Sreedhar v. M/s Raus Constructions Pvt. Ltd. & Ors. (SC-05/01/2023)

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<h2>K. Sreedhar v. M/s Raus Constructions Pvt. Ltd. & Ors. (SC-05/01/2023)</h2>

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

6. At the outset, it is required to be noted that 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.

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

6.2. By the impugned judgment and order, 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.

6.3. Now, so far as the finding recorded by the High Court on Rules 9(3) and 9(4) of the Rules, 2002 is concerned, the findings recorded by the High Court are just contrary to the provisions of Rule 9 of the Rules, 2002. The High Court has observed that 25% of the amount was not deposited on the date of auction and that balance 75% amount was not deposited on or before 15th day of confirmation of the sale. Both the aforesaid 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 shall immediately, i.e. on the same day or not later than next working day, as the case may be, pay a deposit of twenty five per cent of the amount of the sale price, which is inclusive of earnest money deposited, if any, to the authorized officer conducting the sale and in default of such deposit, the property shall be sold again;

     (4) The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the purchaser and the secured creditor, in any case not exceeding three months.”

The purchaser was required to deposit 25% of the amount of the sale price on the same day of sale or not later than the next working day. Therefore, 25% of the sale price could have been deposited either on the 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 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 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 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. Therefore, the High Court has committed an error in observing and holding that there was a breach of Rule 9(3) of the Rules, 2002.

6.4. Similarly, the High Court has also erred in holding that there was a breach of Rule 9(4) of the Rules, 2002. The High Court has held so by observing that the auction purchaser did not deposit the balance 75% of the sale price on or before 15th day of confirmation of sale. However, it is required to be noted that 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.

7. Now, so far as with respect to remaining properties / secured assets viz. Item Nos.3 and 9 to 12 and the submission on behalf of the borrowers that as the said scheduled properties were agricultural properties, therefore the said properties were exempted from the provisions of the SARFAESI Act in view of Section 31(i) of the SARFAESI Act is concerned, at the outset, it is required to be noted that 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 has observed and 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 non-agricultural 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 non-agricultural lands. The view taken by the High Court is just contrary to the two decisions of this Court in the case of 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 object and purpose of Section 31(i) of the SARFAESI Act that merely because in the revenue records the secured properties are shown as agricultural land is not sufficient to attract Section 31(i) of the SARFAESI Act. In the aforesaid decision, it is specifically observed and held that for the purpose of attracting Section 31(i) of the SARFAESI Act, the properties in question ought to be actually used as agricultural lands at the time when the security interest was created. In the case of Blue Coast Hotels Limited and Others (supra), it is also further observed by this Court that since no security interest can be created in respect of agricultural lands and yet it was so created, goes to show that the parties did not treat the land as agricultural land and that the debtor offered the land as security on this basis. After following the decision of this Court in the case of Blue Coast Hotels Limited and Others (supra), in the case of K. Pappireddiyar and Another (supra), it is observed and held in paragraphs 8 and 9 as under:

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

        “49. The mortgage is thus intended to cover the entire property of the Goa Hotel. Prima facie, apart from the fact that the parties themselves understood that the lands in question are not agricultural, it also appears that having regard to the use to which they are put and the purpose of such use, they are indeed not agricultural.”

     The Court further held that: (SCC OnLine SC para 57)

        “57. …having regard to the character of the land 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 misdirected 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.”

     9. The classification of land in the revenue records as agricultural is not dispositive or conclusive of the question whether the SARFAESI Act does or does not apply. Whether a parcel of land is agricultural must be deduced as a matter of fact from the nature of the land, the use to which it was being put on the date of the creation of the security interest and the purpose for which it was set apart.”

7.1. The purpose of enacting Section 31(i) of the SARFAESI Act has been considered by this Court in the case of Blue Coast Hotels Ltd. (supra) in paragraph 36, which reads as under:

     “36. 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(1)(zf)35. Thus, security interest cannot be created in respect of property specified in Section 31.”

7.2. Thus, as per the law laid down by this Court in the aforesaid two decisions, 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. Applying the law laid down in the aforesaid two decisions to the facts of the case on hand and 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.

7.3. The High Court has 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 non-agricultural 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.