The Kerala High Court on 15 September held that a lessee who has already invoked the statutory remedy before the Debt Recovery Tribunal and suffered an adverse order cannot subsequently maintain a civil suit raising the same grievance against proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Justice Easwaran allowed a petition filed by IFCI Limited and set aside the Sub Court, Nedumangad's order refusing to reject a suit filed by Hotel Mythri, the lessee of the mortgaged property. The Bench observed:

“Once the lease by a mortgagor in possession of the mortgage property is governed by the provisions of Section 65A, even if the mortgage deed does not contain a clause prohibiting the borrower from creating a further interest in the mortgaged property, a lease in contravention of Section 65A of the Transfer of Property Act, 1882 is not binding upon the mortgagee. It is exactly what the Debt Recovery Tribunal has held in the order passed in S.A No.174/2020.”

IFCI held a mortgage over the property of Abdul Rasheed. During the subsistence of the mortgage, Rasheed executed a registered nine-year lease in favour of Hotel Mythri. IFCI contended that the lease was contrary to Section 65A of the Transfer of Property Act. After SARFAESI proceedings commenced, Hotel Mythri approached the DRT by filing S.A. No.174/2020. The DRT dismissed the application.

Hotel Mythri thereafter filed a suit before the Sub Court seeking to restrain IFCI from taking further measures under the SARFAESI Act, including eviction. IFCI filed an application seeking rejection of the plaint. The Sub Court dismissed the application, observing that the lease was executed on 6 December 2017 and that the mortgage deed did not contain any clause prohibiting the creation of a lease in favour of third parties.

The High Court held that the Sub Court failed to appreciate the effect of Section 65A of the Transfer of Property Act. It noted that a lease created by a mortgagor in possession in contravention of Section 65A would not bind the mortgagee even if the mortgage deed did not contain a clause prohibiting the creation of a lease.

It further noted that Section 17(4A) of the SARFAESI Act provides a statutory remedy before the DRT to a person claiming to be a tenant. It held that Hotel Mythri had already invoked that remedy and suffered an adverse order. It therefore could not maintain a subsequent civil suit raising the same grievance.

“Therefore, the irresistible conclusion is that the filing of a suit was clearly an abuse of the process of law and hit by Section 35 of the SARFAESI Act and also barred by the principles of res judicata, in view of the dismissal of S.A. No.174/2020.”

The Bench also held:

“In the present case, when the order of the Tribunal was mentioned in the application, this Court is completely at loss, as to how the trial court could ignore the orders passed by the Tribunal and proceed to dismiss the application.”

Accordingly, the High Court allowed the petition, set aside the Sub Court's order and allowed IFCI's application seeking rejection of the plaint. It held that the suit was not maintainable.

For Petitioners: Advocates D Reetha, P.V Vinod (Bengalam), Akhil K.M and Anjali Nair

For Respondents: Advocate Thejan Raj

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Case Title :  IIFCI Limited and Anr v. Hotel Mythri and AnrCase Number :  OP(C) No. 2569 of 2026CITATION :  2026 LLBiz HC(KER) 184
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