DRAT Chennai: Borrower Must Prove Actual Agricultural Use to Claim SARFAESI Exemption

March 6, 2026 : The Debts Recovery Appellate Tribunal (DRAT), Chennai has set aside an order of the Debts Recovery Tribunal-II, Chennai, holding that exemption under Section 31(i) of the SARFAESI Act cannot be granted merely on the basis of revenue records or absence of specific denial by the secured creditor. The Tribunal clarified that the burden lies squarely on the borrower to establish that the secured asset was actually used for agricultural purposes.

The ruling was delivered by Justice G. Chandrasekharan in an appeal filed by Canbank Factors Ltd. against the order dated 13 November 2017 in SA No. 113/2017.

The borrower had challenged a sale notice dated 15 April 2017 issued under the SARFAESI Act concerning one acre of land in Muthukadu village, Chengalpattu district, contending that the property was agricultural land and thus exempt under Section 31(i). The DRT accepted this plea based on entries in the sale deed, patta, and adangal, and also noted the absence of a specific denial from the financial institution.

However, the Appellate Tribunal found this approach legally unsustainable. It held that mere classification in revenue records as “punja” land does not conclusively establish agricultural use. The Tribunal emphasized that there must be clear evidence of actual agricultural operations, including details such as crops cultivated, irrigation facilities, and income derived from such activities.

Significantly, the Tribunal noted that the borrower had failed to provide any such evidence. There were no pleadings or material indicating cultivation or agricultural activity at any relevant stage—prior to mortgage, at the time of mortgage, or thereafter. On the contrary, the borrower had admitted in reply to the demand notice that the property was in possession of fishermen and lacked access, which undermined the claim of agricultural use.

The Tribunal also observed that even though the bank had not specifically denied the agricultural nature of the land in its reply, such omission does not shift the burden of proof. The borrower must independently establish entitlement to the statutory exemption.

Relying on settled legal principles, including the requirement that actual use of land determines applicability of Section 31(i), the Tribunal concluded that the DRT had erred in allowing the securitisation application solely on the basis of documents and procedural lapse by the bank.

Accordingly, the Appellate Tribunal set aside the DRT’s order and dismissed the securitisation application, allowing the appeal filed by the financial institution.

Case Details:

Coram: Justice G. Chandrasekharan, Chairperson

Case Title: Canbank Factors Ltd. v. Sarath Kakumanu

Case No.: RA (SA) No. 19 of 2018 (arising out of SA No. 113/2017)