SARFAESI Auction Purchaser Can't Be Treated As Unauthorised Occupant Under State Eviction Law: MP High Court

The Madhya Pradesh High Court, Gwalior Bench, has dismissed a writ petition filed by the M.P. Industrial Development Corporation Ltd. (MPIDC).

The court held that an auction purchaser under the SARFAESI Act cannot be treated as an unauthorised occupant under the M.P. Lok Parisar (Bedakhali) Adhiniyam, 1974 merely because disputes later arise over transfer of leasehold rights or liability for earlier dues.

Justice Milind Ramesh Phadke observed, "Its possession, therefore, cannot be equated with that of a rank trespasser or a person who has clandestinely occupied the premises. The very foundation of respondent No.1's possession is traceable to a statutory auction conducted by the secured creditor. Merely because disputes subsequently arose regarding transfer of leasehold rights or liability to pay earlier dues, respondent No.1 cannot be brought within the ambit of 'unauthorised occupation' as defined under Section 2(g) of the M.P. Lok Parisar (Bedakhali) Adhiniyam, 1974."

The dispute relates to industrial plots in the Malanpur Industrial Area in Bhind district. The original allottee had obtained financial assistance from the State Bank of India after assigning its leasehold rights to the bank as security.

After the borrower defaulted, the bank auctioned the industrial assets under the SARFAESI Act in March 2014. Shri Ramraja Industries bought the assets for ₹80 lakh and was issued a sale certificate.

MPIDC claimed that the auction purchaser never completed the formalities required for transfer of the lease despite repeated communications. It later cancelled the lease granted to the original allottee.

The purchaser challenged that decision before the Managing Director of M.P. TRIFAC, Bhopal. The appellate authority later gave it another opportunity to apply for transfer of the lease and clear the dues. It also made it clear that if the purchaser failed to do so, the cancellation of the lease would automatically revive. MPIDC alleged that those directions were never complied with.

MPIDC then initiated eviction proceedings under the Bedakhali Adhiniyam, claiming that the purchaser had become an unauthorised occupant. The Competent Authority ordered eviction on September 9, 2020.

The Commissioner, Chambal Division, Morena, later set aside the eviction order. MPIDC challenged that decision before the high court.

MPIDC argued that the auction purchaser had acquired only the industrial assets and not the leasehold rights over the land. It submitted that the purchaser had neither followed the procedure for transfer under the 2015 Rules nor complied with the appellate authority's directions. As a result, its occupation had become unauthorised, making it liable for eviction under the Bedakhali Adhiniyam. MPIDC also argued that the Commissioner had wrongly relied on an interim order passed in an unrelated case.

Shri Ramraja Industries argued that it had lawfully taken possession through a SARFAESI auction and that the sale certificate recorded the property as having been sold free from encumbrances. It maintained that it had applied for transfer of the lease but objected to being asked to pay dues owed by the original allottee. It also argued that the eviction proceedings were procedurally defective.

The court observed that the Competent Authority's powers under the Bedakhali Adhiniyam are limited to evicting persons in "unauthorised occupation" of public premises.

The court noted that the auction purchaser came into possession of the property through a statutory auction conducted by the secured creditor, and not by trespassing onto the land.

It also observed that disputes over transfer of leasehold rights or liability for earlier dues, by themselves, could not be a ground to invoke the Act's summary eviction process.

If MPIDC wanted to recover any outstanding dues, it remained free to proceed against the person legally liable for them, including the secured creditor where permissible in law.

The court held that disputes over earlier dues or transfer of leasehold rights could not, by themselves, lead to the eviction of an auction purchaser.

It ultimately upheld the Commissioner's order and dismissed the writ petition. At the same time, it clarified that MPIDC could still pursue any remedy available in law to recover outstanding dues from the person legally liable to pay them.