Whether SARFAESI can be applicable to Agricultural Land?

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as SARFAESI Act) applicability cannot be decided or determined by the land's classification as agricultural in the revenue records. The nature of the land, the use to which it was put at the time the security interest was created, and the purpose for which it was set aside must all be taken into account when determining whether a piece of property is agricultural.

However, the burden is upon the borrower to prove that the secured properties are agricultural lands and actually being used as agricultural lands and/or agricultural activities. It has recently been held by Apex Court in K. SREEDHAR Vs. M/S RAUS CONSTRUCTIONS PVT. LTD. & ORS CIVIL APPEAL NOS. 7402 & 7404 OF 2022 (@ SLP (Civil) No. 14695 & 13508 of 2020). Section 31(i) of the SARFAESI Act provides with the categorization of land and property on which the provisions of the Act shall not apply. 

In INDIAN BANK & ANR   VERSUS K PAPPIREDDIYAR & ANR, (CIVIL APPEAL No. 6641 OF 2018 (Arising out of Special Leave Petition (C) No. 29268 OF 2016), the Division Bench of the High Court of Judicature at Madras has held that the proceedings initiated by the appellant under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (the SARFAESI Act) is a nullity. The basis of this conclusion is that the Act does not apply to agricultural land. In consequence, the High Court has held that a security interest in agricultural land cannot be enforced.

Also, in ITC Ltd. Versus Blue Coast Hotels Limited, (CIVIL APPEAL Nos. 2928-2930 OF 2018 (Arising out of SLP(C) Nos. 10215-10217/2016) 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 square meters of land of which 2,335 square meters were used for growing vegetables and fruits for captive consumption. 

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: 

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

Meaning of Agricultural land-

As per section 31 of the SARFAESI Act, 2002, security interests created on agricultural land cannot be enforced under this Act. The meaning of the term agricultural land has been decided through several case laws, some of which are provided below: 

  1. Supreme Court in the case of S P Watel vs. State of U.P, AIR 1973 SC 1293 – “Agriculture” means the science and art of cultivating the soil including the gathering of crops, and the rearing of livestock; farming (in the widest sense). So, an agricultural area would mean an area used for cultivation or farming. 

  2. Supreme Court in the case of Benoy Kumar Saharoy, AIR 1957 SC 768 - Actual tilling or ploughing of land is important to understand whether the land is agricultural or not. 

  3. UM Ramesh Rao v. Union Bank of India 2021, the Karnataka High Court recently held that the expression 'agricultural land' in Section 31(i) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) does not include land on which plantation crops such as cardamom, coffee, pepper, rubber and tea are grown.

       Author:- Anjali

 Disclaimer: - The content here is only for knowledge and information purposes, it doesn’t constitute any legal or professional advice. The views expressed in the blog belong solely to the author, and not necessarily to the firm's view. 


Posted on - 2023-05-09 21:49:58

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