Source: https://www.lawweb.in/2018/12/when-land-should-not-be-treated-as.html
Timestamp: 2019-04-25 06:32:24+00:00

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Law Web: When land should not be treated as agricultural land even if revenue record shows that it is agricultural land?
In the present case, security interest was created in respect of several parcels of land, which were meant to be a part of single unit i.e. the five star hotel in Goa. Some parcels of land now claimed as agricultural land were apparently purchased by the debtor from agriculturists and are entered as agricultural lands in the revenue records. The debtor applied to the revenue authorities for the conversion of these lands to non-agricultural lands which is pending till date due to policy decision.
We agree that the determination of the character of land, according to the purpose for which it is meant or set apart and can be used, is a matter which ought to be determined on the facts of each particular case. What is really required to be shown is the connection with an agricultural purpose and user and not the mere possibility of user of land, by some possible future owner or possessor, for an agricultural purpose. It is not the mere potentiality, which will only affect its valuation as part of "assets", but its actual condition and intended user which has to be seen for purposes of exemption from wealth-tax. One of the objects of the exemption seemed to be to encourage cultivation or actual utilisation of land for agricultural purposes. If there is neither anything in its condition, nor anything in evidence to indicate the intention of its owners or possessors, so as to connect it with an agricultural purpose, the land could not be "agricultural land" for the purposes of earning an exemption under the Act. Entries in revenue records are, however, good prima facie evidence.
We suppose that something or other can be, and often is, grown on any vacant land, but that would not necessarily make it agricultural land for our purposes. To give an example the possibility of cultivating, or even the actual cultivation of, what is essentially a building site in the heart of a town would not make it agricultural land. It is the purpose for which it is held that determines its character and the existence of a few coconut trees or a vegetable patch on the land cannot alter the fact that it is held for purposes of building and not for purposes of agriculture.
In any event, 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 mis-directed 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.
ITC Limited Vs. Blue Coast Hotels Ltd. and Ors.
2. The auction purchaser ITC Ltd. is before us in the appeals arising out of SLP (C) Nos. 10215-10217/2016. The sale of a five star luxury hotel property purchased in a public auction was set aside by an order1 of the Bombay High Court in favour of the debtor Blue Coast Hotels Ltd.
Industrial Financial Corporation of India (IFCI), [filed appeals arising out of SLP (C) Nos. 10196-10198/2016 in this Court], the secured creditor (hereinafter referred to as 'the creditor'), in the capacity of a financial institution entered into a corporate loan agreement2 with Blue Coast Hotels (hereinafter referred to as 'the debtor') for a sum of Rs. 150 crores. The agreement included a creation of a special mortgage to secure the corporate loan. The mortgaged property comprised of the whole of the debtor's hotel property-including the agricultural land on which the debtor was to develop villas. The debtor defaulted in repayment of the loan and the debtor's account became a Non-Performing Asset (NPA)3.
4. Several notices intimating default in payment of the total outstanding amount of Rs. 133.18 crores were sent by the creditor to the debtor. Upon failure to remit the overdue amount despite the notices, a notice4 Under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the Act") was sent by the creditor calling upon the debtor to pay the amount overdue within a period of 60 days.
10. On 04.09.2013, the creditor published a Notice of Sale by Public Auction in the newspaper fixing the date of auction as 09.10.2013 at a reserve price of Rs. 403 crores. In view of this, the debtor sent a letter12 to the creditor undertaking that it will pay all outstanding installments by 31.12.2013 and that the sale of assets be deferred upto the aforesaid date. The debtor further stated that they shall not proceed in respect of their Securitization Application13 before the DRT. In pursuance of it, the creditor deferred the sale by issuing a public notice on 08.10.2013 and granted the debtor an opportunity to clear the loan, however, the creditor extended repayment only by 15-20 days.
(ii) That a portion of the land mortgaged by the debtor as security interest consisted of agricultural land to which the provisions of the Act do not apply. The land, therefore, could not have been recovered.
(iii) The proceedings Under Section 14 were initiated by the creditor who was not a secured creditor after having sold the property in auction to the auction purchaser.
20. The Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Rules') framed under the Act19 elaborate on the manner in which the representation of the borrower is required to be dealt with. Section 13 (4) enables any creditor to enforce any security interest without the intervention of a court or tribunal. The procedure prescribed is that after classifying the debt as a non-performing asset, the creditor may, by a notice in writing require the debtor/borrower to discharge his liabilities within 60 days. On receipt of a notice, the borrower may make a representation or raise any objection. The creditor is then bound to consider the representation or objection. If the creditor comes to the conclusion that the representation is not acceptable or tenable, the creditor is required to communicate the reasons for the non-acceptance of the representation/objection within fifteen days. Where the borrower fails to discharge his liability in full, the creditor may take any of the actions Under Sub-section (4) which include the taking over of possession of the secured assets et cetera.
21. Rule 3A of the Rules requires the authorized officer who is an officer specified by the Board of Directors of the secured creditor to consider the representation and modify the notice of demand if satisfied of the need to do so in that regard. If the authorized officer comes to the conclusion that such representation or objection is not tenable or acceptable, he must communicate the reasons for non-acceptance of the representation or objection within fifteen days.
45. ...The purpose of serving a notice upon the borrower Under Sub-section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken Under Sub-section (4) of Section 13 in case of non-compliance with notice within 60 days. The creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures Under Sub-section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures Under Sub-section (4) of Section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained Under Sub-section (4) of Section 13. At the same time, more importantly, we must make it clear unequivocally that communication of the reasons for not accepting the objections taken by the secured borrower may not be taken to give occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. secured assets without intervention of the court. Such a person in respect of whom steps Under Section 13(4) of the Act are likely to be taken cannot be denied the right to know the reason of non-acceptance and of his objections. It is true, as per the provisions under the Act, he may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debts Recovery Tribunal as provided Under Section 17 of the Act matures on any measure having been taken Under Sub-section (4) of Section 13 of the Act.
26. There is no doubt that if a reply with reasons is an integral and indispensable part of the statutory scheme, the Courts would not excuse a departure from it. But, on the other hand, if the reply is merely a direction and not of substance to the scheme, the non-compliance may be excused.
"For ascertaining the real intention of the Legislature, the court may consider inter alia, the nature and design of the statute, and the consequences which would follow from construing it the one way or the other; the impact of other provisions whereby the necessity of complying with the provisions in question is avoided; the circumstances, namely, that the statute provides for a contingency of the noncompliance with the provisions; the fact that the non-compliance with the provisions is or is not visited by some penalty; the serious or the trivial consequences, that flow therefrom; and above all, whether the object of the legislation will be defeated or furthered".
28. We find the language of Sub-section (3A) to be clearly impulsive. It states that the secured creditor "shall consider such representation or objection and further, if such representation or objection is not acceptable or tenable, he shall communicate the reasons for non-acceptance" thereof. We see no reason to marginalize or dilute the impact of the use of the imperative 'shall' by reading it as 'may'. The word 'shall' invariably raises a presumption that the particular provision is imperative22.
29. There is nothing in the legislative scheme of Section 13(3A) which requires the Court to consider whether or not, the word 'shall' is to be treated as directory in the provision. As the Section stood originally, there was no provision for the above mentioned requirement of a debtor to make a representation or raise any objection to the notice issued by the creditor Under Section 13(2). As it was introduced via Sub-section (3A), it could not be the intention of the Parliament for the provision to be futile and for the discretion to ignore the objection/representation and proceed to take measures, be left with the creditor. There is a clear intendment to provide for a locus poenitentiae which requires an active consideration by the creditor and a reasoned order as to why the debtor's representation has not been accepted.
We agree with the view of this Court in this regard in Mardia Chemicals Ltd. v. Union of India MANU/SC/0323/2004 : (2004) 4 SCC 311 (para 45, 47, 77 and 80), Transcore v. Union of India MANU/SC/5319/2006 : (2008) 1 SCC 125 (para 24 and 25) and Keshavlal Khemchand & Sons (P) Ltd. v. Union of India MANU/SC/0073/2015 : (2015) 4 SCC 770 (para 19 and 61).
We also approve of the view of several High Courts in this regard23.
(iv) On the next day 21.06.2013, the debtor wrote a letter to the creditor seeking extension of time and enclosed six cheques for upfront payment of Rs. 33.16 crores without making any reference to the notice of taking over of possession. The cheques were dishonoured.
(v) On 04.09.2013, the creditor published a Notice of Sale by Public Auction in the newspaper fixing the date of auction as 09.10.2013 at a reserve price of Rs. 403 crores.
(vi) Following this the debtor sent a letter to the creditor on 19.09.2013 undertaking that it will repay all outstanding installments by 31.12.2013 and that the sale of assets be deferred up to the said date. The debtor further stated that it shall not proceed further in respect of their Securitization Application before the DRT.
(ix) On 25.11.2013, "A Letter of Undertaking" was given by the debtor accepting the Schedule given by the creditor on 29.10.2013 and also acknowledging the right of the creditor to sell the assets in case of default as per the above mentioned schedule.
33. From the above, it is clear that the creditor was induced by the debtor not to take action against them through assurances and promises. The creditor appeared to have entered into negotiations for the settlement of the dues and even accepted cheques in repayment much after the notice25 Under Section 13(2) and after the debtor's letter of representation26. Many opportunities were granted by the creditor to the debtor to repay the debt which were all met by proposals for extension of time. Eventually, the debtor even executed "A Letter of Undertaking27" acknowledging the right of IFCI to sell the assets in the case of default.
35. Much was sought to be made of the words "without prejudice" in the letter28 containing the undertaking that if the debt was not paid, the creditor could take over the secured assets. The submission on behalf of the debtor that the letter of undertaking was given in the course of negotiations and cannot be held to be an evidence of the acknowledgement of liability of the debtor, apart from being untenable in law, reiterates the attempt to evade liability and must be rejected. The submission that the letter was written without prejudice to the legal rights and remedies available under any law and therefore the acknowledgement or the undertaking has no legal effect must likewise be rejected. This letter is reminiscent of a letter that fell for consideration in Spencer's29 case as pointed out by Mr. Harish Salve, "as a Rule the debtor who writes such letters has no intention to bind himself further than is bound already, no intention of paying so long as he can avoid payment, and nothing before his mind but a desire, somehow or other, to gain time and avert pressure."
But when a statement is used as acknowledgement for the purpose of Section 29 (5), it is not being used as evidence of anything. The statement is not an evidence of an acknowledgement. It is the acknowledgement.
Here, the Respondent, Mr. Rashid was not offering any concession. On the contrary, he was seeking one in respect of an undisputed debt. Neither an offer of payment nor actual payment.
36. All in all, as the matter stands, the debtor did not repay the loan. The debtor managed to submit a letter purporting to be a representation, containing a proposal for reschedulement made much earlier to the creditor's notice and reserved a right to file a reply. Apparently, the debtor induced the creditor to enter into negotiations to ward off the reply and avoid the taking over of possession. The debtor ignored the symbolic possession taken over by the creditor and continued to negotiate and even gave six cheques which were dishonoured. The debtor then gave a final letter of undertaking agreeing that the creditor could take over possession of the assets if the debt was not repaid. All along, the debtor's response has been that of seeking extension of time to pay, with the usual unfulfilled promise of repayment. We see no reason why the debtor should not be stopped from questioning the taking over of possession, particularly since, neither the debt nor the liability is in dispute. The debt has not been repaid in fact, and the objection raised is merely on the ground that the taking of assets is illegal because the creditor failed to reply to the representation.
38. 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 (zf)31. Thus, security interest cannot be created in respect of property specified in Section 31.
The Borrower shall create mortgage on Exclusive basis on the 'Park Hyatt Goa Resort and Spa" Hotel Property admeasuring 1, 82, 225 Sq Mtrs with a built up area of 25182 Sq. Mtrs situated at 263 C, Arossim, Canasaulim Goa.
14....... Entry 45 of List I relates to "banking". Banking operations would inter alia, include accepting of loans and deposits, granting of loans and recovery of the debts due to the bank. There can be little doubt that under Entry 45 of List I, it is Parliament alone which can enact a law with regard to the conduct of business by the banks. Recovery of dues is an essential function of any banking institution. In exercise of its legislative power relating to banking, Parliament can provide the mechanism by which monies due to the banks and financial institutions can be recovered.
It would be quite an erroneous approach to the question to view such a statute not as an organic whole, but as a mere collection of sections, then disintegrate it into parts, examine under what heads of legislation those parts would severally fall, and by that process determine what portions thereof are intra vires, and what are not.
45. As noticed earlier, the creditor took over symbolic possession of the property on 20.06.2013. Thereupon, it transferred the property to the sole bidder ITC and issued a sale certificate for Rs. 515,44,01,000/- on 25.02.2015. On the same day, i.e., 25.02.2015, the creditor applied for taking physical possession of the secured assets Under Section 14 of the Act.
47. We find nothing in the provisions of the Act that renders taking over of symbolic possession illegal. This is a well-known device in law. In fact, this Court has, although in a different context, held in M.V.S. Manikayala Rao v. M. Narasimhaswami MANU/SC/0363/1965 : AIR 1966 SC 470 that the delivery of symbolic possession amounted to an interruption of adverse possession of a party and the period of limitation for the application of Article 144 of the Limitation Act would start from such date of the delivery.
48. The question, however, whether the creditor could maintain an application of possession Under Section 14 of the Act; even though it had taken over only symbolic possession before the sale of the property to the auction purchaser, depends on whether it remained a secured creditor after having done so.
Clause 2(L)34 includes debts or receivables and any right or interest in the security whether full or part underlying such debt or receivables or any beneficial interest in property vide (L)(i)(iv) & (v)35.
Sub-section (6) of Section 1336 posits that the transfer of the secured asset by the secured creditor shall vest in the transferee all the rights as if the transfer had been made by the owner of the secured asset.
The Section (Section 8) does not apply to court sales, for such sales effect a transfer by the operation of law. The principle of the Section was, however, applied in a case decided by Madras High Court where a debt for unpaid purchase money on a sale of land was attached and sold, and the auction purchaser was held entitled to the charge which the vendor had Under Section 55(4) (b) on the property in the hands of the buyer. The court, after observing that the present Section did not apply to court sales, said: The effect of applying Section 8 is to strengthen the sale certificate by transferring the lien along with it.
What is sold at a court sale is the right, title and interest of the judgment debtor, and the extent of that interest is a mixed question of fact and law to be decided according to the circumstances of each particular case, and depends upon what the court intended to sell, and the purchaser intended to buy.
50. In this case, the creditor did not have actual possession of the secured asset but only a constructive or symbolic possession. The transfer of the secured asset by the creditor therefore cannot be construed to be a complete transfer as contemplated by Section 8 of the Transfer of Property Act. The creditor nevertheless had a right to take actual possession of the secured assets and must therefore be held to be a secured creditor even after the limited transfer to the auction purchaser under the agreement39. Thus, the entire interest in the property not having been passed on to the creditor in the first place, the creditor in turn could not pass on the entire interest to the auction purchaser and thus remained a secured creditor in the Act.
19. Power of the High Court to be exercised Under Article 226 of the Constitution, if is discretionary, its exercise must be judicious and reasonable, admits of no controversy. It is for that reason, a person's entitlement for relief from a High Court Under Article 226 of the Constitution, be it against the State or anybody else, even if is founded on the allegation of infringement of his legal right, has to necessarily depend upon unblameworthy conduct of the person seeking relief, and the court refuses to grant the discretionary relief to such person in exercise of such power, when he approaches it with unclean hands or blameworthy conduct."
.......Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as it relates to the remedy.
21State of U.P. v. Manbodhan Lal Shrivastava MANU/SC/0123/1957 : AIR 1957 SC 912, p. 918: 1958 SCR 533; State of U.P. v. Baburam, Upadhya MANU/SC/0312/1960 : AIR 1961 SC 751, p. 765: (1961) 2 SCR 679; Article 143 of the Constitution of India, In the matter of, supra, p. 769; State of Mysore v. V.K. Kangan MANU/SC/0429/1975 : AIR 1975 SC 2190, p. 2192: (1976) 2 SCC 895; Govindlal Chhaganlal Patel v. Agriculture Produce Market Committee MANU/SC/0125/1975 : AIR 1976 SC 263, p. 267: (1976) 1 SCC 369; Ganesh Prasad Sah Kesari v. Lakshmi Narayan, MANU/SC/0377/1985 : (1985) 3 SCC 53, pp. 59, 60: AIR 1985 SC 964; B.P. Khemka Pvt. Ltd. v. Birendra Kumar Bhowmik, MANU/SC/0783/1987 : (1987) 2 SCC 407, p. 415: AIR 1987 SC 1010; Owners and Parties interested in M.V. "Vali Pero" v. Fernandes Lopez MANU/SC/0395/1989 : AIR 1989 SC 2206, p. 2213: (1989) 4 SCC 671; State of M.P. v. Pradeep Kumar, MANU/SC/0566/2000 : (2000) 7 SCC 372, p. 377: (2000) 10 JT 349; Sarla Goel v. Krishanchand, MANU/SC/1131/2009 : (2009) 7 SCC 658 pp. 668, 669 para 30: (2009) 9 JT 21.
23Kiran Devi Bansal v. DGM SIDBI MANU/GJ/0305/2009 : AIR 2009 Guj 100 (DB)(para 9 and 10); Clarity Gold Pvt. Ltd. v. State Bank of India MANU/MH/0051/2011 : AIR 2011 Bom. 42 (DB)(para 11, 12 and 13); Vinay Container Services Pvt. Ltd. v. Axis Bank, MANU/MH/1778/2010 : 2011 (1) Mh. L.J. 882 (para 6); Krushna Chandra Sahoo v. Bank of India MANU/OR/0388/2008 : AIR 2009 Orissa 35 (para 6 and 7); Tensile Steel Ltd. and Anr. v. Punjab and Sind Bank and Ors. MANU/GJ/8188/2006 : AIR 2007 Guj 126 (para 21); M/s. Jayant Agencies v. Canara Bank and Ors., Jharkhand HC in WP (C) No. 4048 of 2010 (para 27, 28, 29, 32 and 33); M/s. Tetulia Coke Plant Pvt. Ltd. v. Bank of India MANU/JH/0686/2012 : AIR 2013 Jhar 12 (para 5, 9, 20, 22, 23 and 24); Mrs. Sunanda Kumari v. Standard Chartered Bank, MANU/KA/1014/2006 : (2007) 135 Comp Cases 604 (Kar) (para 5); Palash Mukherjee v. U.O.I., W.P. 9876 (W) of 2014 Calcutta High Court (para 1, 2 and 67); Jaideep Singh and Ors. v. Union of India and Anr., MANU/GH/0095/2008 : 2008 2 GLT (91) (para 25 and 28); Malabar Sand and Stones (Pvt.) Ltd. v. Catholic Syrian Bank Ltd. and Ors. MANU/KE/1577/2012 : AIR 2013 Ker 25 (para 7, 8, 9 and 10).
3613 (6) Any transfer of secured asset after taking possession thereof or take over of management Under Sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
38Abdul Aziz v. Appayasami MANU/PR/0043/1903 : (1904) ILR 27 Mad 131, 31 IA 1.

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