Supreme Court: Burden to prove Secured Properties are Agricultural Lands is on Borrower and not on Secured Creditor

Supreme Court: Burden to prove Secured Properties are Agricultural Lands is on Borrower and not on Secured Creditor

The Supreme Court ruled that under Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short SARFAESI Act) the burden to prove that the properties were agricultural lands and being used as agricultural lands and/or agricultural activities and the same were exempted from the provisions of SARFAESI Act, was upon the borrower and not on the secured creditor.

The brief facts of the case are that the respondent no. 1 M/s. Raus Constructions Private Ltd. (also called the 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 Non-Performing Asset (in short NPA). The secured creditor initiated the proceedings under the 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.

The Debt Recovery Tribunal, Hyderabad (in short DRT) had dismissed the Securitization Application filed by the borrowers and held that the land in issue came under the ambit of provisions of the SARFAESI Act and no exemption could be granted. The Tribunal noted that the borrowers had failed to provide any evidence to prove that the agricultural activities were being conducted on a mortgaged land along with the secured creditor. Per contra, the secured creditor submitted photographs showing no agricultural activities were being conducted.

Later, the borrowers filed a writ petition before the High Court for the State of Telangana. While allowing the writ petition the Court observed that under Section 31(i) of the SARFAESI Act, the property in question was an agricultural land and the same could not have been presented to an auction.

In the appeal the secured creditor vehemently submitted before the Apex Court that the High Court materially erred in entertaining the writ petition against the judgment and order passed by the DRT. It was submitted that against the order passed by the DRT the borrower was required to prefer an appeal before the Debts Recovery Appellate Tribunal (hereinafter referred to as DRAT). It was 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 petition before the High Court against the judgment and order passed by the DRT, 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.

The Apex Court in the appeal outrightly observed that 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 and 227 of the Constitution of India challenging the judgment and order passed by the DRT. By entertaining the writ petition straightway under Article 226 and 227 of the Constitution of India, challenging the order passed by the DRT, the High Court allowed and permitted the borrower to circumvent the provision of appeal before the DRAT under the provisions of the SARFAESI Act.

The bench found that apart from revenue records, the borrowers did not produce evidence to show that agricultural work was being done on the said properties. The Court added, "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."

The Court affirmed that when no evidence was led at all on behalf of the borrowers that the secured properties in question were used as agricultural land and/or any agricultural activity was going on. The Apex Court concluded that the High Court had committed an error in applying Section 31(i) of the SARFAESI Act and quashed and set aside the impugned judgment and restored the order passed by the DRT.