In SRI U. M. RAMESH RAO vs Union Bank Of India, the issue was whether, coffee plantation is agricultural land within the meaning of Section 31(i) of the SARFAESI Act and therefore, the said Act does not apply to coffee plantation.
The High Court observed that the expression, agricultural land, is not defined under the Act and therefore, the meaning of the said expression would have to be discerned with reference to the plain and dictionary meaning as well as other legislations which deal with the agricultural land.
The High Court decided that the judgment of the Supreme Court in Commissioner of Income Tax, West Bengal vs. Raja Benoy Kumar Sahas Roy and other related judgments would not be of much assistance in interpreting the phrase ‘agricultural land’ under Section 31(i) of SARFAESI Act. For that, it is necessary to deduce the meaning and connotation of the said expression from State laws relating to ‘agriculture’ and thereby unravel the meaning of ‘agricultural land’ in Section 31(i) of the SARFAESI Act more specifically the Karnataka Land Reforms Act, 1961 (Land Reforms Act, 1961), Karnataka Land Revenue Act, 1961 (Land Revenue Act, 1964) and Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. It becomes necessary to consider the aforesaid enactments as SARFSESI Act does not define the said expression. The reason being, Parliament was conscious of the fact that, the subject ‘agriculture’ along with its connotations is a State subject (List II of Seventh Schedule of the Constitution) and therefore, did not define the expression ‘agricultural land’ under Section 31(i) of the SARFAESI Act.
By way of searching for the correct definition of ‘agricultural land’ under these circumstances, the High Court observed that Entry 45 of List-I of the VII Schedule in the Constitution deals with 'Banking'. SARFAESI Act, 2002 is also relatable to Banking. Thus, the SARFAESI Act being an enactment traceable to Entry 45 of List-I of the VII Schedule, it has excluded the enforcement of the Act insofar as the security created in agricultural lands are concerned without defining the said expression as the subject 'agricultural lands' is relatable to the respective entries under List-II and is a State subject. In the circumstances, we have to deduce the meaning of the expression 'agricultural land' found in Section 31(i) of the SARFAESI Act with reference to the relevant State enactments.
The need to interpret the expression “agricultural land” under the SARFAESI Act can be on the basis of the following tests:
(I) That the word “Agriculture”, which is inherent in the expression “Agricultural Land” in Section 31(i) of the SARFAESI Act, must be given a contextual interpretation and not an expansive one.
(II) That the contextual interpretation depends upon the nature of crops grown on the land. Whether it refers to only non-commercial crops, i.e., excluding plantation or cash crops? Thus, whether agricultural land can take within its scope and ambit land on which plantation crops such as coffee, tea, rubber, cardamom and pepper are grown?
(III) Generally speaking, while determining the nature of the land and as to whether it is agricultural land, the character of the land according to the purpose for which it is meant or set apart can be an important test. Thus, there must be a connection between the user of the land and the purpose, which is agricultural
purpose. Also, agricultural activity does not mean only cultivation per se, but it is an integrated activity which would include not only the cultivation of crops but also its process for its future use.
(IV) Use and nature of the land must be determined on the date of creation of the security interest and for the purpose for which it was set apart.
(V) The purpose and intent on the date on which security interest was created.
(VI) The revenue entries showing the land to
be agricultural in nature would not per se be a determinative factor. But, the totality of the facts and circumstances of the case has to be borne in mind.
(VII) In the event there is any change in the user of the agricultural land for non- agricultural activity, the same would have also a bearing when action is initiated under the provisions of the SARFAESI Act.
Sub-Section (1) of Section 2(A) of the Karnataka Land Reforms Act defines ‘agriculture’ to include the raising of crops. The expression ‘plantation crops’ is defined to mean cardamom, coffee, rubber, pepper and tea as per sub-Section (25) of Section 2(A) of the said Act. This implies that all other crops are non-plantation crops. Chapter VIII of the Karnataka Land Reforms Act deals with exemptions. Section 104 deals with plantations. The said section states that the provisions of Section 38, Section 63 other than sub-section (9) thereof, Sections 64, 79-A, 79-B and 80 shall not apply to plantations. Thus, in case of these plantation crops, inter alia, Sections 79-A, 79-B and 80 of the said Act would not apply. 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. Section 79-B to acquire or hold any land, unless the Deputy Commissioner having jurisdiction over the area, permits such sale, gift or exchange, etc.
However, Section 81(1)(b)(i) & (ii) of the Karnataka Land Reforms Act states that, nothing in Section 79-A or Section 79-B or Section 80 would apply, inter alia, to the mortgage of any land or interest therein in favour of (i) a co-operative society or (ii) a financial institution, as security for any loan or other facility given by such society, bank, etc., for any “agricultural purposes”. Section 81(1)(c) states that nothing in Section 79-A or Section 79- B or Section 80 would apply to the sale of any land or interest therein referred to in clause (b) in enforcement of the said security i.e., mortgage to a co-operative society or bank. Thus, Section 81 is an exception to Section 79- A, Section 79-B and Section 80. Therefore, there could be a mortgage of any land or interest therein in favour of a bank or a financial institution and also sale of any land or interest therein mortgaged to any financial institution for enforcement of the security for any loan or other facility for agricultural purposes. This would imply that the land on which coffee plantation is raised is no doubt agricultural land on a plain interpretation, but, such land is exempted from the provisions contained in Sections 79A, 79B and 80 of the said Act. Thus, when an agricultural land is mortgaged to a bank and the mortgage is for agricultural purposes and if the outstanding dues to the financial institution are not paid, the same could be enforced for realization of the debt. Thus, irrespective of whether the land on which plantation or other crops are grown, Section 80 enables mortgage of such land for obtaining a loan for agricultural purpose.
Then, the question would arise, as to, what would be the position if the land on which plantation crop grown, is mortgaged to any financial institution for a non- agricultural purposes, i.e., as security for any loan or other facility for non-agricultural purposes. In such a case, Section 104 states that the bar under Section 79-A, 79-B and Section 80 would not apply to plantations. This would mean that such plantations could be mortgaged even for non-agricultural purposes, in which event, the security of lands on which plantation crops are raised for the loan could be realized under the provisions of Land Reforms Act.
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, such lands are exempted from the provisions of Sections 79-A, 79-B and 80 and they could be dealt with by way of sale, lease, gift, mortgage or exchange and the limitations mentioned in those sections do not apply to such land.
Thus, coffee, being a plantation crop within the meaning of Section 2(A)(25) of the Land Reforms Act, is exempted from the provisions of Sections 79-A, 79-B and 80 as per Section 104 of the said Act. Also, under Section 81 of the said Act, the bar under Section 79-A, 79-B and 80 of the said Act would not apply in the case of mortgage of any land or interest therein to any financial institution as security for any loan or other facilities given by such financial institution for agricultural purposes. Hence, any land used for raising a plantation crop, if mortgaged to a financial institution, even if for non-agricultural purposes, could also be sold for enforcement of the said security.
In Shankar Bhairu Bamane vs. Syndicae Bank and others, [ILR 1998 KAR 3028], (Shankar Bhairu Bamane), Sections 80 and 81 of the Land Reforms Act were considered and it was observed, a reading of Section 81 makes it clear that there is no bar for even financial institutions to acquire agricultural properties; a bank can also bid and purchase agricultural properties. This is on account of the exemption under Section 81 of the said Act.
The Karnataka State Legislature has been very cautious in exempting only lands on which plantation crops are grown from the purview of Sections 79-A, 79-B and Section 80 of the Land Reforms Act, which means that, the bar contained in those sections would apply in the case of lands on which crops which are not in the nature of plantation crops are raised. Such lands only i.e., lands on which plantation crops are not raised, in our view, are agricultural lands for the purpose of Section 31(i) of the Act. This means the bar contained under Sections 79-A, 79-B and 80 of the Land Reforms Act, do not apply as per Section 104 of the said Act to plantation lands or land on which plantation crops are grown. Such lands would not come within the purview of agricultural land under Section 31(i) of SARFAESI Act.
Under the provisions of the Land Reforms Act, the land used for the purpose of growing plantation crop though an agricultural land for all other purposes, nevertheless, such plantation land is exempted from the provisions of Sections 79-A, 79-B and 80, which implies that it is not treated on par with the land on which non- plantation crops or other agricultural produce is grown.
hus, 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. In this regard, we find much force in the argument of Sri. Katti appearing for respondent-Bank.
The court placed reliance on the judgment of the Madras High Court in D.Ravichandran vs. The Manager, Indian Overseas Bank and another, CDJ 2006 MHC 789, (Writ Petition No.250/2006 disposed of on 02.02.2006), wherein it has been observed that clause (i) of Section 31 of the SARFAESI Act states that the provisions of the Act shall not apply to any security interest created in agricultural land. The Act does not define the term "Agricultural Land". The object of the Act is to improve the recovery process by vesting the powers with the banks and financial institutions powers to take possession of secured assets and sell them in case the borrowers commit default in repayment of the loan. If that is the subject of the enactment and object of the Act, the term "agricultural land" cannot be given such a liberal and wide construction or interpretation. Further, when the loan is borrowed from a bank and there is a default in repayment and measures are initiated under the SARFAESI Act, after issuance of notice and receipt of reply, questions such as the loan being agricultural loan or the land being the agricultural land may not be raised, particularly when the credit facility is in the nature of agricultural loan on agricultural lands being given as secured assets. This reasoning is in line with what we have deduced above. The same is also in consonance with the provisions of Land Reforms Act and Karnataka Agricultural Income Tax Act, 1957, which apply only to plantations crops.
Thus, what emerges is that the land on which plantation crops are raised (coffee in the instant case), if mortgaged or given by way of a security to a financial institution to obtain a credit facility, whether for an agricultural purpose or for a non-agricultural purpose, the said security could be enforced and Section 31(i) of SARFAESI Act does not apply to such land. That means the financial institution can enforce the security created on such lands. We make it clear that this judgment concerns the interpretation of lands on which plantation crops are grown being construed as agricultural lands within Section 31(i) of the SARFAESI Act only as the lands in these cases concern plantation crops. We have not ventured to consider the matter in the context of non-plantation crops.
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