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Supreme Court to the rescue: Debt-ridden farmers can seek interest cut

The SC said Banking Regulation Act, which bars courts from re-examining the terms and conditions between a bank and its client, will not be applicable to agricultural debts in states where State Debt Relief Acts are in force.

india Updated: Feb 17, 2018 23:02 IST
Bhadra Sinha
Bhadra Sinha
New Delhi, Hindustan Times
Farmers,Supreme Court,Debt-ridden farmers
Farmers can now make pleas to revise interest rates on the ground that they are excessive in the event of a default due to agricultural crisis. (Anshuman Poyrekar/HT File Photo)

Farmers unable to repay loans due to failure of crops or natural calamities will be able to approach courts for a cut in interest rates for their agricultural loans, provided his/her state has a local debt relief law to protect the farmers’ community, the country’s top court has said.

The Supreme Court said the Banking Regulation Act, which bars courts from re-examining the terms and conditions between a bank and its client, will not be applicable to agricultural debts in states where State Debt Relief Acts are in force.

Farmers can now make pleas to revise interest rates on the ground that they are excessive in the event of a default due to agricultural crisis. There are many instances of farmers committing suicide after being unable to repay their loans. In the past one year, five states – Uttar Pradesh, Rajasthan, Madhya Pradesh, Punjab and Maharashtra – have announced farm loan waivers.

The SC rejected the Centre and Reserve Bank of India’s argument that neither the judiciary nor states can have any say on the Banking Regulation Act.

A bench of justices RF Nariman and Navin Sinha said on Friday that section 21A of the Act would not be applicable because states have exclusive power to legislate on “land improvement and agricultural loans”.

The constitutional scheme, insofar as agriculture is concerned, is that it is an exclusive state subject, said the court.

The judgment was delivered on a five-year-old PIL filed by activists who said that section 21A denied protection to agricultural loans from excessive interest rates, leading to severe rural indebtedness, resulting in over 2.5 lakh farmers committing suicide between 1995 to 2010.

An amendment was brought into effect on February 15, 1984 in the Banking Regulation Act to include section 21A. Before its insertion, it was permissible for a farmer to approach the court under the Usurious Loans Act, 1918 or any other State law giving relief in cases of agricultural indebtedness.

Advocate Sanjay Parekh, who appeared for the petitioners, told HT: “After 21A came in, the state laws became inapplicable.”

In court, Parekh said farmers, facing repeated drought or crop failure, were unable to pay interest at the time of harvesting. As a result, the banks charged compound interest from them.

First Published: Feb 17, 2018 23:00 IST