Agricultural Land: The Overused Defence to SARFAESI Proceedings

It has become almost routine for litigants facing SARFAESI proceedings to claim that the secured asset is agricultural land, hoping to escape the reach of the Bank’s enforcement measures. Section 31(i) of the SARFAESI Act, 2002 does exempt any security interest created in agricultural land from the provisions of the Act — and on paper, that sounds like a complete answer to a bank’s Section 13(4) notice or an impending auction.

In practice, the defence is raised in almost every Securitisation Application and succeeds in very few. The reason is not that the exemption is illusory — it is that proving a parcel of land is genuinely agricultural, at the legally relevant point in time, is a considerably harder evidentiary task than most litigants (and, frankly, most counsel) initially assume.

This article sets out why the defence fails as often as it does, what the Supreme Court has actually said the test is, and the narrow, evidence-led route by which it can succeed when the facts genuinely support it.

The Core Problem — Two Tests, Not One

Most Agri-land defences collapse at the intersection of two distinct evidentiary requirements that the Supreme Court has laid down, and that borrowers rarely satisfy together:

• The proof must go to actual use of the land, not merely its classification or label in official records; and
• That use must be established as it stood on the date of creation of the security interest — not the present date, and not the date the SARFAESI measures were initiated.

The Supreme Court settled this squarely in Indian Bank v. K. Pappireddiyar:

The classification of land in the revenue records as agricultural is not dispositive or conclusive of the question whether the SARFAESI Act does or does not apply. Whether a parcel of land is agricultural must be deduced as a matter of fact from the nature of the land, the use to which it was being put on the date of the creation of the security interest and the purpose for which it was set apart. — Indian Bank v. K. Pappireddiyar, (2018) 18 SCC 252

This single paragraph defeats the two most common — and weakest — planks on which the defence is usually built: revenue records showing the land as “nilam” or “purayidam” with agricultural classification, and a fresh Advocate Commissioner’s report or Agricultural Officer’s certificate obtained after SARFAESI proceedings have already begun.

Why Revenue Records and Fresh Certificates Are Not Enough

This position has since been reinforced by the Supreme Court in K. Sreedhar v. Raus Constructions Pvt. Ltd., where the borrower’s case rested almost entirely on revenue records describing the land as agricultural. The Court held that this was insufficient — the borrower had provided no evidence that agricultural activity was actually being carried out on the land, whereas the bank had produced photographs showing the contrary.

Merely because certain properties are shown in revenue records as agricultural lands, they would not be entitled to exemption under Section 31 of the SARFAESI Act. It is imperative to prove that the land was actually being used for agricultural purposes. — K. Sreedhar v. Raus Constructions Pvt. Ltd., 2023 SCC OnLine SC 13

The practical lesson is straightforward: if the entirety of a Securitisation Application’s Agri-land ground is a revenue record extract and nothing more, it is very likely to fail on this authority alone.

The Proportionality Trap — Blue Coast Hotels

A further, frequently overlooked difficulty arises even where some genuine cultivation exists on the secured asset. In ITC Limited v. Blue Coast Hotels Limited, the Supreme Court examined a mortgage over the land on which the Park Hyatt Goa Resort stood, of which a small portion — roughly 12.8% of the total area — was in fact used for growing vegetables, fruits, and a few trees for the hotel’s own kitchen use.

The Court held that this fractional, incidental cultivation did not convert the character of the land as a whole. Quoting its earlier decision in Kunjukutty Saheb v. State of Kerala, the Court observed:

We suppose that something or other can be, and often is, grown on any vacant land, but that would not necessarily make it agricultural land for our purposes… It is the purpose for which it is held that determines its character, and the existence of a few coconut trees or a vegetable patch on the land cannot alter the fact that it is held for purposes of building and not for purposes of agriculture. — Kunjukutty Saheb v. State of Kerala, (1972) 2 SCC 364, quoted with approval in ITC Ltd. v. Blue Coast Hotels Ltd., (2018) 15 SCC 99

What Actually Works — Building a Defence That Can Survive Scrutiny

Given the two tests above, an Agri-land defence that is genuinely capable of succeeding must be built on evidence that is simultaneously (a) use-based rather than merely a label, and (b) anchored to the date the security interest was created. In practice, three categories of material meet this standard.

1. Contemporaneous Documentary Proof of Cultivation, Bracketing the Mortgage Date

This is the spine of any serious defence, since it is the only category of evidence that natively satisfies both limbs of the test. Depending on the crop and the region, this can include, dated to the years around the mortgage:

• Rubber Board registration, and — crucially — replanting or maintenance subsidy disbursement records, since the subsidy file itself is official proof of an operating plantation on a given date
• Rubber Producers’ Society sale slips and Rubber Board dealer receipts
• Pepper, cardamom, or other Spices Board records and auction slips; coconut or copra sale receipts
• Paddy procurement receipts through Supplyco or the local Primary Agricultural Credit Society (PACS)
• PMFBY crop insurance records for the relevant seasons
• A KSEB agricultural-tariff electricity connection for an irrigation pumpset, with an energisation date predating the mortgage
• Any earlier Kisan Credit Card or agricultural term loan availed on the same survey numbers
• Agricultural income declared in Income Tax Returns for the assessment years bracketing the mortgage date

On the question of agricultural income specifically, the Supreme Court’s test in Commissioner of Income Tax, West Bengal v. Raja Benoy Kumar Sahas Roy remains the governing authority — income qualifies as agricultural where the land is used for agricultural purposes and the income is derived from that land through agricultural operations. Income tax returns reflecting such income for the relevant years are useful corroboration, though income-dependence is not itself a statutory requirement of Section 31(i), as discussed below.

2. The Bank’s Own Contemporaneous Characterisation of the Property

This is often the single most powerful strand available, because it is an admission by the opposing party, timestamped to precisely the relevant date. Beyond the sanction letter itself, the bank’s pre-sanction inspection report and the approved valuer’s report prepared at the time of mortgage frequently describe the security in terms that concede its agricultural character — as a rubber estate, plantation, or cultivated holding.

The Kerala High Court’s decision in Muhammed Basheer K.P. v. Kannur District Co-operative Bank Ltd. is instructive on this point. The Division Bench held that a rubber plantation is agricultural land within the meaning of Section 31(i), rejecting the argument that the exemption should be confined to subsistence-scale cultivation and excludes commercial plantations:

The clear legislative intention is that the term ‘agricultural land’ in Section 31(i) of the Act would be applied without culling out any exemption from that term on the basis of the nature of the crop or the cultivation that is made on that land. All that is required is that it should be an agricultural land. — Muhammed Basheer K.P. v. Kannur District Co-operative Bank Ltd., 2010 (2) KLT 577 (Kerala HC, Division Bench)

Where the bank’s own sanction and valuation paperwork describes the secured asset as a plantation or agricultural holding, and the bank offers no rebuttal material of its own, that internal admission is very difficult for the bank to subsequently disown.

3. Evidence That Bridges the Gap Between Past and Present

The most persistent practical difficulty is that most evidence readily available to a borrower — a fresh Advocate Commissioner’s inspection, a current Agricultural Officer’s certificate — necessarily speaks to the present, not to the date of mortgage. Two categories of evidence can properly bridge this gap, and are worth deploying together with the documentary proof above.

Historical satellite or aerial imagery, drawn from publicly available archives, is objectively timestamped and can show the condition of the land as it stood in the mortgage year itself, without requiring any court process to obtain.

For perennial crops — rubber, coconut, arecanut, cashew — the age of the standing crop is itself retrograde evidence. A commissioner’s report or a Rubber Board officer’s certification recording the girth, tapping-panel history, or ascertainable age of standing trees can establish, as a matter of straightforward arithmetic, that a plantation of a given age necessarily predates a mortgage created some years earlier. The key is in how the commission is framed: a mandate to “report the present use” invites the objection that present use is irrelevant; a mandate to “record the species, maturity, and ascertainable age of the perennial crop” produces evidence that genuinely relates back.

Two Points Worth Getting Right

The Burden of Proof Rests Squarely on the Borrower

It bears emphasis that the burden of establishing that the secured asset is agricultural land, and was actually being used as such, rests entirely on the borrower raising the defence. The Securitisation Application must therefore plead the agricultural character specifically, expressly anchor it to the date of mortgage, and lead the categories of evidence discussed above — it should never rest on revenue records and bare assertion alone, since that is precisely the combination that failed in Sreedhar.

“Sole Source of Income” Is Corroboration, Not a Threshold Requirement

A word of caution on a formulation that is often pleaded as if it were a statutory element: that the borrower must show the agricultural income is their sole or predominant source of livelihood. This is not, in fact, a requirement of Section 31(i) at all — the exemption attaches to the nature and use of the land, not to the borrower’s degree of economic dependence upon it. Evidence of income derived from the land is useful corroboration of genuine agricultural use, but pleading it as a necessary element is strategically unwise: it hands the bank a ready argument that a borrower with any other source of income cannot claim the exemption, which is not what the provision says.

The Agricultural Land defence under Section 31(i) is a genuine and valuable protection where the facts support it — but it is not a formality to be invoked reflexively in every Securitisation Application. Where a borrower can produce contemporaneous, use-based evidence anchored to the date of mortgage, supported wherever possible by the bank’s own characterisation of the asset, the defence has real teeth. Where the case rests on revenue records and a freshly obtained certificate, the weight of recent Supreme Court authority is firmly against it.

This article reflects observations from practice in banking and SARFAESI litigation and does not constitute legal advice. Case-law positions are stated based on reported summaries; before relying on any authority in pleadings, please verify against the certified judgment text. For specific matters, please consult a qualified advocate.