Pridhvi Asset Reconstruction And Securitization Company Ltd. vs M/s Khwaja Exports Pvt. Ltd. & Ors.

MA 81/2025 and MA 82/2025 are filed to set aside the orders passed by Learned Presiding Officer, DRT-I, at Karnataka at Bengaluru in IA 2625/2025 and IA 2971/2025 respectively in SA 314/2015 on 17.10.2025 and 07.11.2025.

2 SA 314/2015 was filed by Respondents 1 to 4 to declare that notices issued under Sections 13(2) and 13(4) of the SARFAESI Act, 2002 are illegal, arbitrary, unreasonable and unjustifiable; to appoint Auditor to detect the fraud committed by the Appellant in dealing with various account of the Respondents 1 to 4 and for other reliefs.

When the SA was pending, Appellant filed three Applications in IA 2625/2025, IA 2626/2025 and IA 2627/2025 for vacating the interim status quo order passed by the Tribunal on 16.07.2015; to reopen the case to file the additional statement of objection along with documents and to direct the first Respondent to produce the lease deed/agreement in order to demonstrate that the lease deed in compliance with Section 65 A of the Transfer of Property Act, respectively. Of these three Applications, IA 2626/2025 and IA 2627/2025, to reopen the case to file the additional statement of objection along with documents and direction to produce the lease deed/agreement were allowed. In IA 2625/2025, for vacating the interim status quo order passed by the Tribunal on 16.07.2015, Learned Presiding Officer passed an order to continue the earlier status quo till the disposal of the SA with certain modification. Aggrieved against this order, MA (SA) 81/2025 is filed.

Appellant also filed IA 2971/2025 to implead the tenant as Respondent in the Securitisation Application. The said Application was dismissed. Therefore, MA(SA) 82/2025 is filed.

Mr. Srinath Sridevan, Learned Senior Counsel submitted that SA 314/2015 was filed by the Respondents 1 to 4 challenging the Demand Notice issued under Section 13 (2) and Possession Notice issued under Section 13(4) of the SARFAESI Act and for consequential and incidental reliefs. Learned Presiding Officer, DRT-I, Bengaluru, passed an order of status quo on 16.07.2015. Thereafter, the said order of status quo was extended from time to time on the premise that Hon’ble High Court of Karnataka at Bengaluru passed an order of stay of further proceedings in the SA. The loan facilities were availed by the Respondents 1 to 4 from the State Bank of India. The State Bank of India assigned the loan to the Appellant, Pridhvi Asset Reconstruction and Securitization Company Limited. On taking charge, the Appellant verified and came to know that no such stay was operating against the proceedings in SA 314/2015 as ordered by Hon’ble High Court. Therefore, Respondents filed Applications in IA 2625/2025, 2626/2025 and 2627/2025 for the aforesaid reliefs and the Learned Presiding Officer, passed the order as follows:-

It is further submitted that when the order of status quo was in force, the Respondents 1 to 4 had created lease agreement in favour of a third party. When it is known that they violated the status quo order, passing orders giving them protection and preventing the Appellant from taking coercive steps including issuance of auction notice and confirmation of sale till the disposal of the SA, are against the canons of all judicial principles and a premium given to the wrongdoer. .

He further submitted that when a protection was given for the tenant on the basis of lease agreement, it is imperative that the tenant has to be impleaded as Respondent for the binding adjudication of lis involved. Thus, he submitted that the dismissal of IA 2625/2025 and IA 2971/2025 are against the law, and prays to set aside the orders and allow the Applications.

In reply to this submission, Learned Senior Counsel for Respondents 1 to 4, Mr. V. Raghavachari submitted that the State Bank of India had committed serious fraud, and therefore, forensic audit was conducted. Manipulation of account by State Bank of India was brought out. In fact, the Bank is liable to pay the money to the Respondents. The other two Applications filed by the Appellant were allowed. The tenant is not the proper and necessary party for disposal of the Securitisation Application. A mortgagor is entitled to lease the property during subsistence of mortgage. There is no bar under Section 65 A of the Transfer of Property Act, for leasing of the property by mortgagor. The Appellant alone had protracted the SARFAESI proceedings.

Learned Presiding Officer, taking note of the facts and circumstances of the case, dismissed both the Applications. There is no need for any interference. Even if the lease is not in accordance with law, at best, the Appellant is entitled for damages subject to proof of loss, if any caused. In support of this proposition, Learned Senior Counsel for Respondents 1 to 4 pressed into service of the decision in Maharwal Khewaji Trust (Regd.) Faridkot Vs. Baldev Das, reported in (2004) 8 SCC 488.

In reply to this submission, Learned Senior Counsel for Appellant submitted that the loan of Rs.13.50 Crores was availed in the year January, 2005. The account was classified as NPA and Demand Notice under Section 13(2) of SARFAESI Act, was issued on 07.07.2014. That was followed by issuance of Possession Notice dated 02.07.2015. The SA was filed on 15.07.2015. To start with, both the parties were directed to maintain status quo. The status quo was continued for next 10 years on the wrong representation made by Respondents that Hon’ble High Court granted stay in Writ Petition. The lease in question had been created without the consent or concurrence of the Appellant during the operation of status quo. It is against the provision of Section 13(13) of the SARFAESI Act, 2002 and the loan agreement.

In support of his submissions, he pressed into service the decision in Century Flour Mills Ltd. and Another Vs. S. Suppiah and Another reported in (1975) SCC OnLine Mad 73, for the proposition that the party who violated the court’s orders, is not entitled for any relief.

A. Palanikumar Vs. the Authorised Officer, in WP/7300 of 2014 of Hon’ble High Court of Madras is produced to show that Section 13 (13) of the SARFAESI Act, 2002, creates a statutory bar for creation of any kind of encumbrance in respect of the secured asset after the issuance of notice under Section 13(2), the borrower has no right to transfer by way of sale, lease or otherwise, on any of the secured asset without prior written consent of secured creditor, and that Section 13(13) of the SARFAESI Act, 2002 will override the provisions of Section 65 A of Transfer of property Act, by virtue of Section 35 of the SARFAESI Act, 2002.

The decision in Bajrang Shyam Sundar Vs. Central Bank of India Anr., reported in (2019) 9 SCC 94, is pressed into serve for the proposition that once a notice under Section 13(2) of SARFAESI Act, 2002 is served on the borrower, he cannot further enter into any contract to create any encumbrance of the property.

The decision in T.J. Lukose Vs. Asha Tegi reported in 2022 SCC OnLine Ker 5525, is relied for the proposition that the principle that no man can take advantage of his own wrong, is a principle relating to equity and the legal maxim “nullus commodum capere popest de injuria sua propria” corresponds to it.

Considered the rival submissions and perused the records.

From the perusal of the records, submissions made by Learned Senior Counsel appearing for the parties, and orders impugned in these Appeals, it can be gathered that certain facts are undisputed. The Respondents filed SA 314/2015 for the relief afore mentioned. When the Securitisation Application was pending, status quo was ordered to be maintained by both the parties as per order passed by Learned Presiding Officer on 16.07.2015. Thereafter, it is informed that the status quo order was extended from time to time, on the representation made by Respondents that Hon’ble High Court of Karnataka at Bengaluru, passed order for stay of further proceedings in the Securitisation Application. However, after assignment of loan in favour of Appellant, Appellant verified and found that there was no Writ Petition filed before Hon’ble High Court of Karnataka at Bengaluru and no stay whatsoever was granted. In the said background, the aforesaid Applications were filed. Of these Applications filed, two were allowed.

Admittedly, during the pendency of the SARFAESI Application, especially, when status quo was in force, the Respondents created tenancy in favour of a third party i.e. M/s. Sundaram Toyota. The case of the Respondents is that Respondents are entitled to lease the property for the period not exceeding three years under Section 65 A of the Transfer of Property Act. Learned Presiding Officer recorded that “The Securitisation Application is ripe for final disposal and can be decided within the short period. Permitting the Petitioner to issue any auction sale notice at this stage would likely to lead multiplicity of litigation, defeating the object of early disposal. The Tribunal notes that the Applicants have leased the property to a third party for a limited period, which fact was disclosed on record. While such existing arrangement need not be disturbed immediately, no new or extended tenancy can be allowed so as to frustrate the Respondent’s right.” Recording thus, he passed the order which was extracted earlier. In effect, Learned Presiding Officer approved the lease created in favour of third party by the Respondents, when the Securitisation Application is pending, especially, when lease agreement was executed and when status quo order was in force against both the parties. Not only that, Learned Presiding Officer prevented the Appellant from taking coercive steps including issuance of auction notice or confirmation of sale, till disposal of the SA. This Tribunal is of the view that the order passed by Learned Presiding officer is beyond the scope of the Applications filed and the prayer sought for. Every measure under SARFASI Act is an independent measure giving independent cause of action. In an Application filed vacating status quo order, direction issued to the Appellant not to take any coercive steps including issuance of auction notice or confirmation of sale, is beyond the scope of the Applications filed and the prayers in the Securitisation Application and against all canons of judicial propriety.

There is no denial of the fact that the lease agreement in favour of M/s. Sundaram Toyota had come into existence during the pendency of this Securitisation Application, especially, when status quo order was in force, more particularly, after issuance of Section 13(2) Demand Notice under SARFAESI Act, 2002.

Section 13(13) of the SARFAESI Act, 2002, bars the borrower after receipt of the notice under Section 13(2) of the SARFAESI Act, 2002, to transfer by way of sale, lease or otherwise, any of the secured assets referred in the notice, without prior written consent of the secured creditor. Section 13 (13) of the SARFAESI Act, 2002, reads as follows:-

As per the judgement of A. Palanikumar Vs. the Authorised Officer, Section 13(13) of the SARFAESI Act, 2002 overrides Section 65 A of the Transfer of Property Act. Therefore, the borrower cannot claim that he is empowered to create a lease when the mortgage is in existence. Admittedly, in this case, the lease agreement in favour of M/s. Sundaram Toyota had been executed after receiving Demand Notice and when status quo order was in force against both the parties, without any written consent of the secured creditor. Therefore, the tenant under questionable lease agreement, cannot claim any protection from dispossession under SARFAESI Act.

When that be the case, sanctifying the lease agreement, the order passed by Learned Presiding Officer that the existing lease agreement created prior to the order may continue only for its original terms, shall not be renewed/extended or modified without prior permission of the Tribunal, is against the law, and therefore, liable to be set aside. Similarly, the condition imposed against the Appellant that the Appellant shall not take any coercive steps including the issuance of auction notice or confirmation of sale, till the disposal of the SA, is also not in accordance with law. After giving protection to the lease agreement, dismissal of the Application filed to implead the lessee, is also not in accordance with law.

In this view of the matter, this Tribunal sets aside the order passed by Learned Presiding Officer, DRT, Karnataka at Begaluru in IA 2625/2025 and IA 2971/2025 and allows both the Applications. Consequently, both the Appeals are allowed. Parties are directed to bear their own costs. All pending IAs, if any, stand closed.