Contempt Action Can Be Initiated Against Banks If They Reduce Credit Ratings Of Farmers Solely On Account Of PRS Loan: Kerala High Court

On the last hearing, the court had sought instructions from the State and Supplyco (Kerala State Civil Supplies Corporation), as to why they could not issue an order and inform banks that credit rating of farmers should not be reduced on account of PRS loan, and that SupplyCo would take full responsibility on default of repayment.

Justice Devan Ramachandran said that banks cannot reduce the credit rating of farmers, in violation of the judgment of the court which was disposed of unequivocally stating that farmers who sell their paddy to the Government of Kerala through Supplyco under the tripartite agreement cannot be treated as borrowers.

“The judgment of this Court is unambiguous, and the banks were parties to it. Therefore, even if the SupplyCo has taken a stand that farmers are borrowers, which appears to be extremely unfortunate; the banks cannot act as if the farmers are the borrowers. Therefore, if they had given any input to the CIBIL negatively on the credit rating of the farmers solely on the account of PRS loan, it would amount to a violation of the judgment.”

It was orally remarked that contempt action can be initiated against the banks if they reduce the credit rating of the farmers on account of PRS loan, in violation of the orders of the court.

The court made the observation in a batch of petitions filed by aggrieved farmers who sold their paddy to the State Government through Supplyco but had not received any payment in return. The court had disposed of the writ petitions, directing payments to be disbursed to the farmers without delay.

Today, when the matter came up for hearing, Standing Counsel for SupplyCo, Santhosh Peter asserted that farmers were the borrowers and SupplyCo was the guarantor. The submission of Special Government Pleader S Ranjit was that farmers are not borrowers.

Considering the submissions, the court said that it was completely caught between the two stands taken by the government agencies. It added,

“The farmers are certainly therefore now in a very piqued situation with the banks appearing to hold that they are the borrowers. This is because they are acting under the dictates of the SupplyCo. The situation thus is that after parting with their produce and instead of being paid the sale price for it, the farmers are forced to be borrowers for the same sum which they are entitled to in law. This is a paradox that can never be countenanced, particularly, when the government says that they cannot be construed as borrowers.”

It was observed that farmers' credit rating could not be affected because the government or SupplyCo needed time to repay loans under the tripartite agreement.

The court clarified that under the tripartite agreement, farmers are beneficiaries who sell their paddy to the government and they cannot be treated as borrowers. SupplyCo has to obtain a loan from the bank to make payments to the farmers, so SupplyCo is the borrower and not the farmers. 

The matter has been posted for further consideration on December 19, 2023.

The plea has been moved through Advocates Millu Dandapani, Legith T Kottakkal, PR Banerji, Binoy Vasudevan, Sreejith Sreenath, S Ranjit, Gokul Das VVH, T K Sandeep, Veena Harikumar and Swetha R

Case Title: K Sivanandhan v. State of Kerala and other matters

Case Number: WP(C) NO. 23267 OF 2023, WP(C) NO. 24835 OF 2023, WP(C) NO. 25152 OF 2023, WP(C) NO. 25410 OF 2023, WP(C) NO. 25575 OF 2023