K. SREEDHAR versus M/S RAUS CONSTRUCTIONS PVT. LTD & ORS.
[2023] 1 S.C.R. 579, Supreme Court of India, 2023
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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579
K. SREEDHAR
v.
M/S RAUS CONSTRUCTIONS PVT. LTD & ORS.
(Civil Appeal Nos. 7402 of 2022)
JANUARY 05, 2023
[M. R. SHAH AND M. M. SUNDRESH, JJ.]
Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 : s. 31(i) – Provisions of
the Act not to apply to security interest created in agricultural land
– Respondent No. 1-debtor availed credit facilities from the Bank
and owing to default in payment, declared NPA – Bank issued
possession notice of the properties and e-auction held – Challenged
to – One of the property purchased by the appellant-auction
purchaser – DRT confirmed the sale in favour of the appellant – In
writ petition, the High Court set aside the e–auction and sale
certificate – On appeal, held: High Court ought not to have
entertained Writ Petition as there was a remedy of appeal before
the DRAT – By entertaining the writ petition straightway under Art.
226/227 challenging the order passed by the DRT, the High Court
allowed/permitted the borrower to circumvent the provision of appeal
before the DRAT under the provisions of the SARFAESI Act – There
was no breach of r. 8(1) & (2) of 2002 Rules as the possession
notices were published in two leading newspapers and served upon
borrowers – There was no breach of r. 9(3) of the 2002 Rules as the
entire 25% of the sale proceed was deposited the very next day of
sale – Also, no breach of r. 9(4) of the 2002 Rules – Merely because
the secured property is shown
to be agricultural property is not
sufficient for s. 31(i) – Properties must actually be used as
agricultural land when the security interest was created – No
evidence was led to show that property was actually put to use as
agricultural land or any activity was going on – Burden was upon
the borrower to prove that the secured properties were agricultural
lands and actually being used as agricultural lands and/or
agricultural activities were going on – Order of the High Court set
aside and that of the DRT restored – Security Interest (Enforcement)
Rules 2002.
   [2023] 1 S.C.R. 579
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SUPREME COURT REPORTS
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Allowing the appeals, the Court
HELD: 1.1 What was challenged before the High Court by
the borrower in a writ petition under Article 226 of the
Constitution of India was the judgment and order passed by the
DRT-I. 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. By
entertaining the writ petition straightway under Article 226/227
of the Constitution of India challenging the order passed by the
DRT-I, the High Court has allowed / permitted the borrower to
circumvent the provision of appeal before the DRAT under the
provisions of the SARFAESI Act. [Para 6][588-F-H; 589-A-B]
1.2 The High Court has set aside the sale in favour of the
auction purchaser with respect to the property at Item No.8 on
the ground that there was a violation of Rules
8(1) & (2) and 9(4)
of the Rules, 2002. However, while observing so, the High Court
has not properly appreciated that. In the present case, the
Possession Notices were published in two leading newspapers
having sufficient circulation in the locality. Even the Possession
Notices were also served upon the borrowers also. Therefore,
the High Court has materially erred in holding that there was a
breach of Rules 8(1) & (2) of the Rules, 2002.[Para 6.2][589-B-
D]
1.3 In the present case, the auction was held on 17.02.2017.
The auction purchaser deposited Rs.26 lakh through RTGS on
14.02.2017 i.e. prior to the auction on 17.02.2017. He deposited
a further sum of Rs.45 lakh again through RTGS on the very
next day of the sale i.e. on 18.02.2017 itself. Therefore, the
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deposit of 25% was permissible not later than next working day
and the entire 25% was deposited on 18.02.2017 i.e. on the next
day of the sale dated 17.02.2017. Furthermore, by communication
/ letter dated 08.03.2017, the secured creditor – Bank directed
the auction purchaser to deposit the balance 75% of the bid
amount within 15 days and the auction purchaser deposited the
balance 75% of the sale price on 23.03.2017, i.e., on the 15th day
from the date of communication by the secured creditor – Bank
to deposit balance 75% of the bid amount within 15 days. As per
Rule 9(4) of the Rules, 2002, the balance amount of purchase
price payable shall be paid by the purchaser to the Authorized
Officer on or before 15th day of confirmation of sale of the
immovable property or such extended period, in any case not
exceeding three months. Therefore, the communication dated
08.03.2017 can be said to be the extended period by the secured
creditor / Bank. Therefore, on the 15th day from the date of
communication dated 08.03.2017, when the entire 75% of the
sale price was deposited, it can be said that the entire sale price
was deposited within the time prescribed under Rules 9(3) and
(4) of the Rules, 2002. Therefore, the High Court has committed
an error in holding that there was a breach of Rules 9(3) & (4) of
the Rules, 2002. [Paras 6.3 and 6.4][590-B-D, E-H]
1.4 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 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 non- agricultural 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. [Para 7][591-B-E]
K. SREEDHAR v. M/S RAUS CONSTRUCTIONS PVT. LTD.
& ORS.
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1.5 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. When no evidence
was led at all on behalf of the borrowers that the secured
properties in question were actually put to use as agricultural
land and/or any agricultural activity was going on, the High Court
has committed an error in applying Section 31(i) of the SARFAESI
Act and quashing and setting aside the entire Possession Notice,
Auction Notice as well as Sale etc. [Para 7.2][593-F-H]
1.6 The High Court also materially erred in shifting the
burden upon the secured creditor to prove that the properties
were not non-agricultural lands or have been put to non-
agricultural use. When it was the case on behalf of the borrowers
that in view of Section 31(i) of the SARFAESI Act, the properties
were agricultural lands, the same were being exempted from the
provisions of the SARFAESI Act, the burden was upon the
borrower to prove that the secured properties were agricultural
lands and actually being used as agricultural lands and/or
agricultural activities were going on. Therefore, the High Court
has materially erred
in shifting the burden upon the secured
creditor to prove that the properties are non-agricultural lands
or have been put to non-agricultural use. [Para 7.3][594-A-C]
1.7 The impugned judgment and order passed by the High
Court is unsustainable and is quashed and set aside and the
judgment and order passed by the Debts Recovery Tribunal-I
dismissing SA No.171/2016 is restored. [Para 8][594-D]
ITC Limited vs. Blue Coast Hotels Limited and Others
(2018) 15 SCC 99 : [2018] 5 SCR 516, Indian Bank
and Another vs. K. Pappireddiyar and Another (2018)
18 SCC 252 – relied on.
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Case Law Reference
[2018] 5 SCR 516
relied on
Para 3.7
(2018) 18 SCC 252
relied on
Para 3.7
CIVIL APPELLATE JURISDICTION : Civil Appeal No.7402
of 2022.
From the Judgment and Order dated 06.03.2020 of the High Court
for the State of Telangana at Hyderabad in W.P. No.12081 of 2019.
With
Civil Appeal No.7404 of 2022.
Dhruv Mehta, Pratap Narayan Sanghi, Sr. Advs., Himanshu
Munshi, Dr. Ram Kishor Choudhary, Amit Kumar Chourasia, Avinash
Kumar Bharti, Manish Garani, S. V. S. Chowdary, Yelamanchili Shiva
Santosh Kumar, Tarun Gupta, Abhishek Sharma, Avdhesh Narayan
Sanghi, Krishna Kumar Singh, Advs. for the appearing parties.
The Judgment of the Court was delivered by
M. R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment
and order dated 06.03.2020 passed by the High Court for the State of
Telangana at Hyderabad in Writ Petition No.12081/2019 by which the
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 (hereinafter referred to as “DRT-I”) in SA No.171/2016 as
well as the Possession Notice dated 05.02.2016 and the Sale Notice
dated 10.01.2017 issued by the Indian Bank (hereinafter referred to as
“secured creditor”) and also the sale of Item No.8 property mentioned
in the Sale Notice pursuant to the auction held, the auction purchaser as
well as the secured creditor have preferred the present appeals.
2. The facts leading to the present
appeals in nut-shell are as
under:
2.1 That, the respondent No.1 herein – M/s. Raus Constructions
Private Ltd. (hereinafter referred to as “Debtor”) 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
K. SREEDHAR v. M/S RAUS CONSTRUCTIONS PVT. LTD.
& ORS.
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[2023] 1 S.C.R.
initiated the proceedings under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(hereinafter referred to as “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 and sought stay of all further
proceedings initiated by the secured creditor under the provisions of the
SARFAESI Act and pursuant to the Possession Notice dated 05.02.2016,
including e-auction Notice, till the disposal of SA No.171/2016 on the file
of DRT-I, Hyderabad. That, the writ petition came to be 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.
2.2 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
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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.
2.3 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. By the impugned judgment and order, the High Court
has allowed the said writ petition and has quashed and set aside the
order passed by the DRT- I dismissing the SA No.171/2016. By the
impugned judgment and order the High Court has also set aside the
Possession Notice as well as the Sale Certificate issued in favour of the
auction purchaser with respect to the Sale of Item No.8 property
mentioned in the auction Notice. While allowing the writ petition, the
High Court has observed and held that there was non-compliance of the
Rule 9(3) of the Security Interest (Enforcement) Rules, 2002 (hereinafter
referred to as “Rules, 2002”) inter alia on the ground that 25% of the
amount of sale price and thereafter 75% of the balance sale price was
not deposited within the time stipulated under Rule 9 of the Rules, 2002.
The High Court also observed
and held that in view of Section 31(i) of
the SARFAESI Act, the property Item No.8 being an agricultural land
could not have been put to auction.
2.4 Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court quashing and setting aside the sale
with respect to property Item No.8, auction purchaser as well as secured
creditor have preferred the present appeals.
3. Shri Dhruv Mehta, learned senior counsel appearing on behalf
of the auction purchaser and learned senior counsel appearing on behalf
of the secured creditor have vehemently submitted that the High Court
has materially erred in entertaining the writ petition against the judgment
and order passed by the DRT-I. It is submitted that against the order
passed by the DRT-I, the borrower was required to prefer an appeal
before the Debts Recovery Appellate Tribunal (hereinafter referred to
as “DRAT”). It is submitted that only with a view to circumvent the
provisions of the appeal before the DRAT and to get out of the deposit
of the pre-deposit amount, the borrower straightway preferred writ
K. SREEDHAR v. M/S RAUS CONSTRUCTIONS PVT. LTD.
& ORS. [M. R. SHAH, J.]
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petition before the High Court against the judgment and order passed by
the DRT-I, which ought not to have been entertained by the High Court
in view of availability of alternative statutory remedy under the provisions
of the SARFAESI Act.
3.1 It is further submitted that even on merits also, the High Court
has materially erred in holding that there was breach of Rule 9(3) and
Rules 8(1) & (2) of the Rules, 2002.
3.2 It is submitted that the High Court has not properly appreciated
and/or considered the amendment in 2016 with respect to Rule 9(3)
whereby 25% of payment could be made within next day of auction. It
is submitted that therefore the High Court has materially erred in setting
aside the sale transaction on the basis of such manifest ignorance.
3.3 It is submitted that in the present case, the auction purchaser
deposited the amount within the time prescribed under Rule 9(4) of the
Rules, 2002 and thereafter the sale certificate was issued on 23.03.2017
for the said item which was registered on 07.02.2018 and the possession
was also handed over to the auction purchaser.
3.4 It is further submitted by the learned senior counsel appearing
on behalf of the auction purchaser that in the present case the auction
purchaser quoted Rs.2,76,10,000/- for item No.8 of the Possession
Notice. He deposited on 14.02.2017, prior to the auction on 17.02.2017,
Rs.26 lakh vide RTGS; that he deposited after the auction was held on
17.02.2017 pursuant to the letter dated 18.02.2017 an amount of Rs.45
lakh again through RTGS. It is submitted that the respondent secured
creditor – Bank vide communication dated 08.03.2017 directed the auction
purchaser to deposit balance 75% of the bid amount within 15 days and
he gave cheque dated 23.03.2017 for an amount of Rs.2,05,10,000/-. It
is submitted that therefore the entire amount was deposited within the
time stipulated. It is submitted that therefore in the facts and
circumstances of the case the High Court has materially erred in quashing
and setting the sale on the ground that there was violation of Rules 8(1)
& (2) and 9(3) of the Rules, 2002.
3.5 It is further submitted by the learned senior counsel appearing
for the auction purchaser that the High Court ought to have appreciated
that after the payment of full sale consideration, the sale certificate was
issued in favour of the auction purchaser on 23.03.2017 which was
registered on 07.02.2018 and after the possession was handed over to
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him, he spent huge amount in leveling the plot; applied for permission to
the Municipal Authorities to construct the house in the plot. It is submitted
that therefore the High Court has seriously erred in quashing and setting
aside the sale.
3.6 Learned senior counsel appearing on behalf of the auction
purchaser has further submitted that the High Court has also erred in
setting aside the Sale Notice, Possession Notice etc. on the ground that
the properties were exempted from the provisions of the SARFAESI
Act in view of Section 31(i) of the SARFAESI Act.
3.7 It is submitted that as such the scheduled properties were not
actually put to use for agricultural purposes. It is submitted that there
was no proof filed to prove that agriculture is being done in the scheduled
properties in question. It is submitted that there was no agricultural activity
taking place. It is submitted that in fact the photographs were filed which
proved that no agricultural activities were going on. It is submitted that
therefore when the secured properties in question were not put to use
for agricultural purposes and/or no agricultural activity was going on, the
properties in question were not exempted under Section 31(i) of the
SARFAESI Act. Heavy reliance is placed on the decisions of this Court
in the case of ITC Limited vs. Blue Coast Hotels Limited and
Others reported in (2018) 15 SCC 99 (Para 36) and Indian Bank
and Another vs. K. Pappireddiyar and Another reported in
(2018)
18 SCC 252 (Paras 7 & 8).
3.8 Now, so far as taking the possession of Item Nos.1 to 12 and
the issuance of Possession Notice on 05.02.2016 and the findings recorded
by the High Court on Section 13(4) of the SARFAESI Act that the
Possession Notice was issued after a period of one year is concerned, it
is submitted that there was a typographical error in mentioning the
possession date. It is submitted that instead of 03.02.2016, 04.02.2016
and 05.02.2016, dates were mentioned as 03.02.2015, 04.02.2015 and
05.02.2015, which were nothing but typographical error. It is submitted
that therefore the Possession Notice cannot be said to be in breach of
Section 13(4) of the SARFAESI Act.
Making above submissions, it is requested to allow the present
appeals.
4. Present appeals are vehemently opposed by Mr. Pratap Narayan
Sanghi, learned senior counsel appearing on behalf of the borrower. It is
K. SREEDHAR v. M/S RAUS CONSTRUCTIONS PVT. LTD.
& ORS. [M. R. SHAH, J.]
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submitted that in the facts and circumstances of the case and having
found that there was a breach of Rules 8(1) & (2) and 9(4) of the Rules,
2002 and Section 13(4) of the SARFAESI Act, the High Court has not
committed any error in entertaining the writ petition under Article 226 of
the Constitution of India against the judgment and order passed by the
DRT-I.
4.1 It is further submitted that so far as the property Item No.8 is
concerned, there was a clear breach of Rules 8(1) & (2) and 9(4) of the
Rules, 2002. It is submitted that therefore the High Court has not
committed any error in quashing and setting aside the sale with respect
to the property Item No.8.
4.2 It is further submitted that so far as other properties are
concerned, as the said properties were agricultural lands / properties, in
view of Section 31(i) of the SARFAESI Act, with respect to those
properties / agricultural lands, the SARFAESI Act would not be
applicable. It is submitted that in the revenue records, properties in
question were shown as agricultural lands and therefore, the said
properties were exempted from the provisions of the SARFAESI Act in
view of Section 31(i) of the SARFAESI Act.
Making above submissions, it is requested to dismiss the present
appeals.
5. We have heard the learned counsel appearing on behalf of the
secured creditor – Bank as well as the learned senior counsel appearing
on behalf of the auction purchaser of property
at Item No.8 and learned
senior counsel appearing on behalf of the borrower.
6. At the outset, it is required to be noted that what was challenged
before the High Court by the borrower in a writ petition under Article
226 of the Constitution of India was the judgment and order passed by
the DRT-I. 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
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the writ petition under Article 226/227 of the Constitution of India
challenging the judgment and order passed by the DRT-I. By entertaining
the writ petition straightway under Article 226/227 of the Constitution of
India challenging the order passed by the DRT-I, the High Court has
allowed / permitted the borrower to circumvent the provision of appeal
before the DRAT under the provisions of the SARFAESI Act.
6.1 Even on merits also, for the reasons stated hereinafter, the
impugned judgment and order passed by the High Court is unsustainable.
6.2 By the impugned judgment and order, the High Court has set
aside the sale in favour of the auction purchaser with respect to the
property at Item No.8 on the ground that there was a violation of Rules
8(1) & (2) and 9(4) of the Rules, 2002. However, while observing so,
the High Court has not properly appreciated that in the present case, the
Possession Notices were published in two leading newspapers having
sufficient circulation in the locality. Even the Possession Notices were
also served upon the borrowers also. Therefore, the High Court has
materially erred in holding that there was a breach of Rules 8(1) & (2)
of the Rules, 2002.
6.3 Now, so far as the finding recorded by the High Court on
Rules 9(3) and 9(4) of the Rules, 2002 is concerned, the findings recorded
by the High Court are just contrary to the provisions of Rule 9 of the
Rules, 2002. The High Court has observed that 25% of the amount was
not
deposited on the date of auction and that balance 75% amount was
not deposited on or before 15th day of confirmation of the sale. Both the
aforesaid findings are just contrary to Rules 9(3) and (4) of the Rules,
2002. Rules 9(3) and 9(4) read as under:
“9. Time of sale, issue of sale certificate and delivery of possession,
etc.
(3) On every sale of immovable property, the purchaser shall
immediately, i.e. on the same day or not later than next working
day, as the case may be, pay a deposit of twenty five per cent of
the amount of the sale price, which is inclusive of earnest money
deposited, if any, to the authorized officer conducting the sale and
in default of such deposit, the property shall be sold again;
(4) The balance amount of purchase price payable shall be paid
by the purchaser to the authorized officer on or before the fifteenth
day of confirmation of sale of the immovable property or such
K. SREEDHAR v. M/S RAUS CONSTRUCTIONS PVT. LTD.
& ORS. [M. R. SHAH, J.]
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extended period as may be agreed upon in writing between the
purchaser and the secured creditor, in any case not exceeding
three months.”
The purchaser was required to deposit 25% of the amount of the
sale price on the same day of sale or not later than the next working day.
Therefore, 25% of the sale price could have been deposited either on
the same day of the sale or on the next working day. In the present case,
the auction was held on 17.02.2017. The auction purchaser deposited
Rs.26 lakh through RTGS on 14.02.2017 i.e. prior to the auction on
17.02.2017. He deposited a further sum of Rs.45 lakh again through
RTGS on the very next day of the sale i.e. on 18.02.2017 itself. Therefore,
the entire 25% of the sale price came to be deposited by 18.02.2017.
Therefore, the deposit of 25% was permissible not later than next working
day and the entire 25% was deposited on 18.02.2017 i.e. on the next day
of the sale dated 17.02.2017. Therefore, the High Court has committed
an error in observing and holding that there was a breach of Rule 9(3) of
the Rules, 2002.
6.4 Similarly, the High Court has also erred in holding that there
was a breach of Rule 9(4) of the Rules, 2002. The High Court has held
so by observing that the auction purchaser did not deposit the balance
75% of the sale price on or before 15th day of confirmation of sale.
However, it is required to be noted that by communication / letter dated
08.03.2017, the
secured creditor – Bank directed the auction purchaser
to deposit the balance 75% of the bid amount within 15 days and the
auction purchaser deposited the balance 75% of the sale price on
23.03.2017, i.e., on the 15th day from the date of communication by the
secured creditor– Bank to deposit balance 75% of the bid amount within
15 days. As per Rule 9(4) of the Rules, 2002, the balance amount of
purchase price payable shall be paid by the purchaser to the Authorized
Officer on or before 15th day of confirmation of sale of the immovable
property or such extended period, in any case not exceeding three
months. Therefore, the communication dated 08.03.2017 can be said to
be the extended period by the secured creditor / Bank. Therefore, on
the 15th day from the date of communication dated 08.03.2017, when
the entire 75% of the sale price was deposited, it can be said that the
entire sale price was deposited within the time prescribed under Rules
9(3) and (4) of the Rules, 2002. Therefore, the High Court has committed
an error in holding that there was a breach of Rules 9(3) & (4) of the
Rules, 2002.
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7. Now, so far as with respect to remaining properties / secured
assets viz. Item Nos.3 and 9 to 12 and the submission on behalf of the
borrowers that as the said scheduled properties were agricultural
properties, therefore the said properties were exempted from the
provisions of the SARFAESI Act in view of Section 31(i) of the
SARFAESI Act is concerned, at the outset, it is required to be noted 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 non- agricultural 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. The view taken by the
High Court is just contrary to the two decisions of this Court in the case
of Blue
Coast Hotels Limited and Others (Supra) and K.
Pappireddiyar and Another (Supra). In both the aforesaid decisions,
this Court 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 (Supra), 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. After following the decision of this Court
in the case of Blue Coast Hotels Limited and Others (Supra), in
the case of K. Pappireddiyar and Another (Supra), it is observed and
held in paragraphs 8 and 9 as under:
K. SREEDHAR v. M/S RAUS CONSTRUCTIONS PVT. LTD.
& ORS. [M. R. SHAH, J.]
A
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SUPREME COURT REPORTS
[2023] 1 S.C.R.
“8. The expression “security interest”, both before and after the
amendment, excludes what is specified in Section 31. Clause (i)
of Section 31 stipulates that the provisions of the Act will not be
applicable to any security interest created in agricultural land. The
statutory dictionary in Section 2 does not contain a definition of
the expression “agricultural land”. Whether a particular piece of
land is agricultural in nature is a question of fact. In the decision
of this Court in Blue Coast Hotels Ltd.,4 a security interest was
created in respect of several parcels of land which were meant to
be a part of a single unit, for establishing a hotel in Goa. Some of
the parcels were purchased by the debtor from agriculturists and
were entered as agricultural lands in the revenue records. The
debtor had applied to the revenue authority for the conversion of
the land to non-agricultural use, but the applications were pending.
This Court held that the fact that the debtor had created a security
interest was indicative of the position that the parties did not treat
the land as agricultural land. The undisputed position was that the
hotel was located on 1,82,225 sq m of land of which 2335 sq m
were used for growing vegetables and fruits for captive
consumption. In this background, the two-Judge Bench of this
Court held that:
“49. The mortgage is thus intended to cover the entire property
of the Goa Hotel. Prima facie, apart
from the fact that the
parties themselves understood that the lands in question are
not agricultural, it also appears that having regard to the use to
which they are put and the purpose of such use, they are indeed
not agricultural.”
The Court further held that: (SCC OnLine SC para 57)
“57. …having regard to the character of the land the purpose
for which it is set apart, we are of the view that the land in
question is not an agricultural land. The High Court misdirected5
itself in holding that the land was an agricultural land merely
because it stood as such in the revenue entries, even though
the application made for such conversation lies pending till
date.”
9. The classification of land in the revenue records as agricultural
is not dispositive or conclusive of the question whether the
A
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SARFAESI Act does or does not apply. Whether a parcel of land
is agricultural must be deduced as a matter of fact from the nature
of the land, the use to which it was being put on the date of the
creation of the security interest and the purpose for which it was
set apart.”
7.1 The purpose of enacting Section 31(i) of the SARFAESI Act
has been considered by this Court in the case of Blue Coast Hotels
Ltd. (Supra) in paragraph 36, which reads as under:
“36. The purpose of enacting Section 31(i) and the meaning of
the term “agricultural land” assume significance. This provision,
like many others is intended to protect agricultural land held for
agricultural purposes by agriculturists from the extraordinary
provisions of this Act, which provides for enforcement of security
interest without intervention of the Court. The plain intention of
the provision is to exempt agricultural land from the provisions of
the Act. In other words, the creditor cannot enforce any security
interest created in his favour without intervention of the court or
tribunal, if such security interest is in respect of agricultural land.
The exemption thus protects agriculturists from losing their source
of livelihood and income i.e. the agricultural land, under the drastic
provision of the Act. It is also intended to deter the creation of
security interest over agricultural land as defined in Section
2(1)(zf)35. Thus, security interest cannot be created in respect of
property specified
in Section 31.”
7.2 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.
Applying the law laid down in the aforesaid two decisions to the facts of
the case on hand and when no evidence was led at all on behalf of the
borrowers that the secured properties in question were actually put to
use as agricultural land and/or any agricultural activity was going on, the
High Court has committed an error in applying Section 31(i) of the
SARFAESI Act and quashing and setting aside the entire Possession
Notice, Auction Notice as well as Sale etc.
K. SREEDHAR v. M/S RAUS CONSTRUCTIONS PVT. LTD.
& ORS. [M. R. SHAH, J.]
A
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SUPREME COURT REPORTS
[2023] 1 S.C.R.
7.3 The High Court has also materially erred in shifting the burden
upon the secured creditor to prove that the properties were not non-
agricultural lands or have been put to non-agricultural use. When it was
the case on behalf of the borrowers that in view of Section 31(i) of the
SARFAESI Act, the properties were agricultural lands, the same were
being exempted from the provisions of the SARFAESI Act, the burden
was upon the borrower to prove that the secured properties were
agricultural lands and actually being used as agricultural lands and/or
agricultural activities were going on. Therefore, the High Court has
materially erred in shifting the burden upon the secured creditor to prove
that the properties are non-agricultural lands or have been put to non-
agricultural use.
8. In view of the above and for the reasons stated above, the
impugned judgment and order passed by the High Court is unsustainable
and the same deserves to be quashed and set aside. Accordingly, the
impugned judgment and order dated 06.03.2020 passed by the High Court
for the State of Telangana at Hyderabad in Writ Petition No.12081/2019
is hereby quashed and set aside and the judgment and order dated
16.05.2019 passed by the Debts Recovery Tribunal-I, Hyderabad
dismissing SA No.171/2016 is hereby restored.
Presently appeals are allowed accordingly. No costs.
Nidhi Jain
Appeals allowed.
(Assisted by : Abhishek Pratap Singh, LCRA)