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Legal Case Shots

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Labour & Industrial LawSupreme Court of India

K. Sreedhar vs M/s Raus Constructions Pvt. Ltd. & Ors.

Civil Appeal · 2023 INSC 17Decided 5 Jan 2023
Civil Appeal No. 7402 of 2022
M.R. Shah · M.M. Sundresh

Background

Raus Constructions borrowed from Indian Bank in 2012 and defaulted. The bank took possession of the mortgaged properties under the SARFAESI Act and auctioned one of them (Item No. 8) in February 2017; K. Sreedhar was the highest bidder at about Rs. 2.76 crore, paid up, received a sale certificate, took possession, levelled the plot and applied for building permission. The borrower's challenge before the Debts Recovery Tribunal (DRT) failed in May 2019. Instead of appealing to the Debts Recovery Appellate Tribunal (DRAT), which would have required a pre-deposit of 25% of the debt, the borrower filed a writ petition in the Telangana High Court, which set aside the sale on the grounds that the 25% and 75% instalments were paid late and that several of the properties were agricultural land exempt from SARFAESI.

Decision Breakdown

The Supreme Court held that the High Court should not have entertained the writ petition at all, because an appeal to the DRAT was available and the writ route was used only to dodge the pre-deposit. On merits too the High Court was wrong: under Rule 9(3) of the Security Interest (Enforcement) Rules the 25% deposit may be paid on the day of auction or the next working day, and here Rs. 26 lakh was paid before the auction and Rs. 45 lakh the day after, so the full 25% was in time; the balance 75% was paid within the 15-day extended period the bank itself granted in writing, which Rule 9(4) permits. On the "agricultural land" point, the Court reiterated Blue Coast Hotels and K. Pappireddiyar: a revenue-record entry showing land as agricultural is not conclusive: what matters is whether the land was actually being used for agriculture when it was mortgaged, and the borrower who claims the exemption bears the burden of proving that use. The borrower had produced only revenue records, while the bank had produced photographs showing no farming activity. The High Court's judgment was set aside and the DRT's order confirming the auction sale was restored.

Lesson Learnt

A borrower cannot escape the SARFAESI appeal process (and its pre-deposit) by running straight to the High Court, and cannot shield mortgaged land from enforcement merely by pointing to an "agricultural" entry in the land records. It must show real agricultural use at the time of the mortgage. Auction purchasers who pay within the rules and any written extension from the bank get secure title.

K. Sreedhar vs M/s Raus Constructions Pvt. Ltd. & Ors. – Legal Case Shots | LegalAware