2018 (8) TMI 741 - SC - Indian Laws

Security interest in agricultural land - Validity of proceedings under the SARFAESI Act 2002 - applicability of act to agricultural land - Held that - The expression security interest both before and after the amendment excludes what is specified in Section 31. Clause (i) of Section 31 stipulates that the provisions of the Act will not be applicable to any security interest created in agricultural land. The statutory dictionary in Section 2 does not contain a definition of the expression agricultural land . Whether a particular piece of land is agricultural in nature is a question of fact. The classification of land in the revenue records as agricultural is not dispositive or conclusive of the question whether the SARFAESI Act does or does not apply. Whether a parcel of land is agricultural must be deduced as a matter of fact from the nature of the land the use to which it was being put on the date of the creation of the security interest and the purpose for which it was set apart. In the absence of a specific finding it would be appropriate and proper to set aside the judgment of the High Court and to remit the proceedings for being considered afresh - matter restored.

Summary

Issues:
1. Applicability of SARFAESI Act to agricultural land.
2. Enforcement of security interest in agricultural land.
3. Interpretation of Section 31(i) of the SARFAESI Act.
4. Classification of land as agricultural for the purposes of SARFAESI Act.

Analysis:

Issue 1: Applicability of SARFAESI Act to agricultural land
The Division Bench of the High Court held that the SARFAESI Act does not apply to agricultural land, rendering the proceedings initiated by the appellant under the Act as null and void. The High Court concluded that security interest in agricultural land cannot be enforced under the SARFAESI Act.

Issue 2: Enforcement of security interest in agricultural land
The case involved a term loan granted for setting up a dairy farm on agricultural land. The property was mortgaged, and the account became a non-performing asset. The Bank initiated recovery proceedings under the SARFAESI Act, leading to a series of legal challenges regarding the enforcement of security interest in the agricultural land.

Issue 3: Interpretation of Section 31(i) of the SARFAESI Act
Section 31(i) of the SARFAESI Act excludes the application of the Act to any security interest created in agricultural land. The definition of "security interest" was crucial in determining the scope of the Act's applicability to agricultural land, both before and after an amendment in 2016.

Issue 4: Classification of land as agricultural for SARFAESI Act
The judgment highlighted that the mere classification of land as agricultural in revenue records is not determinative of whether the SARFAESI Act applies. The nature of the land, its use at the time of creating security interest, and the intent of the parties are essential factors in determining if the land is agricultural for the purposes of the Act.

The Supreme Court allowed the appeals, setting aside the High Court's judgment, and remitted the proceedings for fresh consideration. The Court emphasized the need for a factual determination on whether the land in question was agricultural, based on the totality of circumstances. The case underscored the importance of a comprehensive assessment of the nature and use of land to ascertain its classification under the SARFAESI Act.