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.
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-BD]
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 & ORS.
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 nonagricultural 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 nonagricultural lands. [Para 7][591-B-E]
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 nonagricultural 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.
& ORS.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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