustrated. The parties to the loan agreement are the lender and the borrower, often with a guarantor. The mortgage property is always insisted upon to be free of encumbrances. A contract of tenancy is between the borrower-landlord and the tenant.
The borrower cannot be allowed to cock a snook at the lender by raising the bogey of tenant rights whether he is a propped up shikandi or genuine. Indeed it is none of the concerns of the lender unless he was a party to the tenancy agreement. So much so, it is for the borrower-landlord to address the concerns of tenants by either compensating him or finding him any other suitable property on mutually agreed terms.
It is axiomatic that the landlord’s status as landlord can continue as such only so long as he is the owner of the property rented out. The moment he loses ownership for whatever reason, the tenancy goes unless the tenancy agreement contains a clause that the new owner should continue to offer tenancy to the same tenant on the same terms and the new owner agrees to such an oppressive clause.
If tenancy rights could be the alibi, Delhi Metro could never have compulsorily gotten properties that were under the occupation of tenants. What is sauce for the goose (Delhi Metro) cannot be anything else for the gander (Bank of India).
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