Question of Nature of Property as Agricultural land or not, decided by DRAT without Considering Evidence Submitted: Madras HC Remands Matter [Read Order]

The High Court of Madras remanded the challenge on nature of the property as agricultural land or not towards the Debt Recovery Appellate Tribunal, Chennai (“DRAT”) on finding that the tribunal decided the issue without considering evidence submitted.

Mira Exports, Gandhimathi, the petitioners filed a petition challenging an order dated 26.09.2023 of Debt Recovery Appellate Tribunal, Chennai (“DRAT”). The challenge primarily is on the premise that the subject property is “agricultural land”, thus in terms of Section 31(i) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) falls outside the purview of SARFAESI Act.

Mira Exports (P1) is a proprietory concern owned by Mrs.R.Gandhimathi (P2) (“petitioner”) inasmuch as a proprietory concern does not have a legal existence distinct and independent of the proprietor. Proprietory concern is an individual trading under a Trade name . Petitioner commenced business in 2010. Petitioner owns 6.5 acres of land in Survey No.214/4 of Alukkuli Village in Erode District. The said survey number comprises two parcels of land, viz., one measuring 3.24 acres and the other 3.26 acres. For the sake of convenience, we shall refer to a parcel of land measuring 3.24 acres as “Land A” and a parcel of land measuring 3.26 acres as “Land B”. 1 st and 2nd respondents being the same bank, it is referred collectively as “respondent bank”.

In the year 2011, petitioner availed Cash Credit facility of Rs.1,20,00,000/- (Rupees One Crore and Twenty lakhs only) from 2nd respondent Bank. Sometime in the year 2013, the credit limit was increased to Rs.1,70,00,000/-. 2.3. Market recession and inadequate power supply affected production and functioning of petitioner's firm, causing loss to petitioner.

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Respondent bank, on 30.03.2015 classified petitioner's account as Non Performing Asset (NPA) and proceedings were initiated under SARFAESI Act. Respondent bank issued notice under Section 13(2) of SARFAESI Act, demanding a sum along with interest at 14.35% per annum with monthly rest from 21.04.2015.

Sale Notice dated 10.06.2016 came to be issued by respondent bank followed by sale notices dated 08.11.2016, 01.02.2017, 31.03.2017 and 26.05.2017. There were, however, no bidders to the above sale notices. Sale Notice dated 08.11.2016 was received by the petitioner on 10.11.2016. Petitioner preferred an Appeal being SA.No.257/2016 before Debts Recovery Tribunal ( “DRT”). DRT stayed the Sale Notice dated 08.11.2016 by way of a conditional order. Petitioner approached respondent bank and informed them that they were ready to comply with the conditional order, subject to their proposal of OTS being accepted.

Meanwhile, respondent bank vide its letter dated 21.11.2017 informed petitioner that a Scheme for OTS of Non Performing Assets, 2017 was available to petitioner. Respondent bank also set out the conditions with regard to eligibility for settlement under Bank of India OTS, 2017 Scheme (BOI OTS, 2017),

On 04.01.2018, petitioner paid a sum of Rs.10,00,000/- which is equivalent to 5% of the Condition No.(ii) in terms of the above scheme and made an application agreeing to accept all terms and conditions of OTS. It is stated that petitioner was ready to deposit 20% i.e., Rs.40,00,000/- in terms of clause (iii) of OTS and arranged funds to get an additional 10% as per OTS Clause (vi) and to pay balance amount on or before 31.03.2018. Respondents' official received OTS Application of petitioner on 04.01.2018 and informed petitioner that the property was sold in E-auction conducted on 15.12.2017 to 3rd and 4th Respondents.

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The sale notice dated 07.11.2017 and consequential e- auction was challenged on the premise that the respondent bank illegally brought to sell the subject property, even when OTS was offered and the petitioner was willing to fully comply with terms of OTS. More importantly, sale of subject land under SARFAESI is not valid inasmuch as the property brought to sale was “agricultural land”, thus outside purview of SARFAESI Act. It was observed that the sale certificate, though issued to respondents 3 and 4 was not registered and possession was also not delivered, and therefore, the petitioner had the right of redemption.

During pendency of appeal, the petitioner deposited a balance OTS amount of Rs.1,25,00,000/- (Rupees One Crore and Twenty five lakhs only) before DRT, Coimbatore, as per Scheme of OTS thereby making entire payment as per approved OTS. Meanwhile, the respondent bank filed an Application under Section 14 of SARFAESI Act before District Collector/DM, Erode District, seeking to take physical possession of secured asset and hand over the same to auction purchaser. Application under Section 14 of SARFAESI Act was rejected by an order dated 12.02.2018, on the ground that subject property is “agricultural land”, thus falls outside the purview of SARFAESI Act.

On considering the above evidence, DRT found that subject property was not agricultural land, thereby rejecting the challenge to proceedings under SARFAESI as being without jurisdiction.

A perusal of order of DRAT would show that it has merely affirmed the order of DRT and has not appreciated/ re-appreciated evidence independently. The above exercise ought to have been made by DRAT in view of directions of the Court. A division bench of K.R.Shriram, Chief Justice and Justice Mohammed Shaffiq observed that DRAT is final statutory body/Tribunal under SARFAESI Act, thus making it all the more necessary for the DRAT to appreciate/re appreciate evidence on record independently.

The court inclined to set-aside the impugned order dated 26.09.2023 and remand the matter back to DRAT for reconsidering the issue by considering/evaluating the evidence let in by both sides and applying the tests laid down by the Supreme Court and the Court and enquire into all relevant aspects including those discussed in paragraphs 10.1 (a) to (d) supra and determine whether subject property in question is agricultural or otherwise.

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