IMPORTANT POINT
Mere classification of land as agricultural in revenue records is not dispositive or conclusive for the purposes of SARFAESI Act.

JUDGMENT

Dr. D.Y. Chandrachud, J.

The Division Bench of the 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 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 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 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 certificate was issued on 10 February 2011 in 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. 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.

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 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, 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.

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 a settled 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 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 land and sold.

6. On the other hand, reliance was placed by learned Counsel appear