SARFAESI ACT

Question

Is it permissible for a bank to foreclose on agricultural land and the house situated on that land under the SARFAESI Act The land in question is currently being utilized for agricultural purposes cultivating crops such as rubber pepper and coconut covering an approximate area of 5.25 acres with a house.  Furthermore if the court quashes the possession would the borrower be allowed to return and reside in the house

Vidhikarya · Accepted Answer

Dear Client Section 133A of the SARFAESI Act primarily lays down that any security interest created in favour of a secured creditorBank is enforceable without the intervention of any court or tribunal. As per sub-section 2 of Sec.13 a creditor is required to issue a notice in writing to the borrower to discharge his liability within sixty days of the notice when such borrower has defaulted in repayment of secured debt or any installment thereof and his account in respect of such debt is classified by the secured creditor as non-performing assetNPA. If the borrower fails to discharge his liability despite the service of notice the creditor is free to recover the debt through the modes prescribed in sub-section 4 such as  taking over possession of the secured assets of the borrower taking over management of the business of the borrower etc. Sub-section 3A of Section 13 of SARFAESI Act was introduced by way of an amendment in the year 2004 whereby 3A the borrower is given an opportunity to make representation or raise an objection with respect to the notice issued under subsection 2. A further duty is imposed on the creditor to consider such representationobjection and if the creditor concludes that such representation or objection is meritless he shall communicate within fifteen days of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower. The Delhi High Court discussed the facts and ratio of the judgment of the Supreme Court in ITC Limited v. Blue Coast Hotels Ltd.  Ors. 2018 SCC OnLine SC 237 which was the basis of the entire case of the petitioner. It was held by the Court that undoubtedly the provisions of Section 133A of the SARFAESI Act are mandatory and it is necessary for the lender to consider the representationobjection made by the borrower in response to the notice issued under Section 132 of the SARFAESI Act. The Delhi High Court observed that the intention of the Legislature in introducing sub-section 3A is to ensure that objectionrepresentation of a borrower against any action for enforcement of security interest is considered before a creditor proceeds to take possession of the secured assets in terms of Section 134 of the SARFAESI Act. The Court opined that bearing the aforesaid object in mind it became at once clear that it is mandatory for the creditorBank to consider the objection and representation furnished by the borrower before resorting to any action under Section 134 of the SARFAESI Act. However the Court was of the view that there is no reason to hold that if the lender fails to do so within a period of fifteen days it loses its right to enforce the security interest under provisions of Section 13 of the Act. Keeping the aforesaid views of both the Delhi High Court and Apex Court into consideration when the Court passed an order quashing the possession of propertyland residing in the house erected and attached to that land was not allowed or permissible. An agricultural land cannot be used for residentiial purpose. So reach out to an Advocate with a copy of the Courts order and other relevant papers for further clarification and steps.

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