SARFAESI Act | Whether Mortgaged Property Is Agricultural Land To Be Decided By DRT, Can't Invoke Writ Jurisdiction: Kerala High Court

The Kerala High Court last week dismissed challenge to recovery proceedings initiated under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) qua certain parcels of land which the petitioner claimed to be agricultural lands and thus protected under Section 31 (i) of the statute. 

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

Dismissing the writ petition filed under Article 226 of the Constitution in limine, the Single Judge Bench of Justice K. Babu was of the considered opinion that the SARFAESI Act is a complete code providing effective and efficacious remedy to any person aggrieved by the proceedings initiated under Section 13, and the present plea was thus not maintainable. 

"...the question of whether the property mortgaged would come under the definition of agricultural land coming under Section 31 (i) of the SARFAESI Act is a disputed question of fact which is to be adjudicated by the Debts Recovery Tribunal having jurisdiction in the matter. The order passed by the Debts Recovery Tribunal is appealable before the DRAT, which is the final fact-finding authority," the Bench observed. 

M/S Thara Coffee Pvt. Ltd., a partnership firm, had availed a credit facility from the respondent-Bank, for which the petitioner stood as guarantor. Certain properties were thus mortgaged for the purposes of availing the credit facility. The loan was however defaulted, and the bank initiated recovery proceedings under the SARFAESI Act. The bank obtained symbolic possession of the properties, and filed a petition before the Chief Judicial Magistrate Court, Kalpetta, seeking assistance for taking physical possession of the properties. The Court appointed an Advocate Commissioner who issued notice for taking possession of the properties. 

Although the borrowers challenged the proceedings before the Debts Recovery Tribunal (DRT), Ernakulam, the bank proceeded to sell the mortgaged properties, which have been challenged in the present plea. 

The petitioner contended that the properties sought to be auctioned were agricultural lands, which were accordingly protected under Section 31(i) of the SARFAESI Act. The respondent Bank however opposed the submission, and argued that the security interest was created in respect of several parcels of land meant to be a single unit and the parties did not treat any of them as agricultural land at the time of mortgage. The respondents thus challenged the maintainability of the plea, and contended that the question raised by the petitioner ought to be considered and adjudicated by the statutory Tribunal. 

Perusing the scheme of the SARFAESI Act, the Court observed that the enactment was intended to enable banks and financial institutions to realise long term assets, manage problems of liquidity, asset liability and mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce Non-Performing Assets (NPAs) by adopting measures for recovery and reconstruction, and that the main enforcing provision for the same is Section 13. 

Terming the statute as a 'self-contained code', the Court noted that the statute itself provides an effective remedy to challenge the proceedings by an aggrieved person in Section 17 before the DRT ('Application against measures to recover secured debts'). 

The Court was thus of the view that the maintainability of the writ petition would have to be considered in the light of the efficacious remedy provided by the statute.

It also perused a plethora of precedents as regards whether the writ jurisdiction could be invoked to challenge recovery proceedings initiated under the SARFAESI Act, and observed, 

"In the present case, the writ petition has not been filed to enforce a fundamental right protected by Part III of the Constitution. There are no materials to show that there has been a violation of the principles of natural justice, and the vires of the legislation is not under challenge. Therefore, this writ petition is not maintainable". 

The Court also found favour with the challenge to the maintainability of the plea on the ground that since the respondent-Bank is a private company carrying banking business as a scheduled bank, it could thus not be termed as an institution or company carrying on a statutory or public duty, due to which it would not be amenable to writ jurisdiction under Article 226 of the Constitution. 

The plea was thus dismissed in limine on these grounds. 

Counsel for the Petitioner: Advocates Madhu Radhakrishnan, Nelson Joseph, M.D. Joseph, Deepak Ashok Kumar, and Nevil Noble

Counsel for the Respondents: Standing Counsel for Federal Bank Mohan Jacob George, and Advocates P.V. Parvathy, Reena Thomas, Nigi George, and Ananthu V. Lal

Citation: 2023 LiveLaw (Ker) 577

Case Title: Thara Philip v. Federal Bank Ltd. & Anr. 

Case Number: WP(C) NO. 30346 OF 2023

Click Here To Read/Download The Judgment