Back
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
Ramachandra Rao, Harminder Singh Madaan, JJ.
M/s. Sham Lal Mohan Agriculture Farms & Anr. – Appellants
Versus
Bank Of India - Respondent
CWP No. 18829 of 2020 (O&M)
Decided On : 01-04-2022
Mortgage - Agricultural Loan - Transfer of Property Act, 1882, Section 58(f); SARFAESI Act, 2002, Section 13(2) - The court discussed the creation of mortgage by deposit of title deeds under Section 58(f) of the Transfer of Property Act, 1882 and the extension of equitable mortgage on the plant machinery and buildings of the cold storage to the Crop Loan availed by the petitioner No.1 under the SARFAESI Act, 2002. The court held that there was no extension of equitable mortgage over the plant, machinery, and buildings to the crop loan advanced to the petitioners by the respondent Bank.
Fact of the Case:
The petitioner No.1, a Partnership firm, availed a loan for agricultural purposes and later decided to set up a cold storage plant. The respondent-Bank initiated proceedings under the SARFAESI Act, 2002 demanding payment, claiming an extension of equitable mortgage on the cold storage for the crop loan. The petitioners filed a Writ Petition to quash the notices and sought a Writ of Prohibition restraining the respondent-Bank from taking any coercive action.
Finding of the Court:
The court found that there was no extension of equitable mortgage over the plant, machinery, and buildings to the crop loan availed by the petitioner No.1. It also held that the Writ Petition was maintainable despite the availability of an alternative remedy under Section 17 of the SARFAESI Act, 2002.
Issues: The issues before the court included the maintainability of the Writ Petition, the extension of equitable mortgage on the cold storage for the crop loan, and the nature of the cold storage activity as agricultural or commercial.
Ratio Decidendi: The court held that the Writ Petition was maintainable due to exceptional circumstances, and there was no extension of equitable mortgage over the cold storage for the crop loan. The court also did not decide on the nature of the cold storage activity.
Final Decision: The Writ Petition was allowed in part, setting aside the notices issued by the respondent-Bank with regard to the initiation of proceedings against the plant, machinery, and building of the cold storage of the petitioners located in acres 3.0347 in Village Lambra, District Jalandhar.
JUDGMENT
M.S. Ramachandra Rao, J. - The petitioner No.1 is a Partnership firm constituted on 11.01.2001 (Annexure R-3) dealing with Agricultural products and petitioner No.2 is one of its partners.
The 2002 /2005 KCC Loan (Crop Loan)
2. The petitioner No.1 had availed a loan from the Bank of India (for short 'the Bank') of Rs. 90 lakhs on 03.02.2002 in the shape of agricultural loan (Kisan Cash Credit) against hypothecation of standing crops at Village Lambra, Jalandhar District. In order to further secure the loan, another parcel of agricultural land measuring 116 Kanal 13 Marla at the said village was mortgaged with the Bank. The said crop loan was availed for cultivation of potato upon the land owned by the petitioner No.1 as well as on other leased land taken by the petitioner in the adjoining area.
3. On 16.02.2002, petitioner No.1 availed an additional loan of Rs. 60 Lakhs enhancing the loan to Rs. 1.5 Crores, which was later enhanced to Rs. 3 Crores on 30.01.2005.
4. The 2009 Term Loan for construction of Cold Storage
5. In 2009, petitioner No.1 decided to set up a cold storage plant as the extensive cultivation of potato was requiring storage and there was no other provision for storage in the neighbourhood.
6. So the petitioner No.1 approached the Bank, and on 18.08.2009, a loan of Rs. 2.02 Crores was sanctioned. For this loan, the primary security offered by the petitioner No.1 was hypothecation of building, plant and machinery which would be constructed out of the finance provided by the said Bank. The equitable mortgage of the land measuring 116 Kanal 17 Marla at Village Lambra, Jalandhar was extended as security.
7. The enhancement of Crop Loan Limit in 2011/2013
8. On 14.03.2011, the crop loan limit was extended to Rs. 7 Crores and the equitable mortgage already created on 116 Kanal 13 Marla at Lambra Village was extended.
9. On 12.04.2013, the respondent-Bank enhanced the crop loan limit to Rs. 9 Crore vide sanction letter (Annexure P-6) dt. 12.04.2013.
10. In the said sanction letter Annexure P-6, it was mentioned that the security would be (a) hypothecation of standing crops of borrower on land owned/leased by the borrower and crop produced and stored in cold storage and (b) mortgage of agricultural land measuring 6 acres at Village Baroti, District Hoshiarpur and extension of equitable mortgage of agricultural land measuring 116 Kanal 13 Marla at Village Lambra.
11. The repayment of the Term Loan taken in 2009 in 2016
12. It is not in dispute that the loan of Rs. 2.02 Crores taken by the petitioners for construction of cold storage on 18.08.2009 was repaid completely and the said loan account was closed on 10.05.2016.
13. The proceedings initiated under the SARFAESI Act, 2002 against the petitioners
14. In 2018-19, according to the petitioners, they suffered losses and could not deposit the accrued interest in the crop loan account of Rs. 9 Crores.
15. On 11.08.2020, the respondent-Bank issued a notice under Section 13(2) of the SARFAESI Act, 2002 (hereinafter referred to as "the Act") demanding petitioners to pay Rs. 12,33,52,292/- with interest thereon. In this notice (Annexure P-8), it was mentioned that there was an equitable mortgage of land and building under cold storage including sheds and other construction on Acre 3.0347 along with entire plant and machinery situated at Village Lambra.
16. On 05.10.2020, petitioners submitted objections (Annexure P-9) to the said notice and inter alia contended that the cold storage plant and machinery were only mortgaged for the term loan of Rs. 2.02 Crores availed for construction of cold storage, which loan was cleared in its entirety, and that the cold storage was never mortgaged for the crop loan (KCC) account. They placed reliance on the letter (Annexure P-6) dt. 12.04.2013 issued by the respondent enhancing the crop loan to Rs. 9 Crores and the absence of mention in the said letter of the extension of mortgage on plant, machinery and buildings of cold storage therein. It was
The main legal point established in the judgment is the interpretation and application of Section 58(f) of the Transfer of Property Act, 1882 in relation to the creation of mortgage by deposit of tit....
The main legal point established in the judgment is that allegations of fraud and misrepresentation must be supported by compelling evidence, and contentions regarding the creation of a valid mortgag....
The shifting stands of the parties and the validity of the mortgage deed raised doubts about the respondent's defense, leading to the court's conclusion that the suit filed before the civil court was....
The court affirmed the validity of an equitable mortgage created in favor of a bank, rejecting claims of exclusive ownership by a wife regarding property allegedly mortgaged by her husband.
The classification of land as agricultural for SARFAESI Act exemptions must be proven at the time of creation of security interest, not merely claimed thereafter.
Equitable mortgage can exist without a formal deed if intention and conduct indicate binding security rights.
The assignment of debt under the SARFAESI Act and the interpretation of 'financial institution' and 'secured creditor' were central to the court's decision.
The court concluded that the Securitisation Application was barred by limitation, confirming the priority of the Respondent Bank's mortgage over the Appellant's claims.
For the purpose of attracting Section 31(i) of SARFAESI Act, property in question ought to be actually used as agricultural land at the time when security interest was created.
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
