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Who Has the Burden of Proving That Secured Properties Are Agricultural Lands Under the SARFAESI Act?

Judgement name: Sreedhar v.  M/S Raus Constructions Pvt. Ltd. & Ors

Judge(s)/Benches – Justice M.R. Shah and Justice M.M. Sundresh. 

 

Facts: 

In 2012, the defendant sought financial help and credit facilities from the secured creditor Indian Bank. Non-Performing Asset (NPA) status was assigned to the loan account because the borrowers failed to make timely payments.

A demand letter asking payment of the past-due sum was delivered to the borrowers, including the mortgagors and the guarantors, by the secured creditor after starting legal action under the SARFAESI Act of 2002. Due to the unpaid Demand Notice amount, the secured creditor issued a notice to the guarantors, mortgagees, and borrowers.

A combined Possession Notice detailing the dates of possession of 12 separate properties was filed by the secured creditor. Newspapers carried the Notice of Possession announcement. The secured properties, including the subject property (the ninth property item), were subsequently sold at auction.

Due to their dissatisfaction with the e-auction, the borrowers filed a writ case with the High Court asking for a stay of any further actions conducted by the secured creditor in accordance with the SARFAESI Act.

Due to an application that was pending before the DRT-I, Hyderabad, the High Court ultimately decided to reject the writ petition. There was a new e-auction Notice published. The appellant in this case, who won the auction and acquired the property item, filed a civil appeal stemming from a special leave petition.

The DRT rejected the borrowers’ plea and upheld the sale certificate given to the winning bidder at the auction.

By immediately admitting the writ suit under Article 226/227 of the Constitution of India challenging the decision made by the DRT-I, the High Court had enabled the borrower to sidestep the process of appeal before the DRAT under the SARFAESI Act. Even on the merits, the assailed decision issued by the High Court was untenable, the Court said.

It was also noted that the High Court put the burden on the secured creditor to prove that the properties are not agricultural lands. Because of this, the Court said that the High Court made a serious mistake when it put the burden on the secured creditor to prove that the properties are not agricultural lands or have been used for non-agricultural purposes.

 

Judgement: 

According to the Supreme Court, it is the borrower’s responsibility to demonstrate that the secured assets are agricultural lands and/or agricultural operations in SARFAESI proceedings. 

The DRT noted that the disputed property was not excluded from the SARFAESI Act’s provisions when rejecting the securitization application submitted by the borrowers. It was noted that the borrowers failed to provide any documentation demonstrating that the land they mortgaged to the secured creditor was being used for agricultural purposes, while the secured creditor submitted photos demonstrating that no such activity was occurring. In granting the borrower’s writ petition, the High Court noted that since the property was an agricultural land, Section 31(i) of the SARFAESI Act prevented the property from being put up for auction.

 

Written by: Samaksh Modi

College: NMIMS Kirit P. Mehta School of Law, Mumbai

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