SUPREME COURT HOLDS THAT PROOF OF TENANCY BEFORE MORTGAGE MUST BE ESTABLISHED TO CLAIM PROTECTION AGAINST EVICTION UNDER SARFAESI ACT
On July 15, 2025, in an important Judgment that clarifies the legal standing of tenants under the SARFAESI Act, 2002, the Supreme Court ruled that tenants who fail to establish their tenancy prior to the creation of a mortgage cannot claim protection against eviction by secured creditors. The decision came in the case titled PNB Housing Finance Ltd. v. Manoj Saha & Anr. (SLP (C) No.7288 of 2024) and was delivered by a bench comprising Justices Joymalya Bagchi and P.S. Narasimha.
Background of the Dispute
The case revolved around a commercial property located at 1 Allenby Road, Kolkata, which was originally owned by M/s Janapriya Finance and Industrial Investment (India) Pvt. Ltd. In 1987, Respondent No.1, Manoj Saha, claimed to have taken this property on rent through an unregistered five-year lease. Although the lease expired in 1992, Saha asserted that he continued to occupy the premises as a monthly tenant.
In 2007, the original owner sold the property to Respondent No.2, who subsequently mortgaged it to PNB Housing Finance Ltd. in 2017. When the borrower defaulted on repayment, the property became a Non-Performing Asset (NPA). PNB Housing then issued a demand notice under Section 13(2) of the SARFAESI Act and, subsequently, took symbolic possession under Section 13(4). Later, with the help of the District Magistrate, it also obtained physical possession in August 2023.
Respondent No.1 challenged this action, claiming tenancy rights under the West Bengal Premises Tenancy Act, 1997. The Calcutta High Court accepted his plea and directed restoration of possession. Aggrieved, PNB Housing Finance appealed to the Supreme Court.
Supreme Court’s Analysis and Findings
The Apex Court overturned the High Court’s order, laying down key principles regarding tenancy claims in properties mortgaged to secured creditors.
The Court emphasized that only tenancies established before the creation of the mortgage and backed by proper documentation such as registered agreements, rent receipts, tax records, or utility bills can enjoy protection against eviction under the SARFAESI Act.
The Court further noted that:
- The tenancy agreement relied upon was unregistered and expired long before the mortgage was created.
- The Respondent failed to provide any credible documentary evidence showing he remained a tenant beyond the original term or that he was in lawful possession prior to the mortgage in 2017.
- The only documents produced showed rent being deposited with the Rent Controller between January and December 2022—well after the 2021 demand notice issued by the Appellant.
As per the Court, what matters is, independent, reliable evidence proving continuous possession and a valid tenancy before the creation of the security interest.
Clarification of Precedents
The Supreme Court revisited several prior decisions to distinguish the current case:
- Harshad Govardhan Sondagar v. International Assets Reconstruction Co. Ltd. (2014) 6 SCC 1: This case protected tenants with registered leases prior to the issuance of the SARFAESI notice. However, it limited protection to tenants with documented rights and clarified that leases post-notice without lender consent are void.
- Vishal N. Kalsaria v. Bank of India (2016) 3 SCC 762: In this case, the Court held that the SARFAESI Act does not override rent control laws where valid tenancies predate the mortgage. However, the Court in the present case clarified that Kalsaria only applies when such tenancy is undisputed, legal, and adequately documented.
- Bajarang Shyamsunder Agarwal v. Central Bank of India (2019) 9 SCC 94: The Court affirmed that even if tenants claim occupancy under oral or unregistered agreements, they must show strong evidence—like rent receipts, utility payments, or tax records. Moreover, even such tenancies cannot extend beyond one year after the demand notice under Section 13(2) of SARFAESI. Beyond that, tenants are considered “tenants in sufferance” and have no enforceable rights.
The Supreme Court found that the High Court had erred in relying on Harshad Govardhan Sondagar, which was based on pre-amendment provisions of SARFAESI. After the 2016 amendment, tenants could contest possession measures under Section 17(4A) and seek appellate relief under Section 18, rendering High Court intervention under Article 227 inappropriate.
Indifferent Conduct of the Tenant
Another significant factor in the Court’s reasoning was the conduct of Respondent No.1. Despite public notices being published in newspapers and posted on the property as early as December 2021, he failed to approach the Debt Recovery Tribunal (DRT) or inform the lender of his tenancy until after physical possession had already been taken in August 2023.
The Court held that restoring possession to the Respondent would require a “compelling cast iron case” of tenancy rights, which was clearly lacking here. His failure to act promptly and provide credible evidence made him ineligible for such protection.
Conclusion and Implications
In conclusion, the Supreme Court allowed the appeal by PNB Housing Finance and set aside the Calcutta High Court’s order. It directed that the secured asset’s possession remain with the lender until the final adjudication of the pending securitisation application. The DRT has been asked to dispose of the matter within two months.
This ruling sends a strong message reinforcing the rights of secured creditors under the SARFAESI Act while cautioning tenants that only legally established, documented tenancies created prior to a mortgage will receive protection. The decision underscores the necessity for tenants to maintain written leases, keep proper records, and act promptly when asserting their rights—especially when the property in question becomes the subject of enforcement under SARFAESI.
For lenders and financial institutions, the verdict affirms their ability to recover secured assets from occupants whose claims of tenancy are either post-mortgage or unsupported by law. This clarity will likely help reduce litigation and delays in asset recovery proceedings.
Yash Hari Dixit
Associate
The Indian Lawyer and Allied Services
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