SARFAESI - Burden Is On Borrower To Prove That Secured Properties Are Agricultural Lands : Supreme Court

The Supreme Court held that, in SARFAESI proceedings, 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.

In this case, the DRT, while dismissing the Securitization Application filed by the borrowers observed that the land in question were not exempted from the provisions of the SARFAESI Act. It was observed that the borrowers did not file any evidence to prove that the agricultural activity was going on in the land mortgaged with the secured creditor whereas the secured creditor filed photographs showing no agricultural activities were going on. Allowing the writ petition filed by borrower, the High Court observed that in view of Section 31(i) of the SARFAESI Act, the property being an agricultural land could not have been put to auction.

In appeal, at the outset, the Apex Court bench disapproved the entertaining of writ petition by the High Court.

"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.  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", the bench said.

The bench then 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. It was noticed that the secured creditor produced the photographs to show that there was no agricultural activities being done and no agricultural activity was going on. 

"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 [25] 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.", the court said.

The court allowed the appeal and observed that the High Court 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.

Case details

K. Sreedhar vs Raus Constructions Private Ltd. | 2023 LiveLaw (SC) 13 | CA 7402 OF 2022 | 5 January 2023 | Justices M R Shah and M M Sundresh

For Parties Mr. Yelamanchili Shiva Santosh Kumar, Adv. Mr. Rudrajit Ghosh, Adv. Mr. Yatinder Chaudhary, Adv. Mr. Davinder Singh Khurana, Adv. Mr. Abhishek Sharma, Adv. Mr. Tarun Gupta, AOR Mr. Himanshu Munshi, AOR Mr. Krishna Kumar Singh, AOR

Headnotes

SARFAESI Act, 2002 ; Section 31(i) - 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. (Para 7-8)

Constitution of India, 1950 ; Article 226, 227 - SARFAESI Act, 2002 -  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 allowing the borrower to circumvent the provision of appeal before the DRAT under the provisions of the SARFAESI Act. (Para 6)

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