Supreme Court Ruling On SARFAESI: Borrower Must Show Secured Property Is Agricultural Land

According to the Supreme Court, it is the borrower's responsibility to demonstrate that the secured properties are truly being used as agricultural lands and/or for agricultural purposes in SARFAESI proceedings.

In this instance, the DRT noted that the subject land was not exempt from the SARFAESI Act's requirements while rejecting the borrowers' Securitization Application. It was noted that the borrowers failed to submit 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, in light of Section 31(i) of the SARFAESI Act, the property could not have been sold at auction because it was agricultural land.

The Apex Court bench first disapproved of the high court's decision to consider the writ petition in the appeal

"The High Court ought not to have heard the writ petition under Article 226/227 of the Constitution of India challenging the judgment and decision rendered by the DRT given alternative statutory remedy available using appeal before the DRAT. The DRT-order I's was challenged in the writ petition, which the bench said: "allowed/permitted lower/permitted the borrower to circumvent the provision of appeal before the DRAT under the provisions of the SARFAESI Act by entertaining the writ petition straightaway under Article 226/227 of the Constitution of India."

The bench then noted that, except from the revenue records, the borrowers had not submitted any other documentation to support the claim that the aforementioned properties were being used for agricultural purposes. It was seen that the secured creditor generated the images to demonstrate that there were no ongoing agricultural activities.

Section 31(i) of the SARFAESI Act

Under Section 31(i) of the SARFAESI Act, such properties cannot be said to be exempt from the provisions of the SARFAESI Act except in the case where the secured perpetually put to use as agricultural land based on the revenue records / Pattadar and once the secured property is put as a security by way of mortgage etc. meaning thereby the same was not treated as agricultural land.

The High Court made an error in applying Section 31(i) of the SARFAESI Act

The High Court made an error in applying Section 31(i) of the SARFAESI Act and quashing and setting aside the entire Possession Notice, Auction Notice, as well as Sale, etc., the court ruled. "The High Court has committed an error in applying the law laid out in the aforesaid two decisions to the facts of the case at hand and when no evidence was led at all on behalf of the borrowers that the secured properties in question were put agricultural land and/or any agricultural activity was

The Court Noted In Allowing The Appeal.

The High Court fundamentally erred in shifting the burden of proof to the secured creditor to establish that the assets are non-agricultural lands or have been used for non-agricultural purposes, the court noted in allowing the appeal.