The Bank Is Auctioning My Landlord's Flat: What Happens to My Tenancy and My Deposit?

A possession notice pasted on your door under the SARFAESI Act does not, on its own, end a lawful tenancy: the Supreme Court held in Harshad Govardhan Sondagar (2014) that nothing in Section 13 of the Act determines a lease when the bank moves against the flat. Your tenant rights when landlord's property is auctioned by bank turn on two dates and one stamp: the lease date against the mortgage date, and whether the lease is registered. A lease made after the mortgage binds the bank only within Section 65A of the Transfer of Property Act, and an unregistered eleven-month agreement protects possession for a year at most, held again in Bajarang Shyamsunder Agarwal (2019). The deposit is the landlord's personal debt, not the bank's or the purchaser's. You have forty-five days from the bank's measure to apply to the Debts Recovery Tribunal under Section 17, which since 2016 covers tenancy claims under Section 17(4A).

Part of the RERA and homebuyer disputes practice at S Jain & Attorneys, Bangalore.

For the Bengaluru tenant with a large deposit and an eleven-month or three-year agreement who cannot reach the landlord. The refund route is in our guide on recovering a security deposit from a landlord in Karnataka, and the property and real estate law hub holds the rest.

The four positions:

Do I have to vacate when the bank takes possession under SARFAESI?

Not on the strength of the notice. It is the possession notice under rule 8(1) of the Security Interest (Enforcement) Rules 2002, delivered to the borrower, affixed on the outer door and, under rule 8(2), published in two newspapers. Behind it is Section 13: the landlord's account became a non-performing asset, the bank served a sixty-day demand under Section 13(2), and on default it took the first measure in Section 13(4), possession of the secured asset, which Bajarang calls symbolic possession.

The notice does not end your lease. Harshad found nothing in Section 13 that determines a lease of the secured asset when the bank acts, so until a valid lease ends by one of the modes in Section 111, the lessee's possession is lawful and must be protected. The bank cannot use force. If you resist, the authorised officer must apply to the Chief Metropolitan Magistrate or the District Magistrate under Section 14, name you in his affidavit, and the Magistrate must hear you and, if satisfied that the lease predates the mortgage or fits Section 65A and has not ended, refuse possession to the bank. Section 14(3) puts his order beyond any court, so a wrong one goes to the High Court under Articles 226 and 227, and Section 34, quoted in Harshad, bars any civil or rent court from enjoining the bank.

Key takeaway. The possession notice is a step against the borrower. Your lease ends only in one of the ways in Section 111, and the commonest is your own surrender, so the keys stay with you until a Magistrate or the Tribunal decides otherwise.

Three facts that decide the next six weeks:

Is my lease binding on the bank?

Only if it falls in one of two classes: a valid tenancy that existed before the mortgage, or one created after the mortgage but before the Section 13(2) notice within Section 65A. The first is the strong one: Bajarang says a bank that accepts a let-out property has taken on the risk of the tenancy and is presumed to have consented to it, so the tenancy ends only under Section 111, by efflux of time, surrender, forfeiture or notice to quit, as in any tenant eviction in Karnataka. If that pre-mortgage document was an unregistered eleven-month agreement, Section 107 still limits it to a year, and the rent trail from before the mortgage matters more than the paper.

The second class is narrower than tenants expect. Section 65A(1) lets a mortgagor in possession grant leases that bind the mortgagee, but only leases within Section 65A(2): ordinary terms, the best rent obtainable, no premium and no rent in advance, no covenant for renewal, effect within six months, and, for a building, three years at most with a covenant to pay rent and a condition of re-entry for non-payment. Section 65A(3) lets the mortgage deed cut that power down or remove it, and Section 17(4A)(c) tells the Tribunal to test the lease against the mortgage terms, so the lender's written consent, if the landlord ever obtained it, matters. Ten months of rent held as an adjustable deposit gives the bank an argument that rent was paid in advance.

Registration and the bank's demand are the last two filters. Section 107 and Section 17(1)(d) of the Registration Act require a lease for more than a year, from year to year, or reserving a yearly rent to be registered. The eleven-month agreement stays under that line, but both judgments mark its limit: a tenant relying on an unregistered instrument or an oral agreement with delivery of possession gets possession for no more than a year from the instrument or from entry. Then Section 13(13): once served under Section 13(2), the borrower cannot lease the secured asset without the bank's prior written consent. Bajarang applied that to a tenancy renewing month by month, held each renewal after the notice a fresh tenancy the landlord could not grant, and called the occupier a tenant in sufferance, little different from a trespasser. Photocopied receipts and two start dates lost that case. Rent actually paid, property tax, electricity and water charges in the tenant's name, and one consistent start date would have won it.

Common mistake. Treating the eleven-month agreement as the whole case. In a SARFAESI fight the document proves a year at most. The tenancy is proved by the bank trail of rent and deposit payments, the utility bills in your name and the association's move-in record, all predating the Section 13(2) notice.

What can I do in the forty-five days?

Apply to the Debts Recovery Tribunal under Section 17(1). Any person, not only the borrower, aggrieved by a Section 13(4) measure may apply within forty-five days of it, and Harshad accepted that "any person" includes a lessee and allowed the period to run from the possession notice's delivery, affixing or publication. Section 17(1A) lets you file where the flat lies. Bengaluru has two Tribunals, DRT-1 and DRT-2.

The Tribunal's power over tenancy claims is now in the Act. Harshad found in 2014 that Section 17(3) let the Tribunal restore possession only to the borrower, and Parliament closed that gap in 2016. Section 17(3) now restores possession to the borrower "or such other aggrieved person", and Section 17(4A) directs the Tribunal, when an applicant claims tenancy or leasehold rights, to examine on evidence whether the lease has expired or stood determined, is contrary to Section 65A or to the mortgage terms, or was created after the Section 13(2) notice, and to pass such order as it thinks fit. Rule 13A gives a lessee or tenant a dedicated form, Appendix X, at the fee for an aggrieved party other than the borrower. Bajarang noted the amendment without interpreting it, so its reach is still being settled case by case. Section 17(5) requires disposal within sixty days, four months at the outside. Keep your objection and proof on the Magistrate's Section 14 file as well.

Deadline warning. Forty-five days under Section 17(1) can be counted from the day the notice went up on the door or appeared in the newspaper, whichever the bank proves first. Photograph both with the date. A tenant who waits for the auction notice has usually lost the Tribunal.

Who returns my deposit?

The landlord, and only the landlord. A refundable deposit is money you advanced to him under the rental agreement, repayable when you hand back the flat, and no ordinary rental agreement makes it a charge on the flat, so it is a personal debt of the borrower. The bank never received it and does not owe it, and Section 35 gives the Act effect over any inconsistent law. The purchaser does not owe it either: Section 13(6) vests the secured asset in the transferee as if the owner had transferred it, which passes title, not the seller's debts. One narrow exception: where your tenancy binds the purchaser, Section 109 makes the lessor's transferee subject to the lessor's liabilities as to the property if the lessee so elects, and whether a deposit refund is such a liability is argued case by case.

The auction proceeds are the only pool that could reach you. Section 13(7) makes the bank hold them in trust, pay its costs, then its dues, and pay "the residue of the money so received" to the person entitled to it, which means the landlord. To intercept it you need a decree against him, or attachment before judgment under Order 38 rule 5 of the Code of Civil Procedure on proof that he is about to dispose of it. Write to the landlord and the authorised officer today, claiming the figure on the record. The claim is for a fixed sum on a written contract, the class Order 37 rule 1(2)(b) admits to the summary procedure, and the forum, court fee and limitation are in our guides on the Order 37 summary suit and the money recovery suit, with execution through our money recovery practice. You can also bid: the sale runs on rules 8 and 9 of the Rules, after thirty days' public notice, twenty-five per cent on the day and the balance within fifteen days of confirmation, and your deposit cannot be set against the price. If a purchaser keeps you on, sign a fresh agreement, registered if it runs beyond a year, and never let the old deposit be treated as carried forward.

Should I keep paying rent, and to whom?

Keep paying. Section 108 of the Transfer of Property Act binds the lessee to pay rent, a lease within Section 65A must carry a condition of re-entry on non-payment, and Section 111(g) lets the lessor or his transferee forfeit the lease for breach of it. Stopping because the landlord has vanished hands the bank the ground it lacked. Pay the landlord until the bank writes to you. Section 13(4)(d) lets the bank, once the sixty days have run, require by written notice anyone who owes money to the borrower to pay the bank instead, and Harshad confirmed that this reaches a lessee's rent. Section 13(5) then discharges you as if you had paid the landlord. After the sale, Section 109 moves the rent to the purchaser once you know of the transfer. Pay by bank transfer only: those entries are also the tenancy proof Bajarang demanded. Do not set the rent off against the deposit on your own: the deposit is a claim against the landlord alone, rent after a Section 13(4)(d) notice belongs to the bank, and the set-off marks you as a defaulter.

The money rules, in short:

Step by step: the next forty-five days

1. Photograph the notice on the door with the date, and keep the newspapers in which rule 8(2) publishes it. The forty-five days can run from either.
2. Assemble the tenancy file: agreement, bank entries for the deposit and every rent payment, utility and maintenance bills in your name, the association's move-in record. Originals, not photocopies.
3. Fix the dates from the Section 13(2) notice, the Section 14 affidavit and the encumbrance certificate.
4. Write to the authorised officer within the week: lessee in possession since a stated date, proof enclosed, deposit claimed, to be named in any Section 14 affidavit and heard.
5. File the Section 17 application within forty-five days in the Appendix X form, and appear in the Section 14 proceeding with the same file.
6. Keep paying rent by bank transfer, and serve the landlord a demand for the deposit, then a notice, then sue, with an application to attach the auction surplus before judgment.

The mistakes that lose these cases are ordinary: vacating on the first notice, which Harshad treats as an implied surrender under Section 111(f) that ends even a valid lease, handing the keys to anyone without a receipt, leaving the deposit claim unwritten until the auction is over, relying on photocopies, and suing for an injunction that Section 34 bars.

What I tell tenants at the first meeting is that these matters turn on chronology, not sympathy. The Tribunal and the Magistrate put three dates side by side, the mortgage, your tenancy and the bank's demand, and ask what document proves the middle one. A tenant whose bank trail starts before the mortgage is in a strong position whatever the agreement says. A tenant with a fresh agreement signed after the demand has nothing, however large the deposit. Most people sit between, and for them the case turns on Section 65A and on how fast the Section 17 application goes in. The deposit is a separate fight against a man who has already lost his flat: start it now, in writing, and expect to collect from whatever is left, not from the bank.

Frequently Asked Questions

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

Related Guides

Our property and real estate practice handles tenancy claims before the Debts Recovery Tribunal and the Magistrate, and our money recovery practice pursues the deposit against the landlord.

• Recovering Your Security Deposit From a Landlord in Karnataka: Notice, Suit and Small Causes Court
• Tenant Eviction in Karnataka: Grounds, Procedure and the Rent Act Explained
• Types of Mortgage Under the Transfer of Property Act