K. SREEDHAR versus M/S RAUS CONSTRUCTIONS PVT. LTD & ORS. on 5 January 2023

[2023] 1 S.C.R. 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 andEnforcement of Security Interest Act, 2002 : s. 31(i) – Provisions ofthe Act not to apply to security interest created in agricultural land– Respondent No. 1-debtor availed credit facilities from the Bankand owing to default in payment, declared NPA – Bank issuedpossession notice of the properties and e-auction held – Challengedto – One of the property purchased by the appellant-auctionpurchaser – DRT confirmed the sale in favour of the appellant – Inwrit petition, the High Court set aside the e–auction and salecertificate – On appeal, held: High Court ought not to haveentertained Writ Petition as there was a remedy of appeal beforethe DRAT – By entertaining the writ petition straightway under Art.226/227 challenging the order passed by the DRT, the High Courtallowed/permitted the borrower to circumvent the provision of appealbefore the DRAT under the provisions of the SARFAESI Act – Therewas no breach of r. 8(1) & (2) of 2002 Rules as the possessionnotices were published in two leading newspapers and served uponborrowers – There was no breach of r. 9(3) of the 2002 Rules as theentire 25% of the sale proceed was deposited the very next day ofsale – Also, no breach of r. 9(4) of the 2002 Rules – Merely becausethe secured property is shown to be agricultural property is notsufficient for s. 31(i) – Properties must actually be used asagricultural land when the security interest was created – Noevidence was led to show that property was actually put to use asagricultural land or any activity was going on – Burden was uponthe borrower to prove that the secured properties were agriculturallands and actually being used as agricultural lands and/oragricultural activities were going on – Order of the High Court setaside and that of the DRT restored – Security Interest (Enforcement)Rules 2002.

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AAllowing the appeals, the Court

HELD: 1.1 What was challenged before the High Court bythe borrower in a writ petition under Article 226 of theConstitution of India was the judgment and order passed by theDRT-I. Against the judgment and order passed by the DRT-IBdismissing the application, the borrower had a statutory remedyavailable by way of appeal before the DRAT. If the borrower wouldhave preferred an appeal before the DRAT, he would have beenrequired to deposit 25% of the debt due. To circumvent theprovision of appeal before the DRAT and the pre-deposit, theborrower straightway preferred the writ petition before the HighCCourt under Article 226/227 of the Constitution. Therefore, inview of alternative statutory remedy available by way of appealbefore the DRAT, the High Court ought not to have entertainedthe writ petition under Article 226/227 of the Constitution of Indiachallenging the judgment and order passed by the DRT-I. ByDentertaining the writ petition straightway under Article 226/227of the Constitution of India challenging the order passed by theDRT-I, the High Court has allowed / permitted the borrower tocircumvent the provision of appeal before the DRAT under theprovisions of the SARFAESI Act. [Para 6][588-F-H; 589-A-B]

E1.2 The High Court has set aside the sale in favour of theauction purchaser with respect to the property at Item No.8 onthe ground that there was a violation of Rules 8(1) & (2) and 9(4)of the Rules, 2002. However, while observing so, the High Courthas not properly appreciated that. In the present case, thePossession Notices were published in two leading newspapersFhaving sufficient circulation in the locality. Even the PossessionNotices were also served upon the borrowers also. Therefore,the High Court has materially erred in holding that there was abreach of Rules 8(1) & (2) of the Rules, 2002.[Para 6.2][589-B- D]G

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1.3 In the present case, the auction was held on 17.02.2017.The auction purchaser deposited Rs.26 lakh through RTGS on14.02.2017 i.e. prior to the auction on 17.02.2017. He depositeda further sum of Rs.45 lakh again through RTGS on the verynext day of the sale i.e. on 18.02.2017 itself. Therefore, the H

deposit of 25% was permissible not later than next working dayand the entire 25% was deposited on 18.02.2017 i.e. on the nextday of the sale dated 17.02.2017. Furthermore, by communication/ letter dated 08.03.2017, the secured creditor – Bank directedthe auction purchaser to deposit the balance 75% of the bidamount within 15 days and the auction purchaser deposited thebalance 75% of the sale price on 23.03.2017, i.e., on the 15th dayfrom the date of communication by the secured creditor – Bankto deposit balance 75% of the bid amount within 15 days. As perRule 9(4) of the Rules, 2002, the balance amount of purchaseprice payable shall be paid by the purchaser to the AuthorizedOfficer on or before 15th day of confirmation of sale of theimmovable property or such extended period, in any case notexceeding three months. Therefore, the communication dated08.03.2017 can be said to be the extended period by the securedcreditor / Bank. Therefore, on the 15th day from the date ofcommunication dated 08.03.2017, when the entire 75% of thesale price was deposited, it can be said that the entire sale pricewas deposited within the time prescribed under Rules 9(3) and(4) of the Rules, 2002. Therefore, the High Court has committedan error in holding that there was a breach of Rules 9(3) & (4) ofthe Rules, 2002. [Paras 6.3 and 6.4][590-B-D, E-H]

1.4 Except the revenue records, the borrowers did not fileany evidence to show that the agricultural work was being donein the said properties. On the contrary, the secured creditorproduced the photographs to show that there was no agriculturalactivities being done and no agricultural activity was going on.The High Court held that the scheduled properties in questionwere exempted from the provisions of SARFAESI Act in view ofSection 31(i) of the SARFAESI Act on the ground that the revenuerecords and Pattadar pass-books and the title deeds show thatthe properties were agricultural properties / lands and that noevidence is produced by the secured creditor that theseproperties are non- agricultural lands and have been put to non-agricultural use after obtaining permission from the competentauthorities. Therefore, the High Court has shifted the burdenupon the secured creditor to prove that the properties are non-agricultural lands. [Para 7][591-B-E]

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A1.5 Only in a case where the secured property is actuallyput to use as agricultural land and solely on the basis of therevenue records / Pattadar and once the secured property is putas a security by way of mortgage etc. meaning thereby the samewas not treated as agricultural land, such properties cannot besaid to be exempted from the provisions of the SARFAESI ActBunder Section 31(i) of the SARFAESI Act. When no evidencewas led at all on behalf of the borrowers that the securedproperties in question were actually put to use as agriculturalland and/or any agricultural activity was going on, the High Courthas committed an error in applying Section 31(i) of the SARFAESICAct 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 theburden upon the secured creditor to prove that the propertieswere not non-agricultural lands or have been put to non-Dagricultural use. When it was the case on behalf of the borrowersthat in view of Section 31(i) of the SARFAESI Act, the propertieswere agricultural lands, the same were being exempted from theprovisions of the SARFAESI Act, the burden was upon theborrower to prove that the secured properties were agriculturallands and actually being used as agricultural lands and/orEagricultural activities were going on. Therefore, the High Courthas materially erred in shifting the burden upon the securedcreditor to prove that the properties are non-agricultural landsor have been put to non-agricultural use. [Para 7.3][594-A-C]

1.7 The impugned judgment and order passed by the HighFCourt is unsustainable and is quashed and set aside and thejudgment and order passed by the Debts Recovery Tribunal-Idismissing 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 BankGand Another vs. K. Pappireddiyar and Another (2018)18 SCC 252 – relied on.

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CIVIL APPELLATE JURISDICTION : Civil Appeal No.7402of 2022.

From the Judgment and Order dated 06.03.2020 of the High Courtfor 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., HimanshuMunshi, Dr. Ram Kishor Choudhary, Amit Kumar Chourasia, AvinashKumar Bharti, Manish Garani, S. V. S. Chowdary, Yelamanchili ShivaSantosh Kumar, Tarun Gupta, Abhishek Sharma, Avdhesh NarayanSanghi, 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 judgmentand order dated 06.03.2020 passed by the High Court for the State ofTelangana at Hyderabad in Writ Petition No.12081/2019 by which theHigh Court has allowed the said writ petition preferred by the debtorand has quashed and set aside the order passed by the Debts RecoveryTribunal – I (hereinafter referred to as “DRT-I”) in SA No.171/2016 aswell as the Possession Notice dated 05.02.2016 and the Sale Noticedated 10.01.2017 issued by the Indian Bank (hereinafter referred to as“secured creditor”) and also the sale of Item No.8 property mentionedin the Sale Notice pursuant to the auction held, the auction purchaser aswell as the secured creditor have preferred the present appeals.

2. The facts leading to the present appeals in nut-shell are asunder:

2.1 That, the respondent No.1 herein – M/s. Raus ConstructionsPrivate Ltd. (hereinafter referred to as “Debtor”) availed financialassistance, credit facilities in the year 2012 from the Indian Bank i.e. thesecured creditor. Due to defaults on the part of the borrowers in servicingthe loan account, the same was classified as NPA. The secured creditor A

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Ainitiated the proceedings under the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002(hereinafter referred to as “SARFAESI Act”) and issued the demandNotice to the borrowers including the mortgagors and the guarantors,calling upon them to pay the outstanding amount. As the amount of theDemand Notice was not paid, the secured creditor issued Notice to theBborrowers / mortgagors / guarantors. That, the Possession Notice wasissued with respect to Item Nos.1 to 8. The secured creditor on 05.02.2016issued a consolidated Possession Notice detailing the possession of 12items of properties and the dates on which the possession of the samewas taken. The Possession Notice was published in newspapers.CThereafter, the secured properties including the property Item No.8(property in question) was put to auction through e-auction notice dated28.03.2016. That, the borrowers filed the writ petition before the HighCourt being aggrieved by the e-auction and sought stay of all furtherproceedings initiated by the secured creditor under the provisions of theSARFAESI Act and pursuant to the Possession Notice dated 05.02.2016,Dincluding e-auction Notice, till the disposal of SA No.171/2016 on the fileof DRT-I, Hyderabad. That, the writ petition came to be dismissed bythe High Court in view of the pendency of SA No.171/2016 before theDRT-I, Hyderabad. A fresh e- auction Notice was issued. That, theproperty Item No.8 was purchased by the auction purchaser (appellantEherein) 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 inwhich the auction purchaser was declared the successful bidder. Hewas issued the Letter of Acceptance on 18.02.2017. The auctionpurchaser deposited 25% of the amount of sale consideration on18.02.2017. The sale in favour of the auction purchaser came to beFconfirmed on 08.03.2017. On deposit of the entire/full sale consideration,the sale certificate came to be issued in favour of the auction purchaseron 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 certificateGissued in favour of the auction purchaser. At this stage it is required tobe noted that before the DRT-I, it was the case on behalf of the borrowersthat the property Item No.8 was the agricultural land and therefore, thesame could not have been the subject matter of auction under theprovisions of the SARFAESI Act. However, the DRT-I while dismissingHthe aforesaid SA No.171/2016 did not accept the same by observing that apart from the revenue records, the borrowers did not file anyevidence to prove that the agricultural activity was going on in the landmortgaged with the secured creditor whereas the secured creditor filedphotographs showing no agricultural activities were going on. Therefore,the DRT- I held that the lands in question (property Item No.8) were notexempted from the provisions of the SARFAESI Act.

2.3 Feeling aggrieved and dissatisfied with the judgment and orderpassed by the DRT-I, Hyderabad dated 16.05.2019 dismissing the SANo.171/2016, the borrowers filed the writ petition being Writ PetitionNo.12081/2019. By the impugned judgment and order, the High Courthas allowed the said writ petition and has quashed and set aside theorder passed by the DRT- I dismissing the SA No.171/2016. By theimpugned judgment and order the High Court has also set aside thePossession Notice as well as the Sale Certificate issued in favour of theauction purchaser with respect to the Sale of Item No.8 propertymentioned in the auction Notice. While allowing the writ petition, theHigh Court has observed and held that there was non-compliance of theRule 9(3) of the Security Interest (Enforcement) Rules, 2002 (hereinafterreferred to as “Rules, 2002”) inter alia on the ground that 25% of theamount of sale price and thereafter 75% of the balance sale price wasnot 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) ofthe SARFAESI Act, the property Item No.8 being an agricultural landcould not have been put to auction.

2.4 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court quashing and setting aside the salewith respect to property Item No.8, auction purchaser as well as securedcreditor have preferred the present appeals.

3. Shri Dhruv Mehta, learned senior counsel appearing on behalfof the auction purchaser and learned senior counsel appearing on behalfof the secured creditor have vehemently submitted that the High Courthas materially erred in entertaining the writ petition against the judgmentand order passed by the DRT-I. It is submitted that against the orderpassed by the DRT-I, the borrower was required to prefer an appealbefore the Debts Recovery Appellate Tribunal (hereinafter referred toas “DRAT”). It is submitted that only with a view to circumvent theprovisions of the appeal before the DRAT and to get out of the depositof the pre-deposit amount, the borrower straightway preferred writ AB

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Apetition before the High Court against the judgment and order passed bythe DRT-I, which ought not to have been entertained by the High Courtin view of availability of alternative statutory remedy under the provisionsof the SARFAESI Act.

3.1 It is further submitted that even on merits also, the High CourtBhas materially erred in holding that there was breach of Rule 9(3) andRules 8(1) & (2) of the Rules, 2002.

3.2 It is submitted that the High Court has not properly appreciatedand/or considered the amendment in 2016 with respect to Rule 9(3)whereby 25% of payment could be made within next day of auction. ItCis submitted that therefore the High Court has materially erred in settingaside the sale transaction on the basis of such manifest ignorance.

3.3 It is submitted that in the present case, the auction purchaserdeposited the amount within the time prescribed under Rule 9(4) of theRules, 2002 and thereafter the sale certificate was issued on 23.03.2017Dfor the said item which was registered on 07.02.2018 and the possessionwas also handed over to the auction purchaser.

3.4 It is further submitted by the learned senior counsel appearingon behalf of the auction purchaser that in the present case the auctionpurchaser quoted Rs.2,76,10,000/- for item No.8 of the PossessionENotice. 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 on17.02.2017 pursuant to the letter dated 18.02.2017 an amount of Rs.45lakh again through RTGS. It is submitted that the respondent securedcreditor – Bank vide communication dated 08.03.2017 directed the auctionpurchaser to deposit balance 75% of the bid amount within 15 days andFhe gave cheque dated 23.03.2017 for an amount of Rs.2,05,10,000/-. Itis submitted that therefore the entire amount was deposited within thetime stipulated. It is submitted that therefore in the facts andcircumstances of the case the High Court has materially erred in quashingand setting the sale on the ground that there was violation of Rules 8(1)G& (2) and 9(3) of the Rules, 2002.

3.5 It is further submitted by the learned senior counsel appearingfor the auction purchaser that the High Court ought to have appreciatedthat after the payment of full sale consideration, the sale certificate wasissued in favour of the auction purchaser on 23.03.2017 which wasregistered on 07.02.2018 and after the possession was handed over toH

him, he spent huge amount in leveling the plot; applied for permission tothe Municipal Authorities to construct the house in the plot. It is submittedthat therefore the High Court has seriously erred in quashing and settingaside the sale.

3.6 Learned senior counsel appearing on behalf of the auctionpurchaser has further submitted that the High Court has also erred insetting aside the Sale Notice, Possession Notice etc. on the ground thatthe properties were exempted from the provisions of the SARFAESIAct in view of Section 31(i) of the SARFAESI Act.

3.7 It is submitted that as such the scheduled properties were notactually put to use for agricultural purposes. It is submitted that therewas no proof filed to prove that agriculture is being done in the scheduledproperties in question. It is submitted that there was no agricultural activitytaking place. It is submitted that in fact the photographs were filed whichproved that no agricultural activities were going on. It is submitted thattherefore when the secured properties in question were not put to usefor agricultural purposes and/or no agricultural activity was going on, theproperties in question were not exempted under Section 31(i) of theSARFAESI Act. Heavy reliance is placed on the decisions of this Courtin the case of ITC Limited vs. Blue Coast Hotels Limited andOthers reported in (2018) 15 SCC 99 (Para 36) and Indian Bankand 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 andthe issuance of Possession Notice on 05.02.2016 and the findings recordedby the High Court on Section 13(4) of the SARFAESI Act that thePossession Notice was issued after a period of one year is concerned, itis submitted that there was a typographical error in mentioning thepossession date. It is submitted that instead of 03.02.2016, 04.02.2016and 05.02.2016, dates were mentioned as 03.02.2015, 04.02.2015 and05.02.2015, which were nothing but typographical error. It is submittedthat therefore the Possession Notice cannot be said to be in breach ofSection 13(4) of the SARFAESI Act.

Making above submissions, it is requested to allow the presentappeals.

4. Present appeals are vehemently opposed by Mr. Pratap NarayanSanghi, learned senior counsel appearing on behalf of the borrower. It is A

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Asubmitted that in the facts and circumstances of the case and havingfound 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 notcommitted any error in entertaining the writ petition under Article 226 ofthe Constitution of India against the judgment and order passed by theDRT-I.B

4.1 It is further submitted that so far as the property Item No.8 isconcerned, there was a clear breach of Rules 8(1) & (2) and 9(4) of theRules, 2002. It is submitted that therefore the High Court has notcommitted any error in quashing and setting aside the sale with respectto the property Item No.8.C

4.2 It is further submitted that so far as other properties areconcerned, as the said properties were agricultural lands / properties, inview of Section 31(i) of the SARFAESI Act, with respect to thoseproperties / agricultural lands, the SARFAESI Act would not beapplicable. It is submitted that in the revenue records, properties inDquestion were shown as agricultural lands and therefore, the saidproperties were exempted from the provisions of the SARFAESI Act inview of Section 31(i) of the SARFAESI Act.

Making above submissions, it is requested to dismiss the presentappeals.E

5. We have heard the learned counsel appearing on behalf of thesecured creditor – Bank as well as the learned senior counsel appearingon behalf of the auction purchaser of property at Item No.8 and learnedsenior counsel appearing on behalf of the borrower.

F6. At the outset, it is required to be noted that what was challengedbefore the High Court by the borrower in a writ petition under Article226 of the Constitution of India was the judgment and order passed bythe DRT-I. Against the judgment and order passed by the DRT-Idismissing the application, the borrower had a statutory remedy availableby way of appeal before the DRAT. If the borrower would have preferredGan appeal before the DRAT, he would have been required to deposit25% of the debt due. To circumvent the provision of appeal before theDRAT and the pre-deposit, the borrower straightway preferred the writpetition before the High Court under Article 226/227 of the Constitution.Therefore, in view of alternative statutory remedy available by way ofappeal before the DRAT, the High Court ought not to have entertainedH

the writ petition under Article 226/227 of the Constitution of Indiachallenging the judgment and order passed by the DRT-I. By entertainingthe writ petition straightway under Article 226/227 of the Constitution ofIndia challenging the order passed by the DRT-I, the High Court hasallowed / permitted the borrower to circumvent the provision of appealbefore the DRAT under the provisions of the SARFAESI Act.

6.1 Even on merits also, for the reasons stated hereinafter, theimpugned judgment and order passed by the High Court is unsustainable.

6.2 By the impugned judgment and order, the High Court has setaside the sale in favour of the auction purchaser with respect to theproperty at Item No.8 on the ground that there was a violation of Rules8(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, thePossession Notices were published in two leading newspapers havingsufficient circulation in the locality. Even the Possession Notices werealso served upon the borrowers also. Therefore, the High Court hasmaterially 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 onRules 9(3) and 9(4) of the Rules, 2002 is concerned, the findings recordedby the High Court are just contrary to the provisions of Rule 9 of theRules, 2002. The High Court has observed that 25% of the amount wasnot deposited on the date of auction and that balance 75% amount wasnot deposited on or before 15[th]day of confirmation of the sale. Both theaforesaid 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 shallimmediately, i.e. on the same day or not later than next workingday, as the case may be, pay a deposit of twenty five per cent ofthe amount of the sale price, which is inclusive of earnest moneydeposited, if any, to the authorized officer conducting the sale andin default of such deposit, the property shall be sold again;

(4) The balance amount of purchase price payable shall be paidby the purchaser to the authorized officer on or before the fifteenthday of confirmation of sale of the immovable property or such A

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Aextended period as may be agreed upon in writing between thepurchaser and the secured creditor, in any case not exceedingthree months.”

The purchaser was required to deposit 25% of the amount of thesale price on the same day of sale or not later than the next working day.BTherefore, 25% of the sale price could have been deposited either onthe 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 depositedRs.26 lakh through RTGS on 14.02.2017 i.e. prior to the auction on17.02.2017. He deposited a further sum of Rs.45 lakh again throughRTGS on the very next day of the sale i.e. on 18.02.2017 itself. Therefore,Cthe 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 workingday and the entire 25% was deposited on 18.02.2017 i.e. on the next dayof the sale dated 17.02.2017. Therefore, the High Court has committedan error in observing and holding that there was a breach of Rule 9(3) ofDthe Rules, 2002.

6.4 Similarly, the High Court has also erred in holding that therewas a breach of Rule 9(4) of the Rules, 2002. The High Court has heldso by observing that the auction purchaser did not deposit the balance75% of the sale price on or before 15[th]day of confirmation of sale.EHowever, it is required to be noted that by communication / letter dated08.03.2017, the secured creditor – Bank directed the auction purchaserto deposit the balance 75% of the bid amount within 15 days and theauction purchaser deposited the balance 75% of the sale price on23.03.2017, i.e., on the 15[th]day from the date of communication by thesecured creditor– Bank to deposit balance 75% of the bid amount withinF15 days. As per Rule 9(4) of the Rules, 2002, the balance amount ofpurchase price payable shall be paid by the purchaser to the AuthorizedOfficer on or before 15[th]day of confirmation of sale of the immovableproperty or such extended period, in any case not exceeding threemonths. Therefore, the communication dated 08.03.2017 can be said toGbe the extended period by the secured creditor / Bank. Therefore, onthe 15[th]day from the date of communication dated 08.03.2017, whenthe entire 75% of the sale price was deposited, it can be said that theentire sale price was deposited within the time prescribed under Rules9(3) and (4) of the Rules, 2002. Therefore, the High Court has committedan error in holding that there was a breach of Rules 9(3) & (4) of theHRules, 2002.

7. Now, so far as with respect to remaining properties / securedassets viz. Item Nos.3 and 9 to 12 and the submission on behalf of theborrowers that as the said scheduled properties were agriculturalproperties, therefore the said properties were exempted from theprovisions of the SARFAESI Act in view of Section 31(i) of theSARFAESI Act is concerned, at the outset, it is required to be noted thatexcept the revenue records, the borrowers did not file any evidence toshow that the agricultural work was being done in the said properties.On the contrary, the secured creditor produced the photographs to showthat there was no agricultural activities being done and no agriculturalactivity was going on. The High Court has observed and held that thescheduled properties in question were exempted from the provisions ofSARFAESI Act in view of Section 31(i) of the SARFAESI Act on theground that the revenue records and Pattadar pass-books and the titledeeds show that the properties were agricultural properties / lands andthat no evidence is produced by the secured creditor that these propertiesare non- agricultural lands and have been put to non-agricultural useafter obtaining permission from the competent authorities. Therefore,the High Court has shifted the burden upon the secured creditor to provethat the properties are non-agricultural lands. The view taken by theHigh Court is just contrary to the two decisions of this Court in the caseof 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 objectand purpose of Section 31(i) of the SARFAESI Act that merely becausein the revenue records the secured properties are shown as agriculturalland is not sufficient to attract Section 31(i) of the SARFAESI Act. Inthe aforesaid decision, it is specifically observed and held that for thepurpose of attracting Section 31(i) of the SARFAESI Act, the propertiesin question ought to be actually used as agricultural lands at the timewhen the security interest was created. In the case of Blue CoastHotels Limited and Others (Supra), it is also further observed bythis Court that since no security interest can be created in respect ofagricultural lands and yet it was so created, goes to show that the partiesdid not treat the land as agricultural land and that the debtor offered theland as security on this basis. After following the decision of this Courtin the case of Blue Coast Hotels Limited and Others (Supra), inthe case of K. Pappireddiyar and Another (Supra), it is observed andheld in paragraphs 8 and 9 as under:

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A“8. The expression “security interest”, both before and after theamendment, excludes what is specified in Section 31. Clause (i)of Section 31 stipulates that the provisions of the Act will not beapplicable to any security interest created in agricultural land. Thestatutory dictionary in Section 2 does not contain a definition ofthe expression “agricultural land”. Whether a particular piece ofBland is agricultural in nature is a question of fact. In the decisionof this Court in Blue Coast Hotels Ltd.,[4]a security interest wascreated in respect of several parcels of land which were meant tobe a part of a single unit, for establishing a hotel in Goa. Some ofthe parcels were purchased by the debtor from agriculturists andCwere entered as agricultural lands in the revenue records. Thedebtor had applied to the revenue authority for the conversion ofthe land to non-agricultural use, but the applications were pending.This Court held that the fact that the debtor had created a securityinterest was indicative of the position that the parties did not treatthe land as agricultural land. The undisputed position was that theDhotel was located on 1,82,225 sq m of land of which 2335 sq mwere used for growing vegetables and fruits for captiveconsumption. In this background, the two-Judge Bench of thisCourt held that:

“49. The mortgage is thus intended to cover the entire propertyof the Goa Hotel. Prima facie, apart from the fact that theparties themselves understood that the lands in question arenot agricultural, it also appears that having regard to the use towhich they are put and the purpose of such use, they are indeednot agricultural.”

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“57. …having regard to the character of the land the purposefor which it is set apart, we are of the view that the land inquestion is not an agricultural land. The High Court misdirected[5]itself in holding that the land was an agricultural land merelyGbecause it stood as such in the revenue entries, even thoughthe application made for such conversation lies pending tilldate.”

9. The classification of land in the revenue records as agriculturalis not dispositive or conclusive of the question whether the H

SARFAESI Act does or does not apply. Whether a parcel of landis agricultural must be deduced as a matter of fact from the natureof the land, the use to which it was being put on the date of thecreation of the security interest and the purpose for which it wasset apart.”

7.1 The purpose of enacting Section 31(i) of the SARFAESI Acthas been considered by this Court in the case of Blue Coast HotelsLtd. (Supra) in paragraph 36, which reads as under:

“36. The purpose of enacting Section 31(i) and the meaning ofthe term “agricultural land” assume significance. This provision,like many others is intended to protect agricultural land held foragricultural purposes by agriculturists from the extraordinaryprovisions of this Act, which provides for enforcement of securityinterest without intervention of the Court. The plain intention ofthe provision is to exempt agricultural land from the provisions ofthe Act. In other words, the creditor cannot enforce any securityinterest created in his favour without intervention of the court ortribunal, if such security interest is in respect of agricultural land.The exemption thus protects agriculturists from losing their sourceof livelihood and income i.e. the agricultural land, under the drasticprovision of the Act. It is also intended to deter the creation ofsecurity interest over agricultural land as defined in Section2(1)(zf)[35]. Thus, security interest cannot be created in respect ofproperty specified in Section 31.”

7.2 Thus, as per the law laid down by this Court in the aforesaidtwo decisions, only in a case where the secured property is actually putto 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 ofmortgage etc. meaning thereby the same was not treated as agriculturalland, such properties cannot be said to be exempted from the provisionsof the SARFAESI Act under Section 31(i) of the SARFAESI Act.Applying the law laid down in the aforesaid two decisions to the facts ofthe case on hand and when no evidence was led at all on behalf of theborrowers that the secured properties in question were actually put touse as agricultural land and/or any agricultural activity was going on, theHigh Court has committed an error in applying Section 31(i) of theSARFAESI Act and quashing and setting aside the entire PossessionNotice, Auction Notice as well as Sale etc.

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A7.3 The High Court has also materially erred in shifting the burdenupon the secured creditor to prove that the properties were not non-agricultural lands or have been put to non-agricultural use. When it wasthe case on behalf of the borrowers that in view of Section 31(i) of theSARFAESI Act, the properties were agricultural lands, the same werebeing exempted from the provisions of the SARFAESI Act, the burdenBwas upon the borrower to prove that the secured properties wereagricultural lands and actually being used as agricultural lands and/oragricultural activities were going on. Therefore, the High Court hasmaterially erred in shifting the burden upon the secured creditor to provethat the properties are non-agricultural lands or have been put to non-Cagricultural use.

8. In view of the above and for the reasons stated above, theimpugned judgment and order passed by the High Court is unsustainableand the same deserves to be quashed and set aside. Accordingly, theimpugned judgment and order dated 06.03.2020 passed by the High CourtDfor the State of Telangana at Hyderabad in Writ Petition No.12081/2019is hereby quashed and set aside and the judgment and order dated16.05.2019 passed by the Debts Recovery Tribunal-I, Hyderabaddismissing SA No.171/2016 is hereby restored.

Presently appeals are allowed accordingly. No costs.

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Nidhi Jain

Appeals allowed.

(Assisted by : Abhishek Pratap Singh, LCRA)

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