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.

JUDGMENT

The original petition is filed challenging Ext.P10 common order passed by the Debt Recovery Tribunal-II, Ernakulam (in short, ‘Tribunal’) in I.A. No.1678/2023 in S.A. No.254/2023.

2. The relevant factual matrix for the determination of the original petition, is that: -

(i) The first petitioner is a proprietorship concern owned by the second petitioner. The first petitioner had availed financial assistance from the respondent-Bank – for capital cash credit and other facilities, with an aggregate limit of Rs.1,79,00,000/-, by offering 40.20 Ares of agricultural land as collateral security. The petitioners 3 and 4 are guarantors of the loan. The first petitioner is a MSME Unit. Due to unprecedented floods that lashed the State in the year 2018, and the repercussions due to the Covid-19 pandemic, the first petitioner was under severe financial stress. Hence, it was unable to pay the instalments on time. Immediately, the respondent classified the loan account as a ‘NPA’ and initiated recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short ‘SARFAESI Act’), that too without complying with the statutory formalities prescribed under the Act. The petitioners have challenged the recovery proceedings before the Tribunal by filing S.A.No.254/2023 (in short ‘S.A.’). The petitioners have contended that the secured asset is an agricultural property, which is exempted under Section 31 of the SARFAESI Act. Hence, the respondent cannot proceed against the said property. To substantiate their contention in the S.A, they filed I.A. No.1678/2023 (Ext.P7), to appoint an Advocate Commissioner and elucidate the matter mentioned in the application. The application was opposed by the respondent. The Tribunal, by the impugned Ext.P10 common order, has rejected Ext.P7 application. Ext.P10 order is ex-facie illegal and erroneous. Hence, the original petition.

3. Heard; Sri.John Prakash B.J, the learned counsel appearing for the petitioners and Sri. Jithesh Menon, the learned counsel appearing for the respondent.

4. Sri.John Prakash B.J. reiterated the contentions in the original petition. He placed reliance on the judgment of the Honourable Supreme Court inITC Limited v. Blue Coast Hotels Ltd and Others [2018 KHC 6194] , to canvass the position that, when there is substantial evidence to prove that there is agricultural activity in a property, the same is more than sufficient to attract Section 31 of the Act. He further argued that Ext.P3 certificate issued by the Agricultural Officer, Ext.P4 photographs and Ext.P5 certificate all prove that agricultural activity is being carried out in the secured asset, which is more than sufficient to attract of the SARFAESI Act. The petitioners had filed Ext.P7 application, only for the purpose of corroborating their contentions. The Tribunal has erroneously relied on the decisions of this Court and the Honourable Supreme Court, to pass Ext.P10 order. Ext.P10 is untenable and is liable to be quashed.

5. Sri.Jithesh Menon, on the contrary, drew the attention of this Court to Ext. P8 counter affidavit filed by the respondent before the Tribunal, wherein, Ext.R1(A) and R1(B) documents were produced and the same show that the secured asset is a dry land and that there are residential and commercial buildings in the property. Moreover, Ext.R1 (C) - notice issued under Section 13(2) of the SARFAESI Act was sent to the petitioners as early as on 25.11.2021. The petitioners maintained stoic silence all through out the said period. It is at this belated stage, the petitioners have raised the present contention that the secured asset is an agricultural land and is, therefore, exempted from the application of the SARFAESI Act. It is only to wriggle out of the applications of the SARFAESI Act, that the petitioners have raised the contentions. He also placed reliance on the decision of this Court inRahiya V. Authorised Officer, South Indian