K. Sreedhar Vs Raus Constructions Pvt. Ltd. & Ors. (Supreme Court of India)
SARFAESI Act cannot be applied only on the reason that secured property has been shown as agricultural land in Revenue Records: SC
Conclusion: The Hon’ble Supreme Court after considering the object and purpose of Section 31(i) of the SARFAESI Act that merely because in the revenue records the secured properties are shown as agricultural land is not sufficient to attract the said provision.
Facts: In present facts of the case, feeling dissatisfied with the impugned judgment passed by the High Court for the State of Telangana at Hyderabad, wherein the Hon’ble High Court has allowed the said writ petition preferred by the debtor and has quashed and set aside the order passed by the Debts Recovery Tribunal – I as well as the Possession and Sale Notice issued by the Indian Bank (hereinafter referred to as “secured creditor”).
That, the respondent No.1 herein availed financial assistance, credit facilities in the year 2012 from the Indian Bank i.e. the secured creditor. Due to defaults on the part of the borrowers in servicing the loan account, the same was classified as NPA. The secured creditor initiated the proceedings under the SARFAESI Act and issued the demand Notice to the borrowers including the mortgagors and the guarantors, calling upon them to pay the outstanding amount. As the amount of the Demand Notice was not paid, the secured creditor issued Notice to the borrowers / mortgagors / guarantors. That, the Possession Notice was issued with respect to Item Nos.1 to 8. The secured creditor on 05.02.2016 issued a consolidated Possession Notice detailing the possession of 12 items of properties and the dates on which the possession of the same was taken. The Possession Notice was published in newspapers. Thereafter, the secured properties including the property Item No.8 (property in question) was put to auction through e-auction notice dated 28.03.2016. That, the borrowers filed the writ petition before the High Court being aggrieved by the e-auction which was dismissed by the High Court in view of the pendency of SA No.171/2016 before the DRT-I, Hyderabad. A fresh e-auction Notice was issued. That, the property Item No.8 was purchased by the auction purchaser (appellant herein) in Civil Appeal arising out of Special Leave Petition No.14695/2020 on 17.02.2017. The e-auction was conducted on 17.02.2017 in which the auction purchaser was declared the successful bidder. He was issued the Letter of Acceptance on 18.02.2017. The auction purchaser deposited 25% of the amount of sale consideration on 18.02.2017. The sale in favour of the auction purchaser came to be confirmed on 08.03.2017. On deposit of the entire/full sale consideration, the sale certificate came to be issued in favour of the auction purchaser on 23.03.2017.
By an order dated 16.05.2019, the DRT-I, Hyderabad dismissed SA No.171/2016 filed by the borrowers and confirmed the sale certificate issued in favour of the auction purchaser. At this stage it is required to be noted that before the DRT-I, it was the case on behalf of the borrowers that the property Item No.8 was the agricultural land and therefore, the same could not have been the subject matter of auction under the provisions of the SARFAESI Act. However, the DRT-I while dismissing the aforesaid SA No.171/2016 did not accept the same by observing that apart from the revenue records, the borrowers did not file any evidence to prove that the agricultural activity was going on in the land mortgaged with the secured creditor whereas the secured creditor filed photographs showing no agricultural activities were going on. Therefore, the DRT-I held that the lands in question (property Item No.8) were not exempted from the provisions of the SARFAESI Act.
Feeling aggrieved and dissatisfied with the judgment and order passed by the DRT-I, Hyderabad dated 16.05.2019 dismissing the SA No.171/2016, the borrowers filed the writ petition being Writ Petition No.12081/2019 which was allowed.
The Hon’ble Supreme Court observed that against the judgment and order passed by the DRT-I dismissing the application, the borrower had a statutory remedy available by way of appeal before the DRAT. If the borrower would have preferred an appeal before the DRAT, he would have been required to deposit 25% of the debt due. To circumvent the provision of appeal before the DRAT and the pre-deposit, the borrower straightway preferred the writ petition before the High Court under Article 226/227 of the Constitution. Therefore, in view of alternative statutory remedy available by way of appeal before the DRAT, the High Court ought not to have entertained the writ petition under Article 226/227 of the Constitution of India challenging the judgment and order passed by the DRT-I.
Further, it was observed that except the revenue records, the borrowers did not file any evidence to show that the agricultural work was being done in the said properties. On the contrary, the secured creditor produced the photographs to show that there was no agricultural activities being done and no agricultural activity was going on. The High Court has observed and held that the scheduled properties in question were exempted from the provisions of SARFAESI Act in view of Section 31(i) of the SARFAESI Act on the ground that the revenue records and Pattadar pass-books and the title deeds show that the properties were agricultural properties / lands and that no evidence is produced by the secured creditor that these properties are nonagricultural lands and have been put to non-agricultural use after obtaining permission from the competent authorities. Therefore, the High Court has shifted the burden upon the secured creditor to prove that the properties are non-agricultural lands which was against the Judgments of Blue Coast Hotels Limited and Others and K. Pappireddiyar and Another.
In both the aforesaid decisions, it has specifically observed and held after considering the object and purpose of Section 31(i) of the SARFAESI Act that merely because in the revenue records the secured properties are shown as agricultural land is not sufficient to attract Section 31(i) of the SARFAESI Act. In the aforesaid decision, it is specifically observed and held that for the purpose of attracting Section 31(i) of the SARFAESI Act, the properties in question ought to be actually used as agricultural lands at the time when the security interest was created. In the case of Blue Coast Hotels Limited and Others, it is also further observed by this Court that since no security interest can be created in respect of agricultural lands and yet it was so created, goes to show that the parties did not treat the land as agricultural land and that the debtor offered the land as security on this basis. Thus, as per the law laid down by this Court in the aforesaid two decisions, only in a case where the secured property is actually put to use as agricultural land and solely on the basis of the revenue records / Pattadar and once the secured property is put as a security by way of mortgage etc. meaning thereby the same was not treated as agricultural land, such properties cannot be said to be exempted from the provisions of the SARFAESI Act under Section 31(i) of the SARFAESI Act.
In view of the above and for the reasons stated above, the impugned judgment and order passed by the High Court was held to be unsustainable and was set aside.
