K. SREEDHAR VERSUS M/S RAUS CONSTRUCTIONS PVT. LTD.

K. SREEDHAR  VERSUS M/S RAUS CONSTRUCTIONS  PVT. LTD.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

[1]

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 7402 OF 2022

(@ SLP (Civil) No. 14695 of 2020)

K. SREEDHAR APPELLANT(S)

VERSUS

M/S RAUS CONSTRUCTIONS

 PVT. LTD. & ORS. RESPONDENT(S)

WITH

CIVIL APPEAL NOS. 7404 OF 2022

(@ SLP (Civil) No. 13508 of 2020)

J U D G M E N T

M.R. Shah, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 06.03.2020 passed by the

High Court for the State of Telangana at Hyderabad in

[2]

Writ Petition No.12081/2019 by which the High Court

has allowed the said writ petition preferred by the

debtor and has quashed and set aside the order passed

by the Debts Recovery Tribunal – I (hereinafter referred

to as “DRT-I”) in SA No.171/2016 as well as the

Possession Notice dated 05.02.2016 and the Sale Notice

dated 10.01.2017 issued by the Indian Bank

(hereinafter referred to as “secured creditor”) and also

the sale of Item No.8 property mentioned in the Sale

Notice pursuant to the auction held, the auction

purchaser as well as the secured creditor have preferred

the present appeals.

2. The facts leading to the present appeals in nut-shell are

as under:

2.1 That, the respondent No.1 herein – M/s. Raus

Constructions Private Ltd. (hereinafter referred to as

“Debtor”) availed financial assistance, credit facilities in

the year 2012 from the Indian Bank i.e. the secured

creditor. Due to defaults on the part of the borrowers in

[3]

servicing the loan account, the same was classified as

NPA. The secured creditor initiated the proceedings

under the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest

Act, 2002 (hereinafter referred to as “SARFAESI Act”)

and issued the demand Notice to the borrowers

including the mortgagors and the guarantors, calling

upon them to pay the outstanding amount. As the

amount of the Demand Notice was not paid, the secured

creditor issued Notice to the borrowers / mortgagors /

guarantors. That, the Possession Notice was issued with

respect to Item Nos.1 to 8. The secured creditor on

05.02.2016 issued a consolidated Possession Notice

detailing the possession of 12 items of properties and

the dates on which the possession of the same was

taken. The Possession Notice was published in

newspapers. Thereafter, the secured properties

including the property Item No.8 (property in question)

was put to auction through e-auction notice dated

28.03.2016. That, the borrowers filed the writ petition

before the High Court being aggrieved by the e-auction

[4]

and sought stay of all further proceedings initiated by

the secured creditor under the provisions of the

SARFAESI Act and pursuant to the Possession Notice

dated 05.02.2016, including e-auction Notice, till the

disposal of SA No.171/2016 on the file of DRT-I,

Hyderabad. That, the writ petition came to be dismissed

by the High Court in view of the pendency of SA

No.171/2016 before the DRT-I, Hyderabad. A fresh eauction Notice was issued. That, the property Item No.8

was purchased by the auction purchaser (appellant

herein) in Civil Appeal arising out of Special Leave

Petition No.14695/2020 on 17.02.2017. The e-auction

was conducted on 17.02.2017 in which the auction

purchaser was declared the successful bidder. He was

issued the Letter of Acceptance on 18.02.2017. The

auction purchaser deposited 25% of the amount of sale

consideration on 18.02.2017. The sale in favour of the

auction purchaser came to be confirmed on 08.03.2017.

On deposit of the entire/full sale consideration, the sale

certificate came to be issued in favour of the auction

purchaser on 23.03.2017.

[5]

2.2 By an order dated 16.05.2019, the DRT-I, Hyderabad

dismissed SA No.171/2016 filed by the borrowers and

confirmed the sale certificate issued in favour of the

auction purchaser. At this stage it is required to be

noted that before the DRT-I, it was the case on behalf of

the borrowers that the property Item No.8 was the

agricultural land and therefore, the same could not have

been the subject matter of auction under the provisions

of the SARFAESI Act. However, the DRT-I while

dismissing the aforesaid SA No.171/2016 did not accept

the same by observing that apart from the revenue

records, the borrowers did not file any evidence to prove

that the agricultural activity was going on in the land

mortgaged with the secured creditor whereas the

secured creditor filed photographs showing no

agricultural activities were going on. Therefore, the DRTI held that the lands in question (property Item No.8)

were not exempted from the provisions of the SARFAESI

Act.

2.3 Feeling aggrieved and dissatisfied with the judgment

[6]

and order passed by the DRT-I, Hyderabad dated

16.05.2019 dismissing the SA No.171/2016, the

borrowers filed the writ petition being Writ Petition

No.12081/2019. By the impugned judgment and order,

the High Court has allowed the said writ petition and

has quashed and set aside the order passed by the DRTI dismissing the SA No.171/2016. By the impugned

judgment and order the High Court has also set aside

the Possession Notice as well as the Sale Certificate

issued in favour of the auction purchaser with respect to

the Sale of Item No.8 property mentioned in the auction

Notice. While allowing the writ petition, the High Court

has observed and held that there was non-compliance of

the Rule 9(3) of the Security Interest (Enforcement)

Rules, 2002 (hereinafter referred to as “Rules, 2002”)

inter alia on the ground that 25% of the amount of sale

price and thereafter 75% of the balance sale price was

not deposited within the time stipulated under Rule 9 of

the Rules, 2002. The High Court also observed and held

that in view of Section 31(i) of the SARFAESI Act, the

property Item No.8 being an agricultural land could not

[7]

have been put to auction.

2.4 Feeling aggrieved and dissatisfied with the impugned

judgment and order passed by the High Court quashing

and setting aside the sale with respect to property Item

No.8, auction purchaser as well as secured creditor have

preferred the present appeals.

3. Shri Dhruv Mehta, learned senior counsel appearing on

behalf of the auction purchaser and learned senior

counsel appearing on behalf of the secured creditor have

vehemently submitted that the High Court has

materially erred in entertaining the writ petition against

the judgment and order passed by the DRT-I. It is

submitted that against the order passed by the DRT-I,

the borrower was required to prefer an appeal before the

Debts Recovery Appellate Tribunal (hereinafter referred

to as “DRAT”). It is submitted that only with a view to

circumvent the provisions of the appeal before the DRAT

and to get out of the deposit of the pre-deposit amount,

the borrower straightway preferred writ petition before

the High Court against the judgment and order passed

[8]

by the DRT-I, which ought not to have been entertained

by the High Court in view of availability of alternative

statutory remedy under the provisions of the SARFAESI

Act.

3.1 It is further submitted that even on merits also, the

High Court has materially erred in holding that there

was breach of Rule 9(3) and Rules 8(1) & (2) of the

Rules, 2002.

3.2 It is submitted that the High Court has not properly

appreciated and/or considered the amendment in 2016

with respect to Rule 9(3) whereby 25% of payment could

be made within next day of auction. It is submitted that

therefore the High Court has materially erred in setting

aside the sale transaction on the basis of such manifest

ignorance.

3.3 It is submitted that in the present case, the auction

purchaser deposited the amount within the time

prescribed under Rule 9(4) of the Rules, 2002 and

[9]

thereafter the sale certificate was issued on 23.03.2017

for the said item which was registered on 07.02.2018

and the possession was also handed over to the auction

purchaser.

3.4 It is further submitted by the learned senior counsel

appearing on behalf of the auction purchaser that in the

present case the auction purchaser quoted

Rs.2,76,10,000/- for item No.8 of the Possession Notice.

He deposited on 14.02.2017, prior to the auction on

17.02.2017, Rs.26 lakh vide RTGS; that he deposited

after the auction was held on 17.02.2017 pursuant to

the letter dated 18.02.2017 an amount of Rs.45 lakh

again through RTGS. It is submitted that the

respondent secured creditor – Bank vide communication

dated 08.03.2017 directed the auction purchaser to

deposit balance 75% of the bid amount within 15 days

and he gave cheque dated 23.03.2017 for an amount of

Rs.2,05,10,000/-. It is submitted that therefore the

entire amount was deposited within the time stipulated.

It is submitted that therefore in the facts and

[10]

circumstances of the case the High Court has materially

erred in quashing and setting the sale on the ground

that there was violation of Rules 8(1) & (2) and 9(3) of

the Rules, 2002.

3.5 It is further submitted by the learned senior counsel

appearing for the auction purchaser that the High Court

ought to have appreciated that after the payment of full

sale consideration, the sale certificate was issued in

favour of the auction purchaser on 23.03.2017 which

was registered on 07.02.2018 and after the possession

was handed over to him, he spent huge amount in

leveling the plot; applied for permission to the Municipal

Authorities to construct the house in the plot. It is

submitted that therefore the High Court has seriously

erred in quashing and setting aside the sale.

3.6 Learned senior counsel appearing on behalf of the

auction purchaser has further submitted that the High

Court has also erred in setting aside the Sale Notice,

Possession Notice etc. on the ground that the properties

[11]

were exempted from the provisions of the SARFAESI Act

in view of Section 31(i) of the SARFAESI Act.

3.7 It is submitted that as such the scheduled properties

were not actually put to use for agricultural purposes. It

is submitted that there was no proof filed to prove that

agriculture is being done in the scheduled properties in

question. It is submitted that there was no agricultural

activity taking place. It is submitted that in fact the

photographs were filed which proved that no agricultural

activities were going on. It is submitted that therefore

when the secured properties in question were not put to

use for agricultural purposes and/or no agricultural

activity was going on, the properties in question were

not exempted under Section 31(i) of the SARFAESI Act.

Heavy reliance is placed on the decisions of this Court

in the case of ITC Limited vs. Blue Coast Hotels

Limited and Others reported in (2018) 15 SCC 99

(Para 36) and Indian Bank and Another vs. K.

Pappireddiyar and Another reported in (2018) 18 SCC

252 (Paras 7 & 8).

[12]

3.8 Now, so far as taking the possession of Item Nos.1 to 12

and the issuance of Possession Notice on 05.02.2016

and the findings recorded by the High Court on Section

13(4) of the SARFAESI Act that the Possession Notice

was issued after a period of one year is concerned, it is

submitted that there was a typographical error in

mentioning the possession date. It is submitted that

instead of 03.02.2016, 04.02.2016 and 05.02.2016,

dates were mentioned as 03.02.2015, 04.02.2015 and

05.02.2015, which were nothing but typographical error.

It is submitted that therefore the Possession Notice

cannot be said to be in breach of Section 13(4) of the

SARFAESI Act.

Making above submissions, it is requested to allow

the present appeals.

4. Present appeals are vehemently opposed by Mr. Pratap

Narayan Sanghi, learned senior counsel appearing on

behalf of the borrower. It is submitted that in the facts

and circumstances of the case and having found that

there was a breach of Rules 8(1) & (2) and 9(4) of the

[13]

Rules, 2002 and Section 13(4) of the SARFAESI Act, the

High Court has not committed any error in entertaining

the writ petition under Article 226 of the Constitution of

India against the judgment and order passed by the

DRT-I.

4.1 It is further submitted that so far as the property Item

No.8 is concerned, there was a clear breach of Rules 8(1)

& (2) and 9(4) of the Rules, 2002. It is submitted that

therefore the High Court has not committed any error in

quashing and setting aside the sale with respect to the

property Item No.8.

4.2 It is further submitted that so far as other properties are

concerned, as the said properties were agricultural

lands / properties, in view of Section 31(i) of the

SARFAESI Act, with respect to those properties /

agricultural lands, the SARFAESI Act would not be

applicable. It is submitted that in the revenue records,

properties in question were shown as agricultural lands

and therefore, the said properties were exempted from

the provisions of the SARFAESI Act in view of Section

[14]

31(i) of the SARFAESI Act.

Making above submissions, it is requested to

dismiss the present appeals.

5. We have heard the learned counsel appearing on behalf

of the secured creditor – Bank as well as the learned

senior counsel appearing on behalf of the auction

purchaser of property at Item No.8 and learned senior

counsel appearing on behalf of the borrower.

6. At the outset, it is required to be noted that what was

challenged before the High Court by the borrower in a

writ petition under Article 226 of the Constitution of

India was the judgment and order passed by the DRT-I.

Against the judgment and order passed by the DRT-I

dismissing the application, the borrower had a statutory

remedy available by way of appeal before the DRAT. If

the borrower would have preferred an appeal before the

DRAT, he would have been required to deposit 25% of

the debt due. To circumvent the provision of appeal

before the DRAT and the pre-deposit, the borrower

straightway preferred the writ petition before the High

[15]

Court under Article 226/227 of the Constitution.

Therefore, in view of alternative statutory remedy

available by way of appeal before the DRAT, the High

Court ought not to have entertained the writ petition

under Article 226/227 of the Constitution of India

challenging the judgment and order passed by the DRTI. By entertaining the writ petition straightway under

Article 226/227 of the Constitution of India challenging

the order passed by the DRT-I, the High Court has

allowed / permitted the borrower to circumvent the

provision of appeal before the DRAT under the

provisions of the SARFAESI Act.

6.1 Even on merits also, for the reasons stated hereinafter,

the impugned judgment and order passed by the High

Court is unsustainable.

6.2 By the impugned judgment and order, the High Court

has set aside the sale in favour of the auction purchaser

with respect to the property at Item No.8 on the ground

that there was a violation of Rules 8(1) & (2) and 9(4) of

the Rules, 2002. However, while observing so, the High

[16]

Court has not properly appreciated that in the present

case, the Possession Notices were published in two

leading newspapers having sufficient circulation in the

locality. Even the Possession Notices were also served

upon the borrowers also. Therefore, the High Court has

materially erred in holding that there was a breach of

Rules 8(1) & (2) of the Rules, 2002.

6.3 Now, so far as the finding recorded by the High Court on

Rules 9(3) and 9(4) of the Rules, 2002 is concerned, the

findings recorded by the High Court are just contrary to

the provisions of Rule 9 of the Rules, 2002. The High

Court has observed that 25% of the amount was not

deposited on the date of auction and that balance 75%

amount was not deposited on or before 15th day of

confirmation of the sale. Both the aforesaid findings are

just contrary to Rules 9(3) and (4) of the Rules, 2002.

Rules 9(3) and 9(4) read as under:

“9. Time of sale, issue of sale certificate and

delivery of possession, etc.

(3) On every sale of immovable property, the

purchaser shall immediately, i.e. on the same day

[17]

or not later than next working day, as the case may

be, pay a deposit of twenty five per cent of the

amount of the sale price, which is inclusive of

earnest money deposited, if any, to the authorized

officer conducting the sale and in default of such

deposit, the property shall be sold again;

(4) The balance amount of purchase price

payable shall be paid by the purchaser to the

authorized officer on or before the fifteenth day of

confirmation of sale of the immovable property or

such extended period as may be agreed upon in

writing between the purchaser and the secured

creditor, in any case not exceeding three months.”

The purchaser was required to deposit 25% of the

amount of the sale price on the same day of sale or not

later than the next working day. Therefore, 25% of the

sale price could have been deposited either on the same

day of the sale or on the next working day. In the

present case, the auction was held on 17.02.2017. The

auction purchaser deposited Rs.26 lakh through RTGS

on 14.02.2017 i.e. prior to the auction on 17.02.2017.

He deposited a further sum of Rs.45 lakh again through

RTGS on the very next day of the sale i.e. on 18.02.2017

itself. Therefore, the entire 25% of the sale price came to

be deposited by 18.02.2017. Therefore, the deposit of

25% was permissible not later than next working day

[18]

and the entire 25% was deposited on 18.02.2017 i.e. on

the next day of the sale dated 17.02.2017. Therefore,

the High Court has committed an error in observing and

holding that there was a breach of Rule 9(3) of the

Rules, 2002.

6.4 Similarly, the High Court has also erred in holding that

there was a breach of Rule 9(4) of the Rules, 2002. The

High Court has held so by observing that the auction

purchaser did not deposit the balance 75% of the sale

price on or before 15th day of confirmation of sale.

However, it is required to be noted that by

communication / letter dated 08.03.2017, the secured

creditor – Bank directed the auction purchaser to

deposit the balance 75% of the bid amount within 15

days and the auction purchaser deposited the balance

75% of the sale price on 23.03.2017, i.e., on the 15th day

from the date of communication by the secured creditor

– Bank to deposit balance 75% of the bid amount within

15 days. As per Rule 9(4) of the Rules, 2002, the balance

amount of purchase price payable shall be paid by the

[19]

purchaser to the Authorized Officer on or before 15th day

of confirmation of sale of the immovable property or

such extended period, in any case not exceeding three

months. Therefore, the communication dated

08.03.2017 can be said to be the extended period by the

secured creditor / Bank. Therefore, on the 15th day from

the date of communication dated 08.03.2017, when the

entire 75% of the sale price was deposited, it can be said

that the entire sale price was deposited within the time

prescribed under Rules 9(3) and (4) of the Rules, 2002.

Therefore, the High Court has committed an error in

holding that there was a breach of Rules 9(3) & (4) of the

Rules, 2002.

7. Now, so far as with respect to remaining properties /

secured assets viz. Item Nos.3 and 9 to 12 and the

submission on behalf of the borrowers that as the said

scheduled properties were agricultural properties,

therefore the said properties were exempted from the

provisions of the SARFAESI Act in view of Section 31(i)

of the SARFAESI Act is concerned, at the outset, it is

[20]

required to be noted that except the revenue records, the

borrowers did not file any evidence to show that the

agricultural work was being done in the said properties.

On the contrary, the secured creditor produced the

photographs to show that there was no agricultural

activities being done and no agricultural activity was

going on. The High Court has observed and held that

the scheduled properties in question were exempted

from the provisions of SARFAESI Act in view of Section

31(i) of the SARFAESI Act on the ground that the

revenue records and Pattadar pass-books and the title

deeds show that the properties were agricultural

properties / lands and that no evidence is produced by

the secured creditor that these properties are nonagricultural lands and have been put to non-agricultural

use after obtaining permission from the competent

authorities. Therefore, the High Court has shifted the

burden upon the secured creditor to prove that the

properties are non-agricultural lands. The view taken by

the High Court is just contrary to the two decisions of

this Court in the case of Blue Coast Hotels Limited

[21]

and Others (Supra) and K. Pappireddiyar and Another

(Supra). In both the aforesaid decisions, this Court has

specifically observed and held after considering the

object and purpose of Section 31(i) of the SARFAESI Act

that merely because in the revenue records the secured

properties are shown as agricultural land is not

sufficient to attract Section 31(i) of the SARFAESI Act. In

the aforesaid decision, it is specifically observed and

held that for the purpose of attracting Section 31(i) of

the SARFAESI Act, the properties in question ought to

be actually used as agricultural lands at the time when

the security interest was created. In the case of Blue

Coast Hotels Limited and Others (Supra), it is also

further observed by this Court that since no security

interest can be created in respect of agricultural lands

and yet it was so created, goes to show that the parties

did not treat the land as agricultural land and that the

debtor offered the land as security on this basis. After

following the decision of this Court in the case of Blue

Coast Hotels Limited and Others (Supra), in the case

of K. Pappireddiyar and Another (Supra), it is observed

[22]

and held in paragraphs 8 and 9 as under:

“8. 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. In the decision of this Court in Blue

Coast Hotels Ltd.,4 a security interest was

created in respect of several parcels of land

which were meant to be a part of a single unit,

for establishing a hotel in Goa. Some of the

parcels were purchased by the debtor from

agriculturists and were entered as agricultural

lands in the revenue records. The debtor had

applied to the revenue authority for the

conversion of the land to non-agricultural use,

but the applications were pending. This Court

held that the fact that the debtor had created a

security interest was indicative of the position

that the parties did not treat the land as

agricultural land. The undisputed position was

that the hotel was located on 1,82,225 sq m of

land of which 2335 sq m were used for growing

vegetables and fruits for captive consumption.

In this background, the two-Judge Bench of

this Court held that:

“49. The mortgage is thus intended to

cover the entire property of the Goa

Hotel. Prima facie, apart from the fact

that the parties themselves

understood that the lands in question

are not agricultural, it also appears

[23]

that having regard to the use to which

they are put and the purpose of such

use, they are indeed not agricultural.”

The Court further held that: (SCC OnLine SC para

57)

“57. …having regard to the character

of the land the purpose for which it is

set apart, we are of the view that the

land in question is not an agricultural

land. The High Court misdirected5

itself in holding that the land was an

agricultural land merely because it

stood as such in the revenue entries,

even though the application made for

such conversation lies pending till

date.”

9. 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.”

7.1 The purpose of enacting Section 31(i) of the SARFAESI

Act has been considered by this Court in the case of

Blue Coast Hotels Ltd. (Supra) in paragraph 36, which

reads as under:

“36. The purpose of enacting Section 31(i) and

the meaning of the term “agricultural land”

[24]

assume significance. This provision, like many

others is intended to protect agricultural land

held for agricultural purposes by agriculturists

from the extraordinary provisions of this Act,

which provides for enforcement of security

interest without intervention of the Court. The

plain intention of the provision is to exempt

agricultural land from the provisions of the

Act. In other words, the creditor cannot enforce

any security interest created in his favour

without intervention of the court or tribunal, if

such security interest is in respect of

agricultural land. The exemption thus protects

agriculturists from losing their source of

livelihood and income i.e. the agricultural land,

under the drastic provision of the Act. It is also

intended to deter the creation of security

interest over agricultural land as defined in

Section 2(1)(zf)35. Thus, security interest

cannot be created in respect of property

specified in Section 31.”

7.2 Thus, as per the law laid down by this Court in the

aforesaid two decisions, only in a case where the

secured property is actually put to use as agricultural

land and solely on the basis of 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, such

properties cannot be said to be exempted from the

provisions of the SARFAESI Act under Section 31(i) of

[25]

the SARFAESI Act. Applying the law laid down in the

aforesaid two decisions to the facts of the case on hand

and when no evidence was led at all on behalf of the

borrowers that the secured properties in question were

actually put to use as agricultural land and/or any

agricultural activity was going on, the High Court has

committed 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.

7.3 The High Court has also materially erred in shifting the

burden upon the secured creditor to prove that the

properties were not non-agricultural lands or have been

put to non-agricultural use. When it was the case on

behalf of the borrowers that in view of Section 31(i) of

the SARFAESI Act, the properties were agricultural

lands, the same were being exempted from the

provisions of the SARFAESI Act, the burden was upon

the borrower to prove that the secured properties were

agricultural lands and actually being used as

agricultural lands and/or agricultural activities were

[26]

going on. Therefore, the High Court has materially erred

in shifting the burden upon the secured creditor to

prove that the properties are non-agricultural lands or

have been put to non-agricultural use.

8. In view of the above and for the reasons stated above,

the impugned judgment and order passed by the High

Court is unsustainable and the same deserves to be

quashed and set aside. Accordingly, the impugned

judgment and order dated 06.03.2020 passed by the

High Court for the State of Telangana at Hyderabad in

Writ Petition No.12081/2019 is hereby quashed and set

aside and the judgment and order dated 16.05.2019

passed by the Debts Recovery Tribunal-I, Hyderabad

dismissing SA No.171/2016 is hereby restored.

Presently appeals are allowed accordingly. No costs.

………………………………….J.

 [M.R. SHAH]

 ………………………………….J.

 [M.M. SUNDRESH]

NEW DELHI;

JANUARY 05, 2023