DRAT Chennai Sets Aside Exemption From SARFAESI Action Granted After Bank Did Not Deny Agricultural Land Claim

The Debt Recovery Appellate Tribunal (DRAT) at Chennai has set aside an order of the Debt Recovery Tribunal-II, Chennai, which had granted exemption from recovery under the SARFAESI Act after accepting the borrower's claim that the secured asset was agricultural land.

The appellate tribunal examined whether the tribunal below was justified in allowing the plea mainly because the bank had not specifically denied the exemption claim.

In that context, the tribunal presided over by Chairperson Justice G. Chandrasekharan observed, “Whether a mere omission to denial of exemption claimed under Section 31(i) of SARFAESI Act would entitle the respondent for allowing the SA, is a matter that is required to be considered now.”

On facts, the tribunal found that the borrower had produced no material to show actual agricultural use of the land and held, “there is no evidence produced to show that land in question was used for agricultural purpose by engaging in continuous agricultural operations, prior to creation of mortgage, at the time of creation of mortgage and subsequent to mortgage till filing of SARFAESI application. When that be the case, allowing the SARFAESI application on the basis of sale deed and revenue records and that appellant had not filed proper reply is not correct. Respondent miserably failed to establish that land concerned is an agricultural land, used for agricultural purpose and entitled for protection under Section 31(i) of SARFAESI Act."

The appeal was filed by Canbank Factors Ltd., a subsidiary of Canara Bank, against an order passed in a securitisation application filed by Sarath Kakumanu challenging a sale notice dated April 15, 2017 issued for e auction of a one acre land situated at Muthukadu village in Chengalput district.

The property stood in the name of his late father K. Subbiah, who had offered it as security in connection with a loan facility. The borrower invoked Section 31(i) of the SARFAESI Act, which excludes agricultural land from enforcement action.

The Debt Recovery Tribunal accepted the plea and held that the secured asset was agricultural land. It relied on the description in the sale deed, patta and adangal, which referred to the land as punja land with drains, waterways and passages.

The tribunal also noted that the bank had not filed a proper denial to the borrower's claim that the property was agricultural land. Taking note of the description in the sale deed, patta, and adangal, it accepted the plea and allowed the securitisation application, holding that the secured asset was agricultural property and could not be proceeded against.

In appeal, the bank contended that the protection under Section 31(i) of the SARFAESI Act cannot be granted in the absence of proof that the land was actually put to agricultural use. It argued that the borrower had not produced any material to show cultivation, irrigation, or agricultural income either at the time the mortgage was created or thereafter.

The bank also relied on the borrower's reply to the demand notice, where he had stated that the land was in the possession of some fishermen and that there was no access to the property, to argue that the land was not being used for agriculture. The borrower, however, maintained that the entries in the revenue records, which described the land as punja land with drains and waterways, were sufficient to show that it was agricultural in nature.

On examining the record, the appellate tribunal found that the securitisation application contained no details about crops, irrigation, or any agricultural activity carried out on the land. The sale deed described the property only in terms of its measurements and boundaries. Although the document referred to drains and waterways, the plan attached to it did not show any such features.

These omissions, the tribunal noted, assumed significance while deciding whether the land could be treated as agricultural for the purpose of claiming exemption

The adangal also did not mention cultivation of any crop. The tribunal found it significant that the borrower himself had stated that the property was in the possession of fishermen and that there was no access to the land.

These facts, the tribunal observed, showed that the land was not proved to be in agricultural use. Holding that the burden lay on the borrower to establish entitlement to the exemption under Section 31(i), the tribunal concluded that the order of the Debt Recovery Tribunal-II, Chennai could not be sustained, set it aside, and allowed the appeal.