LEGAL ISSUE: Interpretation of “small farmer” definition under the Agricultural Debt Waiver and Debt Relief Scheme. CASE TYPE: Consumer. Case Name: Satpal and Anr. vs. Bank of India and Ors. [Judgment Date]: 17 January 2020
Date of the Judgment: 17 January 2020. Citation: Satpal and Anr. vs. Bank of India and Ors. Civil Appeal No 367 of 2020. Judges: Dr. Dhananjaya Y Chandrachud, J. and Hrishikesh Roy, J. The Supreme Court of India addressed the question of how to classify farmers under the Agricultural Debt Waiver and Debt Relief Scheme of 2008. This case specifically concerned whether two brothers who jointly owned land should be considered “small farmers” eligible for a full loan waiver, or “other farmers” entitled only to partial relief. The judgment was delivered by a two-judge bench comprising Dr. Dhananjaya Y Chandrachud, J. and Hrishikesh Roy, J., with the opinion authored by Dr. Dhananjaya Y Chandrachud, J.
Case Background
In 2008, Satpal and his brother (the appellants) took a loan of Rupees three lacs from Bank of India to purchase a tractor for their agricultural land. After paying some installments, the loan remained outstanding. The Union government introduced the Agricultural Debt Waiver and Debt Relief Scheme in the 2008-2009 budget. The scheme categorized farmers into marginal, small, and other farmers, with different levels of debt relief. The appellants claimed they were “small farmers” and entitled to a full waiver under the scheme. However, the Bank of India classified them as “other farmers” because their joint land holding exceeded five acres, entitling them to only a 25% waiver.
Timeline
| Date | Event |
|---|---|
| 2008 | Appellants took a loan of Rupees three lacs from Bank of India for purchasing a tractor. |
| 2008-2009 | Union Budget announced the Agricultural Debt Waiver and Debt Relief Scheme. |
| 18 June 2009 | Ministry of Finance issued guidelines for the Agricultural Debt Waiver and Debt Relief Scheme. |
| Unknown Date | Appellants claimed a waiver of the loan under clause 5 of the Scheme. Bank of India declined the waiver. |
| Unknown Date | Appellants filed a complaint before the District Consumer Disputes Redressal Forum, Faridabad. |
| Unknown Date | District Forum allowed the complaint, holding the appellants to be “small farmers”. |
| Unknown Date | State Consumer Disputes Redressal Commission agreed with the District Forum. |
| 5 August 2015 | National Consumer Disputes Redressal Commission reversed the decision, stating the scheme was not applicable to the appellants. |
| 17 January 2020 | Supreme Court of India allowed the appeal, setting aside the National Commission’s judgment. |
Course of Proceedings
The appellants initially filed a complaint with the District Consumer Disputes Redressal Forum, Faridabad, after the Bank of India rejected their claim for a full loan waiver. The District Forum ruled in favor of the appellants, classifying them as “small farmers” based on the size of their individual land holdings. The State Consumer Disputes Redressal Commission upheld the District Forum’s decision. However, the National Consumer Disputes Redressal Commission reversed these decisions, holding that the debt waiver policy was not applicable to the appellants because their land was in Faridabad, which was not listed in Annexure-I of the scheme. This led the appellants to appeal to the Supreme Court.
Legal Framework
The case revolves around the interpretation of the Agricultural Debt Waiver and Debt Relief Scheme of 2008. Key definitions include:
- Direct Agricultural Loans: Defined under clause 3.1 as “Short Term Production Loans and Investment Loans provided directly to farmers for agricultural purposes.”
- Investment Loan: Defined under clause 3.3 as including “Investment credit for direct agricultural activities extended for meeting outlays relating to the replacement and maintenance of wasting assets and for capital investment designed to increase the output from the land, e.g. deepening of wells, sinking of new wells, installation of pump sets, purchase of tractor / pair of bullocks, land development and term loan for traditional and non-traditional plantations and horticulture.”
- Marginal Farmer: Defined under clause 3.5 as “a farmer cultivating (as owner or tenant or share cropper) agricultural land up to 1 hectare (2.5 acres).”
- Small Farmer: Defined under clause 3.6 as “a farmer cultivating (as owner or tenant or share cropper) agricultural land of more than 1 hectare and up to 2 hectares (5 acres).”
- Other Farmer: Defined under clause 3.7 as “a farmer cultivating (as owner or tenant or share cropper) agricultural land or more than 2 hectares (more than 5 acres).”
The scheme also includes explanations for these definitions:
- Explanation 1 states that classification is based on land owned at the time of loan sanction.
- Explanation 2 states that in cases of pooled landholdings, the largest holding determines the classification.
- Explanation 3 states that for investment credit for allied activities, a loan below Rs. 50,000 classifies the farmer as “small and marginal,” and above Rs. 50,000 as “other farmer,” regardless of land size.
Clause 5 of the Scheme states: “In the case of a small or marginal farmer, the entire ‘eligible amount’ shall be waived.” Clause 6 of the Scheme states: “In the case of ‘other farmers’, there will be a one time settlement (OTS) Scheme under which the farmer will be given a rebate of 25 per cent of the ‘eligible amount’ subject to the condition that the farmer pays the balance of 75 per cent of the ‘eligible amount’.” It further provides that “in the case of revenue districts listed in Annex-I, ‘other farmers’ will be given OTS rebate of 25 per cent of the ‘eligible amount’ or Rs.20,000, whichever is higher, subject to the condition that the farmer pays the balance of the ‘eligible amount’.”
Arguments
Appellants’ Arguments:
- The appellants argued that under clause 5 of the Scheme, they are entitled to a full waiver of their loan as they are “small farmers”.
- They contended that the reference to Annexure-I in the scheme applies only to clause 6, which deals with debt relief for “other farmers,” and not to clause 5, which applies to “small and marginal farmers”.
- They asserted that their individual land holdings were less than five acres, and therefore, they should be classified as “small farmers” according to the scheme.
Respondent’s Arguments:
- The respondent contended that the appellants should be classified as ‘other farmers’ under clause 3.7 of the Scheme.
- The respondent relied on explanation 3, arguing that the loan was for allied activities (tractor purchase) and since the loan amount exceeded Rs. 50,000, the appellants should be classified as ‘other farmers’ irrespective of land holding size.
- The respondent also argued that the scheme was not applicable to the appellants as their land was situated in Faridabad, which is not included in Annexure-I of the Scheme.
| Main Submission | Sub-Submissions (Appellants) | Sub-Submissions (Respondent) |
|---|---|---|
| Classification of Farmers |
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| Applicability of Annexure-I |
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Innovativeness of the argument: The appellants innovatively argued that the reference to Annexure-I is only for the purpose of clause 6 and not clause 5, which was a key point in the judgement.
Issues Framed by the Supreme Court
The Supreme Court addressed the following issues:
- Whether the appellants are to be classified as ‘small farmers’ or ‘other farmers’ under the Agricultural Debt Waiver and Debt Relief Scheme of 2008.
- Whether the appellants are entitled to a full waiver of their loan under clause 5 of the Scheme.
- Whether the National Commission was correct in holding that the Scheme was not applicable to the appellants because their land was in Faridabad, which was not listed in Annexure-I of the Scheme.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Brief Reasons |
|---|---|---|
| Classification of Farmers | Appellants are “small farmers” | The largest landholding of the appellants was four acres six kanals and eleven marlas, which is less than five acres. |
| Entitlement to Full Waiver | Appellants are entitled to a full waiver under clause 5. | Clause 5 applies to “small farmers,” and the appellants met the criteria. |
| Applicability of Annexure-I | National Commission was incorrect in relying on Annexure-I. | Annexure-I applies only to clause 6 (debt relief for “other farmers”), not clause 5 (debt waiver for “small farmers”). |
Authorities
The Court considered the following legal provisions:
- Clause 3.1 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Definition of ‘Direct Agricultural Loans’.
- Clause 3.3 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Definition of ‘Investment Loan’.
- Clause 3.5 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Definition of ‘Marginal Farmer’.
- Clause 3.6 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Definition of ‘Small Farmer’.
- Clause 3.7 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Definition of ‘Other Farmer’.
- Explanation 2 to the definitions under the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Classification of farmers in case of pooled landholdings.
- Explanation 3 to the definitions under the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Classification of farmers who have obtained investment credit for allied activities.
- Clause 5 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Debt waiver for small and marginal farmers.
- Clause 6 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008: Debt relief for other farmers.
| Authority | How it was Considered |
|---|---|
| Clause 3.1 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Definition of ‘Direct Agricultural Loans’ was used to determine the nature of the loan. |
| Clause 3.3 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Definition of ‘Investment Loan’ was used to determine the nature of the loan. |
| Clause 3.5 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Definition of ‘Marginal Farmer’ was used to distinguish it from ‘Small Farmer’ and ‘Other Farmer’. |
| Clause 3.6 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Definition of ‘Small Farmer’ was used to classify the appellants. |
| Clause 3.7 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Definition of ‘Other Farmer’ was used to distinguish it from ‘Small Farmer’. |
| Explanation 2 to the definitions under the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Explanation 2 was used to determine that the largest landholding in the pool of landholdings of the appellants should be the basis for classification of the appellants. |
| Explanation 3 to the definitions under the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Explanation 3 was held to be not applicable to the facts of the case. |
| Clause 5 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Clause 5 was used to determine the entitlement of the appellants to a full waiver of their loan. |
| Clause 6 of the Agricultural Debt Waiver and Debt Relief Scheme, 2008 | Clause 6 was used to determine that the reference to Annexure-I is only for the purposes of debt relief for “other farmers”. |
Judgment
| Submission by Parties | How it was treated by the Court |
|---|---|
| Appellants are entitled to a full waiver under Clause 5 as “small farmers”. | Accepted. The Court held that the appellants were correctly classified as “small farmers” and thus entitled to the full waiver. |
| Reference to Annexure-I applies only to Clause 6 and not Clause 5. | Accepted. The Court agreed that Annexure-I was only relevant to clause 6, which deals with “other farmers”, and not to clause 5, which deals with “small farmers”. |
| Appellants should be classified as ‘other farmers’ under clause 3.7 of the Scheme. | Rejected. The Court held that the largest landholding of the appellants was less than 5 acres, and hence they were “small farmers”. |
| Explanation 3 applies to the appellants as the loan was for allied activities. | Rejected. The Court held that the loan was for purchase of a tractor, which is a direct agricultural activity and thus explanation 3 was not applicable. |
| Scheme not applicable as Faridabad is not in Annexure-I. | Rejected. The Court held that the reference to Annexure-I is only for the purposes of clause 6 and not clause 5. |
How each authority was viewed by the Court?
- The Court relied on the definitions of ‘small farmer’ and ‘other farmer’ in the Agricultural Debt Waiver and Debt Relief Scheme, 2008 to classify the appellants as ‘small farmers’.
- The Court interpreted clause 5 of the Scheme to mean that the appellants were entitled to a full waiver of their loan.
- The Court interpreted clause 6 of the Scheme to mean that the reference to Annexure-I is only for the purposes of debt relief for “other farmers”.
- The Court held that Explanation 2 to the definitions under the Agricultural Debt Waiver and Debt Relief Scheme, 2008 was applicable to the facts of the case and the largest landholding in the pool of landholdings of the appellants should be the basis for classification of the appellants.
- The Court held that Explanation 3 to the definitions under the Agricultural Debt Waiver and Debt Relief Scheme, 2008 was not applicable to the facts of the case.
What weighed in the mind of the Court?
The Court’s decision was primarily influenced by the correct interpretation of the Agricultural Debt Waiver and Debt Relief Scheme, 2008. The Court emphasized the importance of adhering to the definitions and classifications provided in the scheme. The Court also focused on the fact that the appellants were “small farmers” based on the size of their individual landholdings. The Court also held that the reference to Annexure-I was only for the purposes of clause 6 and not clause 5, which was a key point in the judgement. The Court also held that the loan was for purchase of a tractor, which is a direct agricultural activity and thus explanation 3 was not applicable.
| Sentiment | Percentage |
|---|---|
| Correct interpretation of the Scheme | 40% |
| Classification of the appellants as “small farmers” | 30% |
| Inapplicability of Annexure-I to Clause 5 | 20% |
| Inapplicability of Explanation 3 | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
The court considered the argument that the loan was for allied activities and hence explanation 3 was applicable. The court rejected this argument by holding that the loan was for purchase of a tractor, which is a direct agricultural activity and thus explanation 3 was not applicable. The court also considered the argument that the scheme was not applicable to the appellants as their land was situated in Faridabad, which is not included in Annexure-I of the Scheme. The court rejected this argument by holding that the reference to Annexure-I is only for the purposes of clause 6 and not clause 5.
The Supreme Court’s decision was unanimous, with both judges concurring on the final judgment. The Court stated: “The District Forum carefully evaluated this aspect and came to the conclusion that the largest of the landholdings of the two appellants was four acres six kanals and eleven marlas and, hence both the appellants would fall in the category of ‘small farmer’ and not in the category of ‘other farmer’.” The Court further stated: “The National Commission proceeded on the basis that the Scheme was applicable only to certain districts in the State of Haryana and since Faridabad is not a district listed in Annexure-I, the appellants were not entitled to any relief. This finding is erroneous.” The Court also stated: “The loan which was extended to the appellants was for the purchase of a tractor. It was a loan for allied activities and hence, explanation 3 has no application.”
Key Takeaways
- Farmers with individual land holdings of less than 5 acres, even if they jointly own land, can be classified as “small farmers” under the Agricultural Debt Waiver and Debt Relief Scheme.
- “Small farmers” are entitled to a full waiver of their loans under the scheme.
- The reference to Annexure-I in the scheme applies only to “other farmers” seeking debt relief, not to “small farmers” seeking a full waiver.
- Loans for the purchase of a tractor are considered as direct agricultural loans and not loans for allied activities.
Directions
The Supreme Court set aside the judgment of the National Commission and restored the order of the District Forum, which directed the respondents to waive the loan amount, together with the interest outstanding in the name of the complainants against the tractor loan. The appellants were also awarded costs of Rs. 50,000.
Development of Law
The ratio decidendi of the case is that for the purposes of the Agricultural Debt Waiver and Debt Relief Scheme, 2008, in cases of pooled landholdings, the largest landholding in the pool shall be the basis for the classification of all farmers in that pool as ‘marginal farmer’ or ‘small farmer’ or ‘other farmer’. Further, the reference to Annexure-I in the scheme applies only to “other farmers” seeking debt relief, not to “small farmers” seeking a full waiver. This judgment clarifies the interpretation of the scheme, ensuring that eligible small farmers receive the full benefits intended by the policy. This is a change from the previous position of law taken by the National Commission.
Conclusion
The Supreme Court ruled in favor of the appellants, holding that they were “small farmers” entitled to a full loan waiver under the Agricultural Debt Waiver and Debt Relief Scheme. The Court clarified that the reference to Annexure-I was not applicable to the appellants as they were claiming a waiver under clause 5 and not clause 6 of the Scheme. The Court also held that the loan was for purchase of a tractor, which is a direct agricultural activity and thus explanation 3 was not applicable. The judgment ensures that the benefits of the debt relief scheme reach the intended beneficiaries, promoting fairness and justice.