2016 (5) TMI 641 - HC - Indian Laws

SARFAESI Act - security interest in agricultural land created - Held that - Security interest created was in agricultural land, we have no hesitation to hold that all the proceedings initiated under the SARFAESI Act are nullity, as the security interest in agricultural land cannot be enforced inasmuch as the same is exempted under the provisions of Section 31(i), ibid. However, we make it clear that the decision in this matter shall not preclude other proceedings initiated by the bank under the RDDBFI Act, which, seemingly, is pending consideration before the Debts Recovery Appellate Tribunal. In view of this finding, we are not required to advert to the other grounds, viz., whether the Recovery Certificate constitutes Non Performing Asset or other similar grounds. As such, we do not propose to delve into the same in the instant writ petitions.

Summary

Issues Involved:
1. Whether the subsequent purchasers of plots from the auction purchaser need to be impleaded.
2. Whether the land in question, which was an agricultural land at the time of mortgage, is exempted under the SARFAESI Act even if its usage has changed.
3. Whether the dismissal of a suit for default creates res judicata in subsequent proceedings under other provisions of law.

Issue-wise Detailed Analysis:

1. Impleading Subsequent Purchasers:
The court first addressed whether subsequent purchasers of plots from the auction purchaser need to be impleaded. Referring to the Supreme Court's decision in Escorts Farms Ltd. vs. Commissioner, Kumaon Division, Nainital, U.P. and Others (2004) 4 SCC 281, the court held that subsequent transferees step into the shoes of the original transferees and do not need to be separately impleaded. The original auction purchaser being a party suffices, and non-impleadment of subsequent purchasers does not warrant dismissal of the application for non-joinder of parties.

2. Exemption of Agricultural Land under SARFAESI Act:
The core issue was whether the land, originally agricultural at the time of mortgage, is exempt under the SARFAESI Act despite its subsequent change in usage. The court analyzed the definitions and provisions under the SARFAESI Act, particularly Section 31(i), which exempts security interests created in agricultural land. The court emphasized that the relevant consideration is the nature of the land at the time of creation of the security interest, not its subsequent use. The court rejected the argument that the land's conversion to non-agricultural use post-mortgage affects its classification under the SARFAESI Act. The court referred to various definitions of "agriculture" under Tamil Nadu laws and concluded that the land in question was agricultural at the time of mortgage, thus exempting it from SARFAESI proceedings.

3. Res Judicata and Dismissal for Default:
The court examined whether the dismissal of a civil suit for default creates res judicata in subsequent proceedings under the SARFAESI Act. Citing the Supreme Court's decision in Bajranglal Shivchandrai Ruia v. Shashikant N. Ruia and Others (2004) 5 SCC 272, the court clarified that dismissal for default without adjudication does not create res judicata. The jurisdiction of the civil court is barred under the SARFAESI Act, and thus, the dismissal of the civil suit does not preclude the proceedings under the SARFAESI Act.

Conclusion:
The court concluded that the security interest created in agricultural land cannot be enforced under the SARFAESI Act, rendering all proceedings initiated under the Act null and void. However, this decision does not preclude other proceedings initiated by the bank under the RDDBFI Act, which are pending consideration. Consequently, both writ petitions were dismissed with the observations made.