The Jharkhand High Court has ruled that a mortgagee who takes possession of mortgaged property after auction cannot evict existing tenants solely on the ground that the property has been sold. The Court held that tenancy relations remain governed by the Jharkhand Building (Lease, Rent and Eviction) Control Act, and only the grounds specified therein can justify eviction. The mortgagee in possession assumes the role of landlord and must follow statutory eviction procedures.
Background & Facts
The Dispute
The petitioners, five shop owners operating as tenants in premises located at Goushala Road, Jugsalai, Jamshedpur, challenged a notice dated 12.05.2017 issued by the Bihar State Financial Corporation (BSFC) directing them to vacate the premises. The property was originally owned by M/s Sahu Hotel, which had obtained a loan from BSFC. Upon default, BSFC auctioned the property and subsequently issued the impugned notice to the tenants, who had not participated in the auction process.
Key Facts
- The petitioners are tenants in shops situated in a building originally belonging to M/s Sahu Hotel at Goushala Road, PO and PS Jugsalai, Jamshedpur, District East Singhbhum, Jharkhand.
- M/s Sahu Hotel had borrowed funds from the Bihar State Financial Corporation (BSFC), with the property mortgaged as security.
- Following default on the loan, BSFC conducted an auction of the mortgaged property.
- None of the tenant-petitioners participated in the auction proceedings.
- After completion of the auction, BSFC issued a notice dated 12.05.2017 (Annexure-3) directing the tenants to vacate the premises solely on the ground that the property had been sold.
- The petitioners contended that sale of the property by the mortgagee does not extinguish their tenancy rights or provide an independent ground for eviction.
Procedural History
- 12.05.2017: BSFC issued notice (Annexure-3) directing petitioners to vacate the premises.
- 2017: Writ Petition (Civil) No. 3104 of 2017 filed before the High Court of Jharkhand at Ranchi challenging the notice.
- 07.09.2026: Judgment delivered by Hon'ble Mr. Justice Ananda Sen disposing of the writ petition.
- 08.09.2026: Judgment uploaded on the court website.
Relief Sought
The petitioners sought quashing of the notice dated 12.05.2017 issued by BSFC, a declaration that their tenancy rights survive the auction sale, and a direction that any eviction must proceed in accordance with the Jharkhand Building (Lease, Rent and Eviction) Control Act.
The Legal Issue
The central question was whether a mortgagee who has purchased mortgaged property at auction can evict existing tenants solely on the basis of the sale, or whether the statutory framework of the Jharkhand Building (Lease, Rent and Eviction) Control Act continues to govern the landlord-tenant relationship and prescribe the exclusive grounds for eviction.
Arguments Presented
For the Petitioners
Counsel for the petitioners, Mr. Indrajit Sinha, assisted by Mr. Ashwini Priya and Ms. Sanjana Shrestha, argued that the petitioners are admitted tenants in the premises. They submitted that the Jharkhand Building (Lease, Rent and Eviction) Control Act provides an exhaustive code for eviction, and the mere fact that the mortgagee has auctioned and sold the property does not constitute a valid ground for eviction under the Act. They contended that upon taking possession, BSFC steps into the shoes of the landlord and is bound by the same statutory obligations and limitations.
For the Respondents
Ms. Nirupama, Additional Counsel to Senior Standing Counsel-II, and Mr. Ashok Kumar Yadav, appearing for the respondents, maintained that BSFC, having acquired the property through a valid auction sale, was entitled to possession and could require the tenants to vacate. They argued that the sale transferred all rights in the property to BSFC, including the right to terminate existing tenancies.
The Court's Analysis
The Court, per Ananda Sen J., examined the legal position of a mortgagee in possession vis-à-vis existing tenants. The judgment proceeded on the admitted fact that the petitioners are tenants in the premises. The Court observed that the law of tenancy in the state is governed by the Jharkhand Building (Lease, Rent and Eviction) Control Act, and the grounds mentioned in that Act alone can lead to eviction of a tenant.
The Court held that the respondent-BSFC could not have issued the impugned letter directing eviction merely on the ground that the property had been sold. The sale of the property by the mortgagee does not, by itself, terminate the tenancy or create an independent ground for eviction outside the statute.
"The fact that the property has been sold cannot be a ground to evict the tenants. The law of tenancy is governed by the Jharkhand Building (Lease, Rent and Eviction) Control Act. The grounds mentioned in the Act can only lead to eviction."
The Court further reasoned that since BSFC has taken possession of the property, for all practical purposes it stands in the position of the landlord until the property is transferred to a purchaser. Consequently, the tenants are obligated to pay rent to BSFC. If there is default in payment of rent, BSFC may take appropriate steps under the Jharkhand Building (Lease, Rent and Eviction) Control Act to evict the defaulting tenant.
The Court also addressed the future scenario: if BSFC transfers the building to any person, the tenants in occupation will pay rent to the new owner, and BSFC is directed to inform the existing tenants of such transfer.
The Verdict
The writ petition was allowed in part. The Court set aside the notice dated 12.05.2017 (Annexure-3) issued by BSFC directing the petitioners to vacate the premises solely on the ground of sale. The Court declared that the tenancy of the petitioners continues to be governed by the Jharkhand Building (Lease, Rent and Eviction) Control Act. It directed that the petitioners shall pay rent to BSFC as the current landlord in possession. BSFC is entitled to initiate eviction proceedings under the Act only on statutorily prescribed grounds, such as default in rent payment. BSFC is further directed to inform the tenants in the event of any future transfer of the property. No costs were awarded.
What This Means For Similar Cases
Mortgagee in Possession Assumes Landlord's Statutory Obligations
A mortgagee who takes possession of mortgaged property after auction or foreclosure steps into the shoes of the original landlord. The mortgagee cannot bypass the rent control statute by invoking the sale as a self-standing ground for eviction. All tenancy rights and protections under the applicable Rent Control Act survive the transfer. Practitioners should advise mortgagee-clients that possession brings statutory duties, not unfettered discretion to remove tenants.
Exhaustive Eviction Grounds Under Rent Control Legislation
The judgment reinforces that rent control statutes provide an exhaustive code for eviction. No ground outside the statute - including sale by mortgagee, court auction, or change of ownership - can justify eviction unless expressly incorporated in the legislation. Lawyers defending tenants should immediately invoke the statutory framework and challenge any notice that relies on non-statutory grounds. Conversely, landlords and mortgagees must plead and prove a specific statutory ground (e.g., default in rent, bona fide requirement, subletting) to succeed in eviction proceedings.
Practical Compliance: Rent Payment and Notice of Transfer
- Tenants must continue paying rent to the mortgagee in possession once possession is taken; failure to do so creates a valid statutory ground for eviction.
- The mortgagee/landlord is obligated to inform tenants of any subsequent transfer of the property to a third-party purchaser.
- Practitioners should ensure rental payment records are maintained meticulously and that formal intimation of ownership change is obtained or issued, as the case may be, to avoid disputes over the identity of the lawful landlord.
