Coffee estates are not excluded from application of SARFASEI Act for recovery of loans: HC

Court interprets expression ‘agriculture land’ under the Act while deciding application of the law on coffee plantations

While declaring that the expression ‘agricultural land’ in the SARFAESI Act does not include lands on which plantation crops such as coffee are grown, the Karnataka High Court has held that the banks and other financial institutions can invoke provisions of the Act to recover loans borrowed by mortgaging coffee estates.

“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,” the Court said while holding that coffee estates are not excluded from the application of the Act to recover borrowed money.

A Division Bench comprising Justice B.V. Nagarathna and Justice Nataraj Rangaswamy delivered the verdict while interpreting the expression ‘agriculture land’ under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, commonly know as SARFAESI Act.

“…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 [which excludes application of the Act any security interest created in agricultural land] does not apply to such land,” the Bench said.

The land used for the purpose of growing plantation crops, though an agricultural land for all other purposes, nevertheless, is exempted from restrictions imposed on sale, mortgage, etc, which implies that it is not treated on par with the land on which non-plantation crops or other agricultural produce is grown, the Bench observed while analysing the expression ‘agriculture land’ in the Karnataka Land Reforms Act and the Karnataka Agricultural Income Tax Act, 1957.

Hence, 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, would not come within the scope and ambit of the ‘agricultural land’ under Section 31(i) of the SARFAESI Act, the Bench said.

The revenue entries showing the lands under plantation to be agricultural in nature would not per se be a determinative factor, the Bench observed.

The judgement was delivered in appeals between between U.M. Ramesh Rao, M/s Vijayadevan Coffee Estate, M/s Yellikudige Coffee Estate of Chikkamagaluru Vs Union Bank of India, and others on the issue whether banks can sell mortgaged coffee estates to realise borrowed money under the SARFASEI Act.

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