Don’t insist on security documents from farmers under Paddy Procurement Scheme: Kerala High Court tells banks

Kerala high court tells banks that Farmers selling paddy to govt. under PRS cannot be treated as borrowers by banks; credit rating can't be affected. Banks can't insist on security documents or impose conditions akin to borrowers. Supplyco to inform banks that farmers not borrowers & credit rating won't be affected.

The Kerala High Court has observed that the credit rating of farmers who effectively sell their paddy to the government under the Paddy Procurement Scheme (PRS) can never be affected as the court has already held that they cannot not be construed to be borrowers by any bank.

The court also held that the banks cannot insist on any security document being executed by the farmers, nor can they impose on them any condition akin to a borrower.

The court reiterated that farmers cannot be treated as borrowers by any bank. It was only because the government requires time to make payment against it that the farmers are forced to avail themselves of such schemes.

Justice Devan Ramachandran made the observations in an order passed on a petition filed by farmers from Palakkad and Alappuzha seeking a directive to the Kerala State Civil Supplies Corporation (Supplyco) to pay them the full prices of the paddy procured from them. The petitioners said that in spite of the High Court judgment, they are treated as borrowers and their credit rating are affected.

The counsel for the Supplyco submitted that “under the PRS Scheme, the borrower is the Supplyco and not the farmers.” Therefore, the fear of the petitioners that their credit rating would be affected had no reason.

The court asked the counsel whether the Supplyco was willing to inform the banks that the farmers are not the borrowers and that their credit rating cannot be affected by “PRS loans.”