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2016 (5) TMI 641 - MADRAS HIGH COURT

2016 (5) TMI 641 - MADRAS HIGH COURT - TMI - SARFAESI Act - security interest in agricultural land created - Held that:- Security interest created was in agricultural land, we have no hesitation to hold that all the proceedings initiated under the SARFAESI Act are nullity, as the security interest in agricultural land cannot be enforced inasmuch as the same is exempted under the provisions of Section 31(i), ibid. However, we make it clear that the decision in this matter shall not preclude other .....

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NIHOTRI AND MR. M.VENUGOPAL, JJ. COMMON ORDER SATISH K. AGNIHOTRI, J. For The Petitioner : Dr. T. Ramasamy For The Respondent : Mr. F.B. Benjamin George, Mr. S.R. Rajagopal for Mr. G. Sai Baba Assailing the order dated 11 September 2014 rendered by the Debts Recovery Appellate Tribunal, Chennai, in R.A. (SA) No.43 of 2014, the auction purchaser of the secured asset has preferred the writ petition being W.P.No.26633 of 2014 and the secured creditor, viz., Indian Bank, has preferred the writ petit .....

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d admeasuring 6.10 acres in S. No.203/2,3,4,5 and 202/1A in the said village. The property was mortgaged through the attorney holder viz., N.K. Arumugham, who was appointed as the Power of Attorney vide a Power of Attorney deed executed on 26 October 1988, authorising him to mortgage or sell the property or construct building thereon. The said dairy farm discontinued to make repayment of the loan and as such, the petitioner bank filed a civil suit being O.S. No.437 of 1995 on the file of the Sub .....

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No.93 of 2007 on the file of the Debts Recovery Tribunal-III, Chennai, under the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for brevity "the RDDBFI Act"). In the said pending case, an order was passed on 11 June 2010 in the following terms:- "a The applicant bank is entitled for a recovery certificate as against the defendants No.1 to 6 and 8 to 12 for recovery of a sum of ₹ 31,00,238/- (Rupees Thirty one lakhs two hundred and thir .....

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e proceeds thereof towards the amounts due in the claim. c If the sale proceeds are not found sufficient, after defraying the expenses of such sale for payment of the amount adjudged, the defendants No.2 to 6 and D8 are personally liable for such deficiency until realisation. However, the liability of D9 to D12 is restricted to the value of the estates, if any, inherited by them from deceased D7. d It is further ordered that any amount remitted by the defendants or realised by the applicant bank .....

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am, his wife Santha and Pappi Reddiar, the first respondent herein, preferred an appeal before the Debts Recovery Appellate Tribunal in R.A. No.120 of 2011, which is still pending consideration. 2.3 The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (for brevity "the SARFAESI Act"), came into force with effect from 21 June 2002. The petitioner bank issued a fresh demand notice under Section 13(2) of the SARFAESI Act on 02 August 20 .....

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ed, a notice for sale of the secured asset was issued on 02 February 2012, which was cancelled in view of some error in the schedule of property and again, vide sale notice dated 02 April 2012, the secured asset was put on sale. N.K.Arumugham assailed the said sale notices dated 02 February 2012 and 02 April 2012 in O.S. No.32 of 2012 and O.S. No.74 of 2012 on the stated ground of the secured asset being an agricultural land. One Ananda Kumar also preferred a civil suit being O.S. No.184 of 2011 .....

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fore the Debts Recovery Tribunal-III, Chennai, alleging that the property being agricultural land, could not have been sold as the same is exempted under the provisions of Section 31(i) of the SARFAESI Act. It was also alleged therein that no notice was served on him. The said application was dismissed as being barred by limitation on 17 May 2013. 2.6 Thereagainst, an appeal being R.A. (S.A.) No.43 of 2014 was preferred by the first respondent herein before the Debts Recovery Appellate Tribunal, .....

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Thus, R.A. (SA) No.43 of 2014 was allowed by the Debts Recovery Appellate Tribunal, leading to the filing of the instant writ petitions by the secured creditor and the auction purchaser. 3 The main plank of contention of the learned counsel for the petitioner bank is that the secured asset is not an agricultural land, inasmuch as, it is a dry land, which is cultivable only occasionally and it is not a wet land as contended by the first respondent-mortgagor and no document is also produced by th .....

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o and relying on Clause 2(m) of the Statement of Objects and Reasons of the SARFAESI Act, he would submit that the rationale behind Section 31(i), ibid, is only to exempt security interest in the agricultural land and hence, the said provision cannot be given a meaning to contend that the nature of the land at the time of creation of security interest is relevant and not the nature of property at the time of enforcement of security interest. In this context, to fortify his contention that interp .....

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ns of Section 31(i) of the SARFAESI Act, garnering support from the judgment of the Supreme Court in State of Gujarat vs. Essar Oil Ltd. and Other (2012) 3 SCC 522, he would submit that a person invoking an exemption provision to relieve him of a liability is under an obligation to establish beyond any doubt that he is covered by the said provision and in case of ambiguity, the benefit of doubt should go to the State. 5. The learned counsel would next submit that a civil suit, being O.S.No.74 of .....

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or the Debts Recovery Appellate Tribunal, the auction purchaser (the petitioner in W.P. No.26633 of 2014) has formed a layout and sold more than 100 plots, leading to creation of third party rights. Thus, any interference at this stage, would prejudice not only the bank but also the rights of those third parties. 7. In his last limb of argument, the learned counsel for the petitioner bank would submit that what the Debts Recovery Tribunal has passed under the RDDBFI Act is only an order for rec .....

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gricultural land at the time of creation of security interest. The change of usage subsequently would not change the classification and nature of the land, which was at the time of its mortgage. The learned counsel would further contend that the aim and object of the SARFAESI Act is to recover the defaulted amount expeditiously by way of enforcement of security interest as contemplated under Section 13, ibid. In the event, the provisions of the SARFAESI Act are not applicable in case of agricult .....

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ellate Tribunal is still pending consideration. It is further contended that the bank ought not to have precipitated the entire proceedings by putting the property for sale, invoking the procedure under the SARFAESI Act, wherein, the agricultural land is exempted. 10. The learned counsel would further contend that even if the secured asset is sold to several other persons, it is not necessary to implead all successive purchasers as all the purchasers are represented through the auction purchaser .....

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nto consideration in the matter of Escorts Farms Ltd. vs. Commissioner, Kumaon Division, Nainital, U.P. and Other (2004) 4 SCC 281, wherein, the Supreme Court had settled the issue holding that the subsequent transferees and interveners deserve no indulgence in the appeal. The subsequent transferees have stepped into the shoes of the original transferees. If the original auction purchaser / transferee is impleaded as proper party, for want of impleadment of subsequent purchasers, the application .....

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The subsequent transferees have stepped into the shoes of the original transferees. They can claim no different or better rights than their transferors. The contentions raised on their behalf are, therefore, not entertained. No relief can be granted to them. The interveners have to work out their independent rights and remedies, if any, and can claim no right of hearing in these appeals." 14. The second question which needs adjudication is whether the land in question which was indisputabl .....

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d under Section 2(zf) of the SARFAESI Act, which reads as under: (zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31. 17. Section 13 of the SARFAESI Act provides for enforcement of security interest. Section 13(1) of the SARFAESI Act reads as under:- "13. Enforcement of security interest. -(1) Not .....

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x x x (i) any security interest created in agricultural land; " 19. Thus, the security interest, as defined, means right, title and interest of any kind whatsoever upon the property created in favour of any secured creditor, i.e., bank or financial institution, and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. 20. Under the provisions of the SARFAESI Act "secured asset" is defined as under:- (zc) "secured asset" means .....

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ry of outstanding amount is by way of enforcement of security interest. Thus, the main object of the provisions of the Act is to recover the defaulted amount by enforcement of the security interest. All security interest can be enforced, except as exempted under the provisions of Section 31 of the SARFAESI Act, which creates exclusion clause, wherein, the provisions of the SARFAESI Act for any purpose would not be applicable. Out of 10 conditions, one is any security interest created in agricult .....

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ity interests in agricultural lands, loans not exceeding rupees one lakh and cases where eighty per cent of the loans are repaid by the borrower." Thus, it is manifest that the legislation, i.e., SARFAESI Act will have no application to the security interest created in agricultural land and loans not exceeding rupees one lakh and cases where eighty per cent of the loans are repaid by the borrower. 23. On a bare perusal of the object read with the relevant provisions, as aforestated, it is l .....

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g; (d) the use of any land for the purpose of raising manure crops ; (e) dairy farming; (f) poultry farming; (g) livestock breeding; (h) growing of trees; and "agricultural" shall be construed accordingly;' 25. Under the Tamil Nadu Land Reforms (Fixation of Ceiling on Land) Act, 1961, the word "agriculture" is defined as under:- 3. Definitions.-In this Act, unless the context otherwise requires,- (1) "agriculture" includes - (a) horticulture; (b) the raising of .....

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nd buildings for agricultural activities, dairy and cattle farms, piggeries and poultry farms, water tanks and reservoirs, forestry, storing and drying of fertilizers and installation of electric machinery of not exceeding 15 horsepower may be allowed for the uses mentioned above, are the agricultural zone. 27. The contention of the learned counsel for the Bank is that the property is the punja land, i.e., dry land, which was thereafter converted and no agricultural activity was carried out. Thu .....

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ppear to have been incorporated to only protect the land where actual agricultural activity is being carried on. We are in respectful dis-agreement with the observation, as the words employed in the exemption clause have to be understood in the light of the other provisions. 28. The learned counsel Mr.Benjamin George further relied on the observation made in a decision of this Court in Dr.S.Mani Vs. State Bank of India, Kodumudi Branch, Erode District and another W.P.No.2857 of 2013, dt. 7.8.201 .....

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tlal Sheth (supra), the learned counsel for the Bank places heavy reliance, seeking interpretation of the provisions of Section 31(i) of the SARFAESI Act to construe the word in such a manner, wherein, the basic purpose of recovery of money may be compatible. The Constitution Bench of the Supreme Court of India, in the said mater, in the context of interpreting the provision of Article 222 of the Constitution of India, observed as under: 54. Now, it is undoubtedly true that where the language of .....

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must be found not so much in a strictly grammatical or etymological propriety of language, nor in its popular use, as in the subject or the occasion on which they are used and the object to be attained. It was said by Mr Justice Holmes in felicitous language in Town v. Eisner that "a word is not a crystal, transparent and unchanged; it is the skin of a living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used". The words .....

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st importance in the interpretation of the words used in a statute. "It is quite true", pointed out Judge Learned Hand in Helvering v. Gregory "that as the articulation of a statute increases, the room for interpretation must contract; but the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create". Agai .....

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ction should not obsess the Court, because it has only prima facie preference, the real object of interpretation being to find out the true intent of the law maker and that can be done only by reading the statute as an organic whole, with each part throwing light on the other and bearing in mind the rule in Heydon case which requires four things to be "discerned and considered" in arriving at the real meaning: (1) what was the law before the Act was passed; (2) what was the mischief or .....

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Court would be justified in "putting on them some other signification, which, though less proper, is one which the Court thinks the words will bear". Vide River Wear Commissioners v. Adamson. It is in the light of these principles of interpretation that I must proceed to consider what is the true meaning and effect of clause (1) of Article 222: whether it permits transfer of a Judge from one High Court to another, irrespective of his consent. 30. The aforestated ratio is a well settled .....

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by the learned counsel for the Bank in Sabhia Mohammed Yusuf Abdul Hamid Mulla Vs. Special Land Acquisition Officer and Others (2012) 7 SCC 595 deals with the Land Acquisition Act, 1894 and as such, the same is not of any assistance. 32The decision in State of Gujarat and others Vs. Essar Oil Limited (supra) arose out of sales tax exemption / deferment, which is also not of any assistance in the case on hand. 33In Nagar Palika Nigam Vs. Krishi Upaj Mandi Samiti and others (2008) 12 SCC 364, whil .....

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Two principles of construction-one relating to casus omissus and the other in regard to reading the statute as a whole-appear to be well settled. Under the first principle a casus omissus cannot be supplied by the court except in the case of clear necessity and when reason for it is found in the four corners of the statute itself but at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clau .....

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'is not to be imputed to a statute if there is some other construction available'. Where to apply words literally would 'defeat the obvious intention of the legislation and produce a wholly unreasonable result', we must 'do some violence to the words' and so achieve that obvious intention and produce a rational construction. [Per Lord Reid in Luke v. IRC where at AC p. 577 he also observed (All ER p. 664 I): 'This is not a new problem, though our standard of drafting .....

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tatute has gone to great lengths to define exactly what is meant by the term "in writing", we are precluded from adding another term to definition. Indeed, "it is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so". [See Justice G.P. Singh's Principles of Statutory Interpretation, 11th Edn., 2008, at p. 62.63, citing Renula Bose v. Rai Manmatha Nath Bose, AIR PC, p. 110; Stock v. Frank Jones (Tipton) Ltd., All ER, p. .....

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d the error in the Bill been noticed." [See Justice G.P. Singh's Principles of Statutory Interpretation, 11th Edn., 2008 at p. 75 citing Inco Europe Ltd. v. First Choice Distribution, All ER at p. 115.] As I mention below, one of the main objectives of the Arbitration and Conciliation Act, 1996 is to minimise the role of the Court; adding additional requirements to the Act is antithetical to such a goal.' 35 It is also to be borne in mind that the provisions of a statute must be und .....

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is Court is as to whether the dismissal of a suit for default would create res judicata, in the subsequent proceedings taken under other provisions of law. In this context, it is apropos to point out that the jurisdiction of the Civil Court is barred under the provisions of the SARFAESI Act. As pleaded by the learned counsel for the petitioners, the suit filed by the partnership firm, on the basis of security interest being agricultural land, was dismissed for default. The dismissal of a suit fo .....

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o bar the appeal. Section 11 CPC would bar the court from trying any suit or issue in which the matter "directly and substantially in issue" between the same parties or between the parties under whom they or any of them claim, litigating under the same title in a court competent to try such subsequent suit or suit in which such issue has been subsequently raised, has been "heard and finally decided by such court". In the present case, Bajranglal and Shyamsunder were defendant .....

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while Shyamsunder filed his appeal SLP No. 18492 of 1993 on 17-12-1993. 42. Leave was granted in Bajranglal's appeal on 4-10-1993 while leave was granted in Shyamsunder's case on 17-12-1993. Subsequently, Bajranglal's appeal was numbered as Civil Appeal No. 5293 while Shyamsunder's appeal was numbered as Civil Appeal No. 7490 of 1993. Shyamsunder's appeal was dismissed for default for non-removal of office objections on 15-1-2001. Thus, it is obvious that both in the matter o .....

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