Dismissed

Ms Kishan Agro Enterprises and Others v. Bank of Baroda (Vijaya Bank)

DRT18 Apr 2023SA/217/2022

Case brief

AI extract

What is this about?

The Tribunal dismissed a seller's application challenging an auction sale notice under the SARFAESI Act. The borrower argued the mortgaged land was agricultural and exempt under Section 31(i), citing lack of prior notice service. The court held that revenue classification alone does not establish agricultural status if not actually used for farming, overruling the service notice contention.

What did the court decide?

Application dismissed with costs, removing stay on sale proceedings.

Ms Kishan Agro Enterprises and Others versus Bank… — Contract and Commercial Disputes | DRT (2023)

DRT PATNA

SA217 OF 2022 [J]

DEBTS RECOVERY TRIBUNAL PATNA

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Presiding Officer : Shri KaushalendraYadav

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SA 217 of 2022

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MIs Kishan Agro Enterprises, a Proprietorship firm, having its registered office at Village and post - Nimi, District - Sheikhpura, Pin Code - 811103, Bihar through its proprietor, Shobha Kumara wife of Radhe Sharma, resident of Village and post - Nimi, P.S.- Shekhopur Sarai, District - Sheikhpura, Pin Code - 811105.

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Radhe Sharma, son of Late Harangi Singh, resident of Village :- House No. - 77, Post - Nimi, P.S. - Shekhopur Sarai, District - Sheikhpura, Pin Code - 811103.

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Shree Krishna Kumar, son of Late Harangi Singh, resident of Village :- House No. - 77, Post - Nimi, P.S.- Shekhopur Sarai, District - Sheikhpura, Pin Code - 811103.

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Piyush Kumar, son of Narendra Prasad, resident of Village :- House No. - 77, Post - Nimi, P.S.- Shekhopur Sarai, District - Sheikhpura, Pin Code - 811103

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.........Applicants

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Versus

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Bank of Baroda (Previously Vijaya Bank), Branch Office - Rosarb Patna, Address :- 1 st floor, Sayug Complex, Nehru Nagar, Patliputra, Patna Pin Code - 800013, Bihar;

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Bank of Baroda (Previously Vijaya Bank), Regional Offices at 1 st Floor, Anand Vihar Building, West Boring Canal Road, Patna - 800001, Bihar.

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--respondents

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Present:

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For the Applicant : Sh. Bhola Shankar, Advocate For the respondents Bank : Shri Santosh Kr. Singh, Advocate

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Dated: 18.04.2023

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JUDGMENT

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The brief facts of the case are that the applicant no.l is a proprietorship concern and applicant no.2 to 4 are guarantor, availed cash credit facility to the tune of Rs.64 lacs from respondent bank. Due to failure on the part of applicant in making the payment of interest and principal amount, the account was classified as NPA on 30.9.2018 Subsequently, the bank initiated SARFAESI Action against the borrower and issued demand ~:13(2) dated

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SA217 OF 2022 [J]

04.10.2018 calling upon the applicant to make the payment of Rs.72,67,515.00. Further possession notice dated 21.05.2019 u/s 13(4) of the SARFAESIAct was issued. Further, auction sale notice dated 23.6.2022 was issued fixing the date of sale on 28.7.2022. Aggrieved from the sale notice, this SA has been filed by the applicant.

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The main contention of the applicant is that without prior intimation to the applicants, the account was declared as NPA on 30.09.2018 which is gross violation of the guidelines of RBI. The applicant had approached several times to the respondent bank for regularization of account but the respondent bank did not regularized the same. Suddenly, on 25.06.2022, the applicant came to know through his friends residing in Kolkata that the property belonging to him were proposed for E Auction sale notice of which was published in Weekend Edition of "Business Standard" in Kolkata. Neither notice issued u/s 13(2) nor possession notice issued u/s 13(4) has been served to the applicants. The possession notice has also not affixed on the secured assets nor it has been published in two leading newspapers.

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The property mortgaged in the loan account in question is agricultural land as the applicant had taken the loan for agricultural purpose. As per sub section (i) of Section 31 of Security Interest Act SARFAESIAction over the agricultural land is not applicable. It is further contended that the account of applicant is MSME account and as per guideline of RBI under the heading "Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises to provide a simpler and faster mechanism to address the stress in the accounts of MSMEs. The bank has deliberately avoided the compliance of the notification dated 17.3.2016 issued by the Ministry of Micro, Small and Medium Enterprises, Govt India as the applicant was fully entitled to receive the benefit granted to such enterprises under the notification. The said notification provides that forwarding the account to the committee for CAP will be mandatory in cases of account reported as SMA-2 prior to classification of their account as NPA. The respondent bank instead of forwarding the loan account of the applicant to the Committee for suitable action plan classified as NPA and also proceed further without following the rules and regulation of SARFAESIdirect published E Auction sale notice in Kolkata Edition of Business Standard which has very negligible circulation in the state of Bihar in general and in the district of Sheikhpura it has no supply at all.

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Ld. Counsel of the respondent Bank submits that after availing the credit facilities to the tune of Rs.64.00 lac, the applicants towards repayment of dues amount of the bank, hence, the account was declared as NPA on 30.09.2018 and subsequently, the Bank issued demand notice dated 04.10.2018 u/s 13(2) of the SARFAESIAct and the same was sent to borrowers through speed post on 05.10.2018 but the borrower neither liquidated the outstanding loan

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SA217 OF 2022 [J]

amount nor submitted any objection u/s 13(3A)with the bank. Therefore, the bank proceed further under section 13(4) of the Act and taken symbolic possessionof the property on 21.05.2019 by issuing possession notice and sent to the borrower/appellants through registered post on 22.05.2019. The possessionnotice was duly published in the newspapers dated 26.5.2019 in Hindustan and Hindustan Times and also affixed on the secured assets. Before effecting sale of the mortgage immovable properties, the bank obtained valuation of the property on 31.01.2022. Further, the properties have been put on auction sale on 28.07.2022 vide sale notice dated 23.06.2022. The sale notice was sent to the borrower and guarantor through post on 24.06.2022 and also affixed on secured assets. The sale notice was also published in Business Standard. However, the sale could not be conducted on 28.07.2022 due to intervention of this Tribunal asthe same has been stayed vide order dated 28.7.2022.

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So far as the issue raised by the applicants regarding agricultural land is concerned, at the time of facilitating cash credit loan the applicants had created security interest in respect of several parcels of land, which were meant to be a part of a single unit. Theselands were mortgaged with the bank under a registered deed of mortgage. The applicant did not treat the land as agricultural land and that they themselves offered as security towards repayment of loan amount. The determination of the character of land, according to the purpose for which it is meant or set apart and can be used. No agricultural operation is being carried out in the area where the house and land is located..

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I have heard Ld.Counselfor the parties and gone through the record.

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It has been argued by the applicant that the respondent Bankwithout serving notice either issued u/s 13(2) or u/s 13 (4) of the act, the respondent bank directly published auction sale notice in such a newspaper which has least circulation in the area. It is further alleged that the property mortgaged in the matter is agricultural land and SARFAESIAction against agricultural land is not applicable

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On perusal of record it appears the Bank issued demand notice dated 04.10.2018 u/s 13(2) of the SARFAESIAct and the same was sent to applicants through speed post on 05.10.2018. The postal receipt is annexed with the counter affidavit. Thereafter, the bank taken symbolic possession of the property on 21.05.2019 by issuing possessionnotice u/s 13(4) of the Act and possession notice was sent to the appellants through registered post on 22.05.2019. The postal receipt annexed with the counter affidavit. The possessionnotice was published in newspapers dated 26.5.2019 in Hindustan and Hindustan Times and also affixed on the secured assets. Further, valuation of the property were obtained by the bank from their approved valuer and subsequently, property has been put on auction sale vide sale notice dated 23.06.2022 but same could not be conducted due intervention of

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this Court. Therefore, auction sale notice dated 23.06.2022 become infructuous.

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Now, so far as with respect to properties / secured assetsand the submission on behalf of the applicants that as the said scheduled properties were agricultural properties, therefore the said properties were exempted from the provisions of the SARFAESIAct in view of Section 31{i} of the SARFAESIAct is concerned, at the outset, it is 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 Hon'ble Supreme Court in the case of Blue Coast Hotels Limited and Others (Supra) and K. Pappireddiyar and Another (Supra) specifically observed and held after considering the object and purpose of Section 31(i) of the SARFAESIAct 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 SARFAESIAct. In the aforesaid decision, it is specifically observed and held that for the purpose of attracting Section 31(i} of the SARFAESIAct, 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.

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The classification of land in the revenue records as agricultural is not dispositive or conclusive of the question whether the SARFAESIAct 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 useto which it was being put on the date of the creation of the security interest and the purpose for which it was set apart."

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The purpose of enacting Section 31{i} of the SARFAESIAct has been considered by this Court in the case of Blue Coast Hotels Ltd. {Supra} in paragraph 36, which readsas under:

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"36. The purpose of enacting Section 31(i) and the meaning of the term "agricultural land" assume significance. This provision, like many others is intended to protect agricultural land held for agricultural purposes by agriculturistsfrom 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 agriculturallandfrom 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 tribuna" if such security interest is in respect of agriculturalland. The exemption thus protects agriculturists from losinq their source of livelihood and income i.e. the agricultural land, under the drastic provision of the Act. It is also intended to

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SA217 OF 2022 [Jj

deter the creation of security interest over agricultural land as defined in Section 2(1)(zf). Thus,security interest cannot be created in respect of property specified in Section 31./1

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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 the SARFAESIAct. 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.

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In view of the above discussion, the application is devoid of merits and deserves rejection with costs.

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ORDER

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The application under Section 17 of the SARFAESIAct filed by M/s Kishan Agro

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Enterprises and others, with all pending lAs is dismissed with cost.

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vC-

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[KaushalendraYadav]