INDIAN BANK & ANR.versusK PAPPIREDDIYAR & ANR.

                        [2018] 6 S.C.R. 611                                611


                      INDIAN BANK & ANR.                                   A
                                   v.
                   K PAPPIREDDIYAR & ANR.
                   (Civil Appeal No. 6641 of 2018)
                            JULY 20, 2018                                  B
      [DIPAK MISRA, CJI, A. M. KHANWILKAR AND
             DR. D. Y. CHANDRACHUD, JJ.]
      Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 - ss. 31(i), 2(zf) – Security
                                                                           C
interest created in agricultural land – Applicability of SARFAESI
Act – Held: 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       D
the creation of the security interest and the purpose for which it
was set apart – On facts, in the absence of a specific finding, the
holding of the High Court that the proceedings initiated by the bank
under the SARFAESI Act are nullity as the Act does not apply to
agricultural land, thus, security interest in agricultural land cannot
                                                                           E
be enforced, set aside – Proceedings remitted back for being
considered afresh.
     The issue arose whether the High Court was correct in
holding that the proceedings initiated by the bank under the
Securitisation and Reconstruction of Financial Assets and
                                                                           F
Enforcement of Security Interest Act, 2002 are nullity.
      Allowing the appeals, the Court
      HELD: 1.1 The expression ‘security interest’, both before
and after the amendment, excludes what is specified in Section
31 of the Securitisation and Reconstruction of Financial Assets            G
and Enforcement of Security Interest Act 2002. 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

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                                 611
612            SUPREME COURT REPORTS                       [2018] 6 S.C.R.


A     of the expression “agricultural land”. Whether a particular piece
      of land is agricultural in nature is a question of fact. [Para 8]
      [615-G-H; 616-A]
            1.2 The classification of land in the revenue records as
      agricultural is not dispositive or conclusive of the question
B     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. [Para 9] [616-G]
            1.3 The Division Bench failed to adjudicate on the basic
C     issue as to whether the land in respect of which the security
      interest was created, was agricultural in nature. The DRT rejected
      the objection of the debtor that the land was agricultural. In appeal,
      the DRAT reversed that finding. Apart from referring to the
      position in law, the impugned judgment of the High Court contains
D     no discussion of the material which was relied upon by the parties
      in support of their respective cases; the Bank urging that the
      land was not agricultural while the debtor urged that it was. Both
      having regard to the decision in *Blue Coast Hotels Limited and
      as explained, the question as to whether the land is agricultural
      has to be determined on the basis of the totality of facts and
E     circumstances including the nature and character of the land, the
      use to which it was put and the purpose and intent of the parties
      on the date on which the security interest was created. In the
      absence of a specific finding, it would be appropriate and proper
      to set aside the judgment of the High Court and to remit the
F     proceedings for being considered afresh. The impugned judgment
      and order of the High Court is set aside. [Paras 10, 11]
      [616-G-H; 617-A-D]
            *ITC Limited v. Blue Coast Hotels Limited (2018) SCC
            Online SC 237 – referred to.
G           CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6641
      of 2018.
            From the Judgment and Order dated 05.04.2016 of the High Court
      of Judicature at Madras in W.P. No. 32208 of 2014
                                        WITH
            Civil Appeal No. 6645 of 2018.
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    INDIAN BANK & ANR. v. K PAPPIREDDIYAR & ANR.                              613


      P.S. Narasimha, ASG, Gautam Awasthi, Ayush Choudhary,                   A
Devanshu Yadav, B. Karunakaran, S. Gowthaman, Siddharth Dave,
Sai Baba, S. Santanam Swaminadhan, Anil Kumar Tandale, Mrs. Aarthi
Rajan, Advs. for the appearing parties.
      The Judgment of the Court was delivered by
       DR. D. Y. CHANDRACHUD, J. 1. The Division Bench of the                 B
High Court of Judicature at Madras has held that the proceedings initiated
by the appellant under the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act 2002 (the SARFAESI
Act) are 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      C
a security interest in agricultural land cannot be enforced.
       2. In 1989, a term loan was granted by the appellant to Yelagiri
Dairy Farm for setting up a dairy farm on a property ad-measuring 6.10
acres and bearing survey No. 203/2, 3, 4, 5 & 202/1A situated at
Peddakallupalli Village, NH Road, Vaniambadi, Tamil Nadu. By a                D
registered power of attorney, the first respondent appointed N K
Arumugham as his attorney and authorised him to sell or mortgage the
property. Arumugham was the managing partner of the partnership farm
and had mortgaged the property in favour of the appellant. The first
respondent was a guarantor. In 1993, building was constructed and
machines were installed by the borrowers to commence business. The            E
account became a non-performing asset. In 1995, the Bank filed a suit
for recovery. It was transferred to the Debt Recovery Tribunal (DRT-III)
at Chennai and renumbered as T.A. No. 93 of 2007. On 11 June 2010,
DRT-III allowed the claim of the Bank in the amount of
Rs. 31,00,238/- with interest at 9 per cent per annum. A recovery             F
certificate was issued on 10 February 2011in the amount of
Rs. 74,31,233.14/-. On 2 August 2011, the Bank issued a demand notice
under Section 13(2) for Rs. 85,41,662/-. Overruling an objection that the
property is agricultural in nature, it took possession on 31 October 2011.
The Bank issued a sale notice on 2 April 2012. The sale notice was
challenged in Original Suit No. 74 of 2012, which was dismissed in default.   G
The second respondent was the successful bidder at an auction sale
held on 12 May 2012. He paid a consideration of Rs.1.27 crores. The
sale certificate was issued on 14 June 2012 and was rectified on
7 September 2012.
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614                SUPREME COURT REPORTS                         [2018] 6 S.C.R.


A            3. The sale certificate was challenged in writ proceedings before
      the Madras High Court. The petition was dismissed on 4 April 2013 with
      liberty to the first respondent to adopt appropriate steps. The first
      respondent thereupon moved DRT-III at Chennai for challenging the
      sale certificate. The proceeding was dismissed on 17 May 2013. On
      11 September 2014, an appeal filed by the first respondent was allowed
B
      by the DRAT on the ground that the property which was sold, was
      agricultural and was exempt from the provisions of the Act. Both the
      Bank and the auction purchaser filed petitions before the High Court at
      Madras under Article 226. The High Court dismissed the petitions.
      It held that since a security interest had been created in agricultural land,
C     the provisions of the SARFAESI Act were not attracted.

            4. Aggrieved by the judgment and order of the Madras High Court,
      the Bank and the auction purchaser instituted proceedings before this
      Court under Article 136 of the Constitution. Leave has been granted.

D            5. In support of the appeal, it has been urged on behalf of the
      appellant that the property which was the subject matter of the mortgage
      comprised of dry land and was not exempt from the provisions of the
      SARFAESI Act. It has been urged that it is asettled position that the
      mere classification of a property in the revenue records as agricultural
      does not render it agricultural land. Whether a particular parcel of land
E     is agricultural is a question of fact. In the present case, it has been
      submitted that no agricultural activity was taking place on the date of the
      creation of the mortgage and it was classified as dry land in the land
      acquisition proceedings. The auction purchaser has while supporting the
      submissions of the Bank urged that plots have been carved out of the
F     land and sold.

             6. On the other hand, reliance was placed by learned Counsel
      appearing on behalf of the first respondent on a recent judgment of this
      Court in ITC Limited v Blue Coast Hotels Limited1, in support of
      the submission, that no security interest could be created in respect of
G     agricultural land, having due regard to the provisions of Section
      31(i).Learned Counsel adverted to the findings which were recorded in
      the judgment of the DRAT.

      1
          (2018) SCC OnLine SC 237

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    INDIAN BANK & ANR. v. K PAPPIREDDIYAR & ANR.                                  615
             [DR. D.Y. CHANDRACHUD, J.]

      7. Section 31(i) of the SARFAESI Act stipulates thus :                      A
      “31. Provisions of this Act not to apply in certain cases.-
      The provisions of this Act shall not apply to…
      (i) any security interest created in agricultural land;”
      The expression ‘security interest’ was defined, prior to its                B
      amendment, in Section 2(zf) as follows :
      “2(zf) “security interest” means right, title and interest of any
      kind whatsoever upon property, created in favour of any secured
      creditor and includes any mortgage, charge, hypothecation,
      assignment other than those specified in section 31;”                       C
      Clause (zf) was substituted with effect from 1 September 2016
by Act 44 of 2016. At present, the expression is defined as follows :
      “‘(zf) “security interest” means right, title or interest of any kind,
      other than those specified in section 31, upon property created in
                                                                                  D
      favour of any secured creditor and includes—
      (i) any mortgage, charge, hypothecation, assignment or any right,
      title or interest of any kind, on tangible asset, retained by the secured
      creditor as an owner of the property, given on hire or financial
      lease or conditional sale or under any other contract which secures
      the obligation to pay any unpaid portion of the purchase price of           E
      the asset or an obligation incurred or credit provided to enable the
      borrower to acquire the tangible asset; or
      (ii) such right, title or interest in any intangible asset or assignment
      or licence of such intangible asset which secures the obligation to
      pay any unpaid portion of the purchase price of the intangible              F
      asset or the obligation incurred or any credit provided to enable
      the borrower to acquire the intangible asset or licence of intangible
      asset;’.”
       8. The expression ‘security interest’, both before and after the
amendment, excludes what is specified in Section 31. Clause (i) of Section        G
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

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616            SUPREME COURT REPORTS                            [2018] 6 S.C.R.


A     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
      Limited (supra), 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
B
      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
C     hotel was located on1,82,225 square meters of land of which 2,335 square
      metres 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
D           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.”
E           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 mis-directed itself in
            holding that the land was an agricultural land merely because it
F           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
G     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.
            10. The Division Bench of the Madras High Court has failed to
      adjudicate on the basic issue as to whether the land in respect of which
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    INDIAN BANK & ANR. v. K PAPPIREDDIYAR & ANR.                                 617
             [DR. D.Y. CHANDRACHUD, J.]

the security interest was created, was agricultural in nature. The DRT           A
rejected the objection of the debtor that the land was agricultural. In
appeal, the DRAT reversed that finding. Apart from referring to the
position in law, the impugned judgment of the High Court contains no
discussion of the material which was relied upon by the parties in support
of their respective cases; the Bank urging that the land was not
                                                                                 B
agricultural while the debtor urged that it was. Both having regard to the
two-judge Bench decision in Blue Coast Hotels Limited and as
explained above, the question as to whether the land is agricultural has
to be determined on the basis of the totality of facts and circumstances
including the nature and character of the land, the use to which it was
put and the purpose and intent of the parties on the date on which the           C
security interest was created. In the absence of a specific finding, we
are of the view that it would be appropriate and proper to set aside the
judgment of the High Court and to remit the proceedings for being
considered afresh.
       11. We accordingly allow the appeals and set aside the impugned           D
judgment and order of the High Court dated 5 April 2016. The writ
petition filed by the auction purchaser (writ petition No. 26633 of 2014)
and the writ petition filed by the Bank (writ petition No.32208 of 2014)
are restored to the High Court. We request the High Court to endeavour
an expeditious disposal.
                                                                                 E
         12. In the circumstances of the case, there shall be no order as to
costs.


Nidhi Jain                                                    Appeals allowed.
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