SARFAESI Act Applicable To Coffee Plantations In State Of Karnataka : Karnataka High Court

A division bench of Justice B V Nagarathna and Justice Nataraj Rangaswamy said:

"The expression 'agricultural land' in Section 31(i) of the SARFAESI Act, does not include land on which plantation crops are grown namely, cardamom, coffee, pepper, rubber and tea as defined in Section 2(A)(25) of the Land Reforms Act."

It added:

"The measures initiated by the respondent banks in relation to the coffee estates are not hit by Section 31(i) of the SARFAESI Act, as the said Act is applicable to land on which plantation crops are grown, including coffee plantation, in the instant cases."

The interpretation was made by the court while hearing two appeals filed by U.M. RAMESH RAO and M/S. SSJV PROJECTS PRIVATE LIMITED.

The petitioners challenged the order of the single judge bench which declined to entertain the writ petitions filed by them on the ground of availability of an alternative remedy of appeal available under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Arguments made by the petitioners.

Senior Counsel S.S.Naganand, appearing for the appellants, argued that writ petitions have been dismissed summarily without appreciating the fact that the petitioners raised the question of jurisdiction of the respondent/Banks in initiating action under provisions of the SARFAESI Act, on the schedule lands which are coffee plantations, as under Section 31(i) of the said Act, they, being agricultural lands, the Act does not apply.

It was also contended that the jurisdiction of the respondent/Banks to take measures under the provisions of the Act in respect of the coffee plantations being agricultural lands was questioned by filing the petition under Article 226 of the Constitution of India. The writ petitions were maintainable as there is no definition of the expression "agricultural land" under the provisions of the SARFAESI Act. Therefore, it was necessary to interpret and give a meaning to the said expression.

Further it was argued that coffee plantation is just like any other plantation and the Madras High Court and Kerala High Court have held that the lands on which cardamom, coca, turmeric, cinnamon and rubber are grown, are plantation crops. The lands on which the said crops are grown are agricultural lands and therefore, on the basis of the said interpretation, in the instant case, the schedule lands on which coffee is grown must be declared to be agricultural land, in which event, the provisions of the SARFAESI Act, would not apply in respect of the said lands.

Bank opposed the plea.

Senior Advocate Dhyan Chinnappa, appearing for Union Bank of India, contended that the Single Judge had rightly dismissed writ petition on the ground of maintainability in view of the availability of an alternative remedy under Section 17 of the SARFAESI Act.

Further, he said that "DRT has the jurisdiction to consider the issue of the applicability of the Act to coffee plantations, which are the subject matter in the case. There is an efficacious, alternative remedy available before the DRT which could have considered the issues raised in these cases."

It was also contended that "The use to which the agricultural land was put to, which is one of the major considerations to be taken note of while determining whether the SARFAESI Act applies to such lands or not.

Court observations:

On the issue of whether the writ petitions were rightly dismissed on the ground of maintainability in view of the availability of an alternative remedy before the Debt Recovery Tribunal (DRT).

The bench said "In our view, in order to examine a challenge to an action initiated under the provisions of the SARFAESI Act, in respect of the agricultural land and as to, whether, the subject land is an agricultural land or not, the petitions filed under Article 226 of the Constitution of India, were maintainable.

It added "In such a case, the High Court (Single Judge bench) cannot adopt a pedantic approach but has to decide the matter keeping in view the fact that right to property continues to be an important constitutional right and in terms of Article 300A, no person can be deprived of his property except by authority of law."

The bench opined "In our view, the writ petition raised a question about applicability of SARFAESI Act to coffee plantation/estate on the ground that the same is an agricultural land, having regard to Section 31(i) of the SARFAESI Act. Whether the said provision is not applicable to agricultural land and therefore, the action initiated is illegal and contrary to the object and purpose of the provision had to be considered. It was necessary to give an answer to such a question before concluding, whether, the actions of the respondent/banks were in accordance with law or not in these cases."

Further it said "It would not be a sound exercise of discretion to relegate the parties to the remedy by way of an appeal. This is particularly so, when a constitutional right, such as Article 300A of the Constitution is involved and the applicability of the SARFAESI Act to coffee estate in the context of whether it is an agricultural land or not would be an important question which has to be decided in the first instance before deciding on the legality of the action otherwise."

It held "Hence, in our view, the writ petitions filed under Article 226 of the Constitution in the instant case were maintainable. This is particularly so, having regard to the issue raised in these writ petitions as it involves interpretation of law. It also touches upon the applicability of the SARFAESI Act and the jurisdiction of the respondent/bank to take measures under Section 13 of the said Act vis-à-vis the subject lands, which are coffee plantations.

On the issue of whether coffee plantation is an agricultural land under Section 31(i) of the SARFAESI Act?

The court went through the definition of the word 'agriculture', Land, plantation and Agricultural Income, under various enactments.

*Under the Land Reforms Act the definition of 'agriculture' is an inclusive one which also includes the raising of crops, grass or garden produce. The expression "plantation crops" is defined to mean cardamom, coffee, pepper, rubber and tea, etc. This implies that all other crops are non-plantation crops.

*The word "land" means agricultural land, including garden land, plantation, but does not include house site or land used exclusively for non-agricultural purposes.

*Under Section 104 of the said Act, certain provisions of the said Act do not apply to plantations. The word 'plantation' is explained under Section 104 to mean land used by a person principally for the cultivation of plantation crops and includes any land used ancillary to the cultivation of such crop or for preparation of the same for the market and agricultural land within the area cultivated with such crop for the protection and efficient management of such cultivation.

*Under the Land Revenue Act, the definition 'class of land' includes plantation land. Plantation land means land on which a plantation crop i.e., cardamom, coffee, pepper, rubber and tea can be grown.

It said "Thus, under both the Land Reforms Act and Land Revenue Act, plantation crops and plantation land refer to only cardamom, coffee, pepper, rubber and tea."

* Under Karnataka Agricultural Income Tax Act, 1957, 'Agricultural Income' means any revenue derived from land situated within the State and used for growing plantation crops.

The bench observed "On an analogy, the expression plantation crops would include coffee. Under the APMC Act also, under Schedule 8, coffee is included as a plantation crop. In all the aforesaid enactments, coffee has been defined to be a plantation crop."

After which it laid down various points which would act as the test to interpret the expression "agricultural land" under the SARFAESI Act.

Following the same it noted that "The Karnataka State Legislature has been very cautious in exempting only lands on which plantation crops are grown from the purview of Sections 79-A, 79-B and Section 80 of the Land Reforms Act, which means that, the bar contained in those sections would apply in the case of lands on which crops which are not in the nature of plantation crops are raised. Such lands only i.e., lands on which plantation crops are not raised, in our view, are agricultural lands for the purpose of Section 31(i) of the Act."

It added "This means the bar contained under Sections 79-A, 79-B and 80 of the Land Reforms Act, do not apply as per Section 104 of the said Act to plantation lands or land on which plantation crops are grown. Such lands would not come within the purview of agricultural land under Section 31(i) of SARFAESI Act."

Further it said "Insofar as the State of Karnataka is concerned, having regard to Section 104 and Section 81 of the Land Reforms Act, lands on which the plantation crops are grown, being exempt from the restrictions pertaining to agricultural land mentioned in Section 79-A, 79-B and 80, in view of Section 104 and Section 81 of the said Act, would not come within the scope and ambit of the 'agricultural land' under Section 31(i) of the SARFAESI Act."

It concluded by saying "Land on which plantation crops are raised (coffee in the instant case), if mortgaged or given by way of a security to a financial institution to obtain a credit facility, whether for an agricultural purpose or for a non-agricultural purpose, the said security could be enforced and Section 31(i) of SARFAESI Act does not apply to such land. That means the financial institution can enforce the security created on such lands."

The court clarified that "This judgment concerns the interpretation of lands on which plantation crops are grown being construed as agricultural lands within Section 31(i) of the SARFAESI Act only as the lands in these cases concern plantation crops."

Case Details: U M Ramesh Rao And Union Bank of India

Case No: WA 538/2020

Date of Order: January 29, 2021

Coram: Justice B V Nagarathna and Justice Nataraj Rangaswamy

Appearance: Senior Advocate S S Naganand a/w Advocate Srinivas S V a/w Advocate Shreyas Jayasimha, for appellants.

Senior Advocate Dhyan Chinnappa a/w Advocate Divya Purandar, for respondents.

Senior Advocate Shashikiran Shetty a/w Advocate Latha S Shetty.

Advocate H R Katti.