SARFAESI Act applicable to lands growing plantation crops, will not get exemption available to 'agricultural lands': Karnataka High Court

The Karnataka High Court recently held that the expression 'agricultural land' in Section 31(i) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) does not include land on which plantation crops such as cardamom, coffee, pepper, rubber and tea are grown (UM Ramesh Rao v. Union Bank of India). .Consequently, the exemption available to agricultural lands will not be available to lands on which plantation crops are grown and the SARFAESI Act will be applicable to such lands, a Bench of Justices BV Nagarathna and Nataraj Rangaswamy.."The expression 'agricultural land' in Section 31(i) of the SARFAESI Act, does not include land on which plantation crops are grown namely, cardamom, coffee, pepper, rubber and tea as defined in Section 2(A)(25) of the Land Reforms Act. Therefore, the measures initiated by the respondent banks in relation to the coffee estates in these appeals are not hit by Section 31(i) of the SARFAESI Act, as the said Act is applicable to land on which plantation crops are grown, including coffee plantation, in the instant cases," the Court ruled..Factual Background .In this case, petitioner No.1 was the partner in petitioner Nos.2 and 3 partnership firms. Petitioner No.1 is the co-owner of Watekhan Estate. .Respondent/Bank (formerly, Corporation Bank) extended various credit facilities to the petitioners in the nature of agricultural cash credit loans, agricultural term loans and mortgage loans in relation to the coffee plantation. The loans were sanctioned under the Corporate Kisan Cash Credit Scheme (KCCS). .The loan was in the nature of Agricultural Term Loan of Rs. 490 lakh and the purpose was to pay off the share of a retiring partner so as to acquire the absolute title over Yellikudige estate measuring 154.17 acres..The nature of the loan was also for the purpose of improvement of the Coffee plantation and also to pay off the share of the retiring partner of the firm engaged in the cultivation of coffee. The schedule lands were being used for coffee cultivation on the date of the sanction of the respective loans. .Since, the writ petitioners did not repay the debt, demand notice was issued under Section 13(2) of the SARFAESI Act calling upon petitioner No.1 to pay a sum of Rs.18,81,45,558/-. Unable to get the money back, the Bank proceeded to conduct e-auction of the property under the SARFAESI Act. .Petitioner no.1 approached the Debts Recovery Tribunal-I, Bengaluru and filed an application for stay of further proceedings. However, the DRT ruled that since the Bank has initiated proceedings under the SARFAESI Act, the petitioners have a remedy by way of an appeal under Section 17 of the SARFAESI Act and therefore, dismissed the plea. .In this backdrop, the present petition was filed in the High Court. has been filed. Along with this, the Court was hearing another appeal on similar grounds. .What the Court held.The Court observed that the main question before the Court was to find out whether the land on which coffee is grown is agricultural land or not. .In order to answer this issue, the Court examined the objects and scope of the SARFAESI Act. ."The object of the Act is to regulate the securitisation and reconstruction of financial assets and enforcement of the security interest and to provide for a central database of the security interests created on property rights, and for matters connected therewith or incidental thereto," the Court noted. .The Court also observed that the term "agricultural land", is not defined under the Act and therefore, the meaning of the said expression would have to be discerned with reference to its plain meaning as well as in view of other legislations. .In this regard, the Court specifically relied on the Karnataka Land Reforms Act.The Court noted that on a conjoint reading of Section 81 with Section 104 of Karnataka Land Reforms Act, what emerges insofar as land on which plantation crops, such as coffee are grown, is that such lands are exempted from certain limitations which are otherwise applicable to 'agricultural lands'.Such limitations or restrictions are contained in Sections 79-A, 79-B and 80 of the Land Reforms Act.Section 79-A states that the acquisition of land by certain persons is prohibited. Section 79-B prohibits the holding of agricultural land by certain persons. Section 80 states that transfer to non-agriculturists is barred. The said Section includes not only sale, gift, exchange, lease of any land or interest therein, but also states that mortgage of any land or interest therein, in which the possession of the mortgaged property is delivered to the mortgagee, shall not be lawful in favour of a person, who is not an agriculturist.Since, these limitations do not apply to plantation crop lands, they can be which can be dealt with by way of sale, lease, gift, mortgage or exchange without being subject to such restrictions under the Land Reforms Act, the Court said. .This would mean that there would be no restriction on transfer of interest in land on which plantation crop is grown by way of mortgage in favour of a financial institution and any such land mortgaged to a financial institution could be sold for the enforcement of the said security..The Court, therefore, proceeded to import the interpretation of plantation crop lands envisaged in Land Reforms Act to the SARFAESI Act. ."Thus, insofar as the State of Karnataka is concerned, having regard to Section 104 and Section 81 of the Land Reforms Act, lands on which the plantation crops are grown, being exempt from the restrictions pertaining to agricultural land mentioned in Section 79-A, 79-B and 80, in view of Section 104 and Section 81 of the said Act, would not come within the scope and ambit of the ‘agricultural land’ under Section 31(i) of the SARFAESI Act," the judgment said..This apart, the Court also referred to the provisions of Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, Income Tax Act, 1961, Karnataka Agricultural Produced Marketing (Regulation) Act, 1966 (APMC), among others. .On a contextual interpretation, land on which plantation crops are grown is not agricultural land within the meaning of Section 31(i) of the SARFAESI Act, the Court concluded. .Hence, SARFAESI Act will be applicable to such lands.