Agricultural Entry In Revenue Records Alone Doesn't Exempt Land From SARFAESI Proceedings: Allahabad High Court

The Allahabad High Court has held that whether a secured asset is agricultural land, so as to attract the exclusion under Section 31(i) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, cannot be decided from revenue entries alone or from the absence of an order under Section 143 of the Uttar Pradesh Zamindari Abolition and Land Reforms Act converting the land to non-agricultural use.

Section 31(i) provides that the provisions of the Act shall not apply to any security interest created in agricultural land.

Justice Irshad Ali held,

“Nevertheless, the absence of such an order cannot, without examination of the applicable statutory framework and the complete evidence, be elevated into an invariably conclusive test of the applicability of Section 31(i). Conversely, the absence of agricultural operations at a particular point in time would not, by itself, necessarily establish that the property had ceased to be agricultural land for the purposes of the exclusion. The determination must rest upon the cumulative effect of the relevant material and the applicable law.”

Petitioner and Smt. Kiran Chaurasia jointly purchased the property in 1987 and mortgaged it with Canara Bank in 2003 as security for a credit facility of about Rs. 30 lakh extended to M/s Chaurasia Traders. On default, the Bank enforced the security under the SARFAESI Act and the property was auctioned, the sale certificate being issued to the auction purchaser on 24.01.2008.

Petitioner pleaded that the land, Khasra No.13333-5A at Village Sarosa Bharosa, Alamnagar, Lucknow, had been bought for agricultural purposes and continued to be recorded as agricultural in the revenue records, relying on a Khasra issued on 22.07.2011. She pleaded that the land had never been declared abadi or converted to non-agricultural use by the Sub-Divisional Magistrate under Section 143 of the Uttar Pradesh Zamindari Abolition and Land Reforms Act, and that the Bank therefore had no authority to proceed under the SARFAESI Act.

The Debts Recovery Tribunal, Lucknow accepted that case on 17.08.2010. It examined the Khatauni, found that the property continued to be recorded as agricultural land, and noted that no order under Section 143 had been produced by the Bank.

On the Bank's appeal under Section 18 of the Act, the Debts Recovery Appellate Tribunal, Allahabad set aside that order on 18.07.2011, recording that the petitioner had failed to prove that any agricultural operation was being carried on over the land and that the Bank and the auction purchaser had shown the contrary. The Appellate Tribunal further observed that, even assuming the plot was agricultural land, the Debts Recovery Tribunal ought not to have set aside the whole auction when the petitioner claimed only a 50 per cent share and the other co-owner had not come forward to challenge the proceedings.

Before the High Court, the petitioner argued that the Appellate Tribunal had reversed the Tribunal without returning a clear finding on the agricultural character of the land, which was a jurisdictional question going to the Bank's authority to invoke the Act at all.

The Court accepted that the statutory exclusion is substantive, but held that its applicability turns on evidence of the nature and use of the property rather than on any single document.

“There can be no quarrel with the proposition that Section 31(i) excludes a security interest created in agricultural land from the operation of the SARFAESI Act. Where the statutory exclusion applies, the secured creditor cannot overcome it merely by relying upon the existence of a mortgage or the default committed by the borrower. Equally, however, the applicability of the exclusion must be determined on the basis of the nature of the property and the evidence relevant to its agricultural character.”

“ The question is not answered conclusively by the description of the property in a sale deed or by the existence of an entry in the revenue record, considered in isolation. The revenue entries are relevant and must receive due consideration, but their evidentiary significance has to be assessed in the light of the other material bearing upon the nature and actual use of the land.”

The Court held that the proposition urged by the petitioner could not be applied mechanically.

“Neither a revenue entry nor the absence of a particular order can be treated as a substitute for the entire inquiry where the relevant facts are disputed.”

On the reversal itself, the Court held that the view taken by the Debts Recovery Tribunal on the agricultural character of the property was not immune from appellate scrutiny, and that the Appellate Tribunal was competent under Section 18 to examine and reverse findings inconsistent with the material on record or the applicable law. It held that the petitioner had not shown, by reference to any identified finding or document, that the Appellate Tribunal's conclusion was perverse or that it had ignored an indisputable statutory fact.

“A disagreement with the appreciation of evidence by the appellate forum cannot, without more, furnish a sufficient ground for this Court to substitute its own assessment in proceedings under Article 226.”

On the Appellate Tribunal's observation about the extent of the petitioner's share, the Court held,

“It is true that the Appellate Tribunal's observation concerning the petitioner's 50 per cent share cannot, by itself, determine the extent of the security interest or conclusively resolve the rights of all co-owners.”

It held that such questions ordinarily depend on the title documents, the mortgage instrument and the nature of the security actually created, and that the joint purchase did not, without examination of the mortgage documents, establish that the security interest was confined to the petitioner's share. The observation, however, furnished no independent ground for quashing the appellate order.

Finding no jurisdictional error, perversity or demonstrated violation of a mandatory statutory provision, the Court dismissed the writ petition and affirmed the order of the Debts Recovery Appellate Tribunal.