The Madhya Pradesh High Court (Gwalior Bench) has held that a person who acquires possession of public premises through a statutory auction conducted by a secured creditor under the SARFAESI Act, 2002, and holds a sale certificate, cannot be classified as being in “unauthorised occupation” within the meaning of Section 2(g) of the M.P. Lok Parisar (Bedakhali) Adhiniyam, 1974, merely because disputes have arisen regarding formal transfer of leasehold rights or liability for past dues of the predecessor-in-interest.
The Court explained that the summary eviction mechanism under the Adhiniyam is not a remedy available to the lessor-State instrumentality for resolving disputes relating to transfer of leasehold rights or recovery of financial liabilities arising from a SARFAESI auction sale. Such disputes must be adjudicated through appropriate civil or statutory remedies available in law, and the auction purchaser cannot be evicted under the Adhiniyam solely on account of such disputes.
Also read Retrospective Debarment Cannot Defeat Accrued Recruitment Rights: Rajasthan HC
A Single Judge Bench of Justice Milind Ramesh Phadke observed that a person who enters possession of industrial land pursuant to a public auction conducted by a secured creditor under the SARFAESI Act, 2002, and holds a sale certificate cannot be equated with a rank trespasser or a person in clandestine occupation. The very foundation of such possession is traceable to a statutory process, and it cannot be brought within the ambit of “unauthorised occupation” as defined under Section 2(g) of the M.P. Lok Parisar (Bedhakli) Adhiniyam, 1974, merely because disputes subsequently arose regarding formal transfer of leasehold rights or liability for earlier dues.
The Court emphasised that the summary eviction mechanism under the M.P. Lok Parisar (Bedhakli) Adhiniyam, 1974 is confined to eviction of persons in unauthorised occupation of public premises. It cannot be invoked by a State instrumentality to resolve controversies relating to transfer of leasehold rights or determination of financial liabilities arising out of an auction sale. Such disputes must be adjudicated through appropriate civil or statutory remedies and not through the summary eviction route.
The Competent Authority committed a fundamental jurisdictional error by proceeding on the assumption that non-transfer of lease automatically rendered the auction purchaser an unauthorised occupant, without appreciating the legal effect of the SARFAESI auction sale and the nature of possession acquired by the auction purchaser through the secured creditor, added the Court.
The Court also observed that an auction purchaser in a “free from encumbrance” SARFAESI sale cannot be saddled with past liabilities incurred by the predecessor-in-interest prior to the date of the sale certificate. If the State instrumentality is entitled to recover any amount representing arrears or liabilities attributable to the previous lessee, it must pursue remedies against the person legally liable therefor, including the secured creditor, if permissible in law, and not against the auction purchaser through eviction proceedings.
Also read SC Directs Union and 10 States To Fill Disability Commissioner Posts Within Four Weeks
Briefly, M.P. Industrial Development Corporation Ltd. allotted industrial plots at Malanpur, District Bhind, to respondent No. 2 under lease deeds executed in 1992 and 1996. The rights and obligations governing such industrial land are governed by the M.P. Rajya Audhyogik Bhumi Evam Bhawan Prabandhan Niyam, 2015. Respondent No. 2 had assigned its leasehold rights to the State Bank of India as security for financial assistance. Upon default, the Bank, acting as secured creditor, auctioned the property under Section 13 of the SARFAESI Act, 2002. Respondent No. 1 purchased the industrial assets through the auction on 11 March 2014 for Rs. 80 lakhs and was issued a Sale Certificate recording that the sale was made free from all encumbrances known to the secured creditor.
Respondent No. 1 applied for formal transfer of leasehold rights on 7 November 2014. The Corporation, however, raised a demand of Rs. 18.51 lakhs, which was later inflated to Rs. 27.62 lakhs, seeking to recover past dues of the defaulting prior lessee, M/s Super Sack. Respondent No. 1 resisted, contending that an auction purchaser in a “free from encumbrance” SARFAESI sale cannot be made liable for past arrears of the original borrower. Since respondent No. 1 failed to complete the transfer formalities, the Corporation cancelled the lease by order dated 10 May 2016.
On appeal, the appellate authority (Managing Director, M.P. TRIFAC) by order dated 10 October 2016 directed respondent No. 1 to apply for transfer of the lease within one month, the Corporation to recalculate dues and issue a fresh demand, and respondent No. 1 to clear outstanding dues, upon which a fresh lease deed was to be executed. Failure to comply would result in automatic revival of the cancellation. The Corporation issued multiple communications between October 2016 and November 2018 calling upon respondent No. 1 to initiate the transfer process. According to the Corporation, respondent No. 1 neither submitted any application nor complied with the appellate conditions, resulting in automatic revival of the lease cancellation. The Competent Authority under the M.P. Lok Parisar (Bedhakli) Adhiniyam, 1974, initiated proceedings under Section 4(1) and passed an eviction order on 9 September 2020.
