Case: INDIAN BANK  Vs. K. PAPPIREDDIYAR

2. In 1989, a term loan was granted by the appellant to Yelagiri Dairy Farm for setting up a dairy farm on a propertyg 6.10 acres and bearing survey No. 203/2, 3, 4, 5 & 202/1A situated at Peddakallupalli Village, NH Road, Vaniambadi, Tamil Nadu. By a registered power of attorney, the first respondent appointed N K Arumugham as his attorney and authorised him to sell or mortgage the property. Arumugham was the managing partner of the partnership farm and had mortgaged the property in favour of the appellant. The first respondent was a guarantor. In 1993, building was constructed and machines were installed by the borrowers to commence business. The account became ag asset. In 1995, the Bank filed a suit for recovery. It was transferred to the Debt Recovery Tribunal) at Chennai and renumbered as T.A. No. 93 of 2007. On 11 June 2010,I allowed the claim of the Bank in the amount of Rs. 31,00,238/with interest at 9 per cent per annum. A recovery certificate was issued on 10 February 2011 in the amount of Rs. 74,31,233.. On 2 August 2011, the Bank issued a demand notice under Section 13(2) for Rs.. Overruling an objection that the property is agricultural in nature, it took possession on 31 October 2011. The Bank issued a sale notice on 2 April 2012. The sale notice was challenged in Original Suit No. 74 of 2012, which was dismissed in default. The second respondent was the successful bidder at an auction sale held on 12 May 2012. He paid a consideration of Rs. 1.27 crores. The sale certificate was issued on 14 June 2012 and was rectified on 7 September 20123. The sale certificate was challenged in writ proceedings before the Madras High Court. The petition was dismissed on 4 April 2013 with liberty to the first respondent to adopt appropriate steps. The first respondent thereupon movedI at Chennai for challenging the sale certificate. The proceeding was dismissed on 17 May 2013. On 11 September 2014, an appeal filed by the first respondent was allowed by the DRAT on the ground that the property which was sold, was agricultural and was exempt from the provisions of the Act. Both the Bank and the auction purchaser filed petitions before the High Court at Madras under Article 226. The High Court dismissed the petitions. It held that since a security interest had been created in agricultural land, the provisions of the SARFAESI Act were not attracted4. Aggrieved by the judgment and order of the Madras High Court, the Bank and the auction purchaser instituted proceedings before this Court under Article 136 of the Constitution. Leave has been granted.

Court's reasoning:
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 Limiteda 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 tol 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 square meters of land of which 2,335 square metres were used for growing vegetables and fruits for captive consumption. In this background, thee 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 agriculturalThe Court further held that:57…having regard to the character of the land and 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 misdirected 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 date9. The classification of land in the revenue records as agricultural is not dispositive or conclusive of the question whether the 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 apart10. The Division Bench of the Madras High Court has failed to adjudicate on the basic issue as to whether the land in respect of which the security interest was created, was agricultural in nature. The DRT rejected the objection of the debtor that the land was agricultural. In appeal, the DRAT reversed that finding. Apart from referring to the position in law, the impugned judgment of the High Court contains no discussion of the material which was relied upon by the parties in support of their respective cases; the Bank urging that the land was not agricultural while the debtor urged that it was. Both having regard to thee Bench decision in Blue Coast Hotels Limited and as explained above, the question as to whether the land is agricultural has to be determined on the basis of the totality of facts and circumstances including the nature and character of the land, the use to which it was put and the purpose and intent of the parties on the date on which the security interest was created. In the absence of a specific finding, we are of the view that it would be appropriate and proper to set aside the judgment of the High Court and to remit the proceedings for being considered afresh.