A lessee who lost a securitisation application before the Debt Recovery Tribunal did not get a second chance to raise the same grievance by dressing it up as a civil suit for an injunction, the Kerala High Court has held, closing off a workaround that tenants caught up in a landlord's loan default sometimes try.
IFCI Limited held a registered mortgage over the property in question as the secured creditor. While that mortgage subsisted, the mortgagor executed a registered lease deed in favour of Hotel Mythri for a term of nine years. When IFCI moved to enforce its security under the SARFAESI Act, Hotel Mythri resisted, filing S.A. No. 174 of 2020 before the Debt Recovery Tribunal-II, Ernakulam, asking the DRT to examine its position as lessee against the secured creditor's enforcement steps.
The DRT dismissed that securitisation application on 5 December 2024, rejecting Hotel Mythri's claim. Rather than appeal that order to the Debt Recovery Appellate Tribunal, Hotel Mythri instead filed a fresh civil suit before the Sub Court, Nedumangad, this time seeking a prohibitory injunction restraining IFCI from taking any further steps under the SARFAESI Act and from evicting Hotel Mythri by invoking Section 14 of that Act. The Sub Court declined to reject IFCI's objection to the plaint outright, and IFCI took that refusal up to the Kerala High Court.
Justice Easwaran set aside the Sub Court's order. The High Court held that the civil suit amounted to an abuse of process once Hotel Mythri had already invoked, and lost, the statutory remedy available to it before the DRT. The suit was hit by Section 35 of the SARFAESI Act, which gives the Act's provisions overriding effect over anything inconsistent in any other law, and it was separately barred by the ordinary principles of res judicata, since the DRT had already decided the very question Hotel Mythri was now trying to relitigate through a different forum.
The court also addressed the substance of the lease itself, not just the procedural bar. It held that a lease executed in contravention of Section 65A of the Transfer of Property Act, which restricts a mortgagor's power to lease mortgaged property without the mortgagee's consent, is not binding on the mortgagee. The DRT had already reached that conclusion in S.A. No. 174 of 2020, and the High Court treated that finding as settled rather than reopening it.
The ruling draws a firm line for lessees and other third parties caught between a defaulting borrower and a secured creditor enforcing SARFAESI remedies. The DRT, under Section 17 of the Act, is the designated forum for a lessee or any other aggrieved party to raise objections to a securitisation measure, and an order from that forum carries the same finality as any other judicial order once the limitation period for appealing it runs out. A litigant cannot treat an adverse DRT order as merely one opinion among several, available to be relitigated in a civil court simply by reframing the same underlying grievance as a claim for an injunction instead of a securitisation challenge.
For secured creditors facing resistance from a lessee or occupant whose rights the borrower created after, or in defiance of, an existing mortgage, the case is a useful precedent to cite the moment such a party tries a second forum after losing before the DRT. And for anyone advising a prospective lessee of mortgaged property, the underlying message is more basic still: a lease taken without the mortgagee's consent while the mortgage subsists offers little real protection against the mortgagee's enforcement rights, DRT litigation or not.
The sequence of forums the tenant tried here is also instructive for litigation strategy more generally. Having lost before a specialised tribunal with statutory jurisdiction over exactly this kind of dispute, Hotel Mythri turned to an ordinary civil court instead of the appellate forum the SARFAESI Act itself provides. That choice, rather than strengthening its position, gave the secured creditor two independent grounds, Section 35's overriding effect and res judicata, on which to have the second proceeding thrown out, leaving the tenant worse off than if it had simply appealed the DRT's order in the first place.