SARFAESI Act is applicable to plantation lands in the state of Karnataka. Banks can enforce security against such lands. Karnataka High Court.

U.M. Ramesh Rao and another vs Union Bank of India. Writ Appeal 538/2020 and Writ Appeal 545/2020 decided on 29 January 2021.

Judgment Link:
http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/361911/1/WA538-20-29-01-2021.pdf

Question for consideration. Whether, the lands in question, namely, coffee plantations would fall within the scope of the expression ‘agricultural land’ under Section 31(i) of the SARFAESI Act?

48. This would take us to the next point which is to decide, as to, whether, coffee plantations are agricultural lands within the meaning of Section 31(i) of the SARFAESI Act. Before proceeding further, it would be necessary to understand the object of the SARFAESI Act and allude to the background of the said enactment. In this regard, it would be useful to refer to the judgment of the Hon’ble Supreme Court in Mardia Chemicals vs. Union of India, [(2004) 4 SCC 311]. (Mardia Chemicals), wherein reference was made to Narasimham Committee constituted in the year 1991 relating to the financial system prevailing in the country. In Chapter V of the Report under the heading 'Capital Adequacy, Accounting Policies and other Related Matters', it was opined that special Tribunals to deal with the recovery of dues of the advances made by the banks was necessary. Placing reliance on the Tiwari Committee, it was observed that setting up of special Tribunals could expedite the recovery process. The Narasimham Committee in its Second Report submitted in the year 1992, dealt with legal and legislative framework in Chapter VIII of the said Report. One of the measures recommended was to vest the financial institutions through special statutes, the power of sale of the asset without intervention of the Court and for reconstruction of the assets.

51. Thus, the question to be determined is whether the provisions of SARFAESI Act would apply to any security interest created in "agricultural land", vide Section 31(i). 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.

Judgments in Mohammed Basheer K.P. vs. Deputy General Manager and others, [(2010 (2) KLJ 225], Commissioner of Income Tax, West Bengal vs. Raja Benoy Kumar Sahas Roy, AIR 1957 SC 768, Commissioner of Income Tax, West Bengal vs. Raja Benoy Kumar Sahas Roy, [AIR 1957 SC 768], relied on. 

Thus, the cultivation of the land does not comprise merely of raising the products of the land in the narrower sense of the term like tilling of the land, sowing of the seeds, planting, and similar work done on the land but also includes the subsequent operations set out above, all of which operations, basic as well as subsequent, form one integrated activity of the agriculturist and the term “agriculture” has to be understood as connoting this integrated activity of the agriculturist.

The Hon’ble Supreme Court further observed that one cannot dissociate the basic operations from the subsequent operations, and say that the subsequent operations, even though they are divorced from the basic operations can constitute agricultural operations by themselves. If this integrated activity which constitutes agriculture is undertaken and performed in regard to any land, that land can be said to have been used for “agricultural purposes” and the income derived therefrom can be said to be “agricultural income” derived from the land by agriculture. In that sense, the connotation of the term “agriculture” has been in the wider sense as comprising within its scope the basic as well as the subsequent operations described above. The  products may be food grain or vegetables or fruits which are necessary for the sustenance of human beings including plantations and groves, or grass or pasture for consumption of beasts or articles of luxury such as, betel, coffee, tea, spices, tobacco etc., or commercial crops like, cotton, flax, jute, hemp, indigo, etc.

Thus, the test enunciated in this judgment was that the basic idea in the expression "agriculture" is cultivation of land in the sense of tilling of land, sowing of seeds, planting and similar work done on the land itself. The  basic conception is the essential sine qua non of any operation performed on the land. If the basic operations are there, the rest of the operations which are consequent thereto, namely the subsequent operations, are also part of agriculture, but if the basic operations are wanting, the subsequent operations do not acquire the characteristic of agricultural operations. That, the human labour and skill spent in the performance of subsequent operations cannot be said to have been spent on the land itself, though it may have the effect of preserving, fostering and regenerating the products of the land.

The Hon’ble Supreme Court further observed that the distinction is not important in cases where the agriculturist performs these operations as a part of his integrated activity in cultivation of the land. Where, however, the products of the land are of spontaneous growth, unassisted by human skill and labour, and human skill and labour are spent merely in fostering the growth, preservation and regeneration of such products of land, the question falls to be considered, whether, these subsequent operations performed by the agriculturist are agricultural operations and enjoy the characteristic of agricultural operations. This is because the products which grow wild on the land or are of spontaneous growth not involving any human labour or skill upon the land are not products of agriculture and the income derived therefrom is not agricultural income, as there is no process of agriculture involved in the raising of these products from the land.

59. We have perused the definition of the word ‘agriculture’ under various enactments. Under the Land Reforms Act the definition of ‘agriculture’ is an inclusive one which also includes the raising of crops, grass or garden produce. The expression “plantation crops” is defined to mean cardamom, coffee, pepper, rubber and tea, etc. This implies that all other crops are non- plantation crops. The word “land” means agricultural land, including garden land, plantation, but does not include house site or land used exclusively for non-agricultural purposes. Under Section 104 of the said Act, certain provisions of the said Act do not apply to plantations. The word ‘plantation’ is explained under Section 104 to mean land used by a person principally for the cultivation of plantation crops and includes any land used ancillary to the cultivation of such crop or for preparation of the same for the market and agricultural land within the area cultivated with such crop for the protection and efficient management of such cultivation.

60. Under the Land Revenue Act, the definition ‘class of land’ includes plantation land. Plantation land means land on which a plantation crop i.e., cardamom, coffee, pepper, rubber and tea can be grown.

61. Thus, under both the Land Reforms Act and Land Revenue Act, plantation crops and plantation land refer to only cardamom, coffee, pepper, rubber and tea.

62. Under 2013 Act, ‘agricultural land’ means land used for the purpose of raising or crops. Crops would include plantation crops referred to above.

63. Under Karnataka Agricultural Income Tax Act, 1957, ‘Agricultural Income’ means any revenue derived from land situated within the State and used for growing plantation crops. On an analogy, the expression plantation crops would include coffee. Under the APMC Act also, under Schedule 8, coffee is included as a plantation crop. In all the aforesaid enactments, coffee has been defined to be a plantation crop.

65. In fact, the Hon’ble Supreme Court in K.Pappireddiyar (supra) has observed that the nature of the land use to which it has been put to on the date of creation of security interest and the purpose to which it was set apart are matters which have to be taken into consideration. Even in the case of Blue Coast Hotels, it was observed that, the question whether the land is agricultural or not had to be determined on the basis of totality of facts and circumstances and not whether the land was shown to be agricultural in nature in the revenue entries per se.

66. In the instant case, what has to be considered is, whether, land on which coffee is grown is agricultural land or not. The same has to be also in light of the relevant provisions of the State Acts which throw light as to how a coffee estate / plantation is construed.

73. 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.

74. More particularly, Sections 79-A, 79-B and 80 do not apply to the mortgage of any land or interest therein in favour of a financial institution when as a security for any loan or other facility is given by such financial institution for agricultural purposes. The expression “agricultural purposes” is given a wide meaning in Section 81 of the Land Reforms Act.

76. 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.

78. 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.

82. 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. In this regard, we find much force in the argument of Sri. Katti appearing for respondent-Bank.

84. In this context, we also place 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.

87. 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.

88. Hence, in the instant case, the securities created in the coffee plantations can be enforced for the realization of the debts as coffee plantation would not come within the scope and ambit of agricultural land under Section 31(i) of the SARFAESI Act insofar as State of Karnataka is concerned.

Conclusions:

89. In view of the aforesaid discussion, the following conclusions are arrived:

(i) That in these cases, the writ petitions were maintainable under Article 226 of the Constitution of India;

(ii) That 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.