Kerala High Court: Lessee Cannot Seek Civil Court Relief After Losing Before DRT in SARFAESI Proceedings

Case Overview

Case Name: IFCI Limited Vs Hotel Mythri (Kerala High Court)
Appeal Number: OP(C) No. 2569 of 2026
Date of Order: 15/09/2026
Court: Kerala High Court

Background and Factual Matrix

This case arose out of a secured creditor's challenge to a civil suit instituted by a lessee after the lessee had already suffered an adverse order before the Debt Recovery Tribunal. IFCI Limited, functioning as the secured creditor, held a registered mortgage over the subject property. During the currency of this mortgage, the mortgagor executed a registered lease deed in favour of Hotel Mythri for a period of nine years.

When IFCI Limited initiated enforcement proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter "SARFAESI Act"), Hotel Mythri chose to contest the action by filing S.A. No. 174 of 2020 before the Debt Recovery Tribunal-II, Ernakulam. The DRT examined the lessee's claim and dismissed the securitisation application on 05.12.2024.

Rather than accepting the outcome of the DRT proceedings, Hotel Mythri filed O.S. No. 11 of 2025 before the Sub Court, Nedumangad, seeking a prohibitory injunction restraining IFCI Limited from taking further steps under the SARFAESI Act and from evicting the lessee by invoking Section 14 of that Act.

Application for Rejection of Plaint

In response to the civil suit, IFCI Limited filed I.A. No. 5/2025 — an application under Order VII Rule 11 of the Code of Civil Procedure, 1908 — seeking rejection of the plaint at the threshold. The Sub Court dismissed this application, reasoning that:

  • The lease deed was executed on 06.12.2017.
  • The mortgage deed did not contain any express clause prohibiting the mortgagor from creating a lease in favour of third parties.
  • Therefore, the lessee was entitled to maintain the civil suit.

IFCI Limited challenged this order before the Kerala High Court by way of the present original petition.

Kerala High Court's Analysis

Fundamental Error in the Trial Court's Reasoning

The Kerala High Court found the Sub Court's reasoning to be fundamentally misconceived. The Court held that the mere absence of an express prohibition in the mortgage deed could not be construed as conferring unlimited leasing authority upon the mortgagor. The power of a mortgagor in possession to create a lease over mortgaged property is not an unfettered common law right — it is specifically regulated by statute.

Role of Section 65A of the Transfer of Property Act, 1882

The Court underscored that the mortgagor's authority to lease is governed entirely by Section 65A of the Transfer of Property Act, 1882, which reads as follows: