Farmers availing PRS scheme not borrowers, their credit ratings must not be affected: Kerala High Court

The Kerala High Court recently held that farmers receiving payment for paddy procurement through the State government's Paddy Receipt Sheet (PRS) scheme cannot be considered 'borrowers' by any bank [K Sivanandhan v/s State of Kerala]..Justice Devan Ramachandran added that the credit rating of a farmer cannot be affected due to his participating the PRS scheme either. The Court was prompted to issue the clarification on being informed of a farmer's suicide after he failed to secure payments for paddy procurement and also because of treatment meted out to him by a bank."I reiterate that by no stretch can farmers, who effectively sell grains to the Government under the Paddy Procurement Scheme, can ever be construed to be borrowers by any bank, because it is only since the government requires time to make payment against it, that they are forced to avail such facility. Normally, therefore, it cannot affect their credit rating either," the Court underscored..Justice Ramachandran took note of concerns that banks were still treating the farmers as borrowers, which had an impact on their credit ratings as well. The judge emphasized that farmers who are effectively compelled to avail PRS facilities due to delayed government payments for procured paddy should not have their credit ratings affected. This was already laid down in an earlier judgment of the Court. “The judgment of this Court is explicitly clear in its tenor that a farmer under the ‘PRS Scheme’ cannot be construed as a borrower in any manner whatsoever – whether the loan has been availed prior to its issue or after – the fact remains that there appears to be a doubt whether the consortium of Bankers are still construing them so, thus creating an impact on their credit rating,” the High Court added in its November 15 order..The High Court further emphasized that banks cannot require farmers to execute security documents or impose borrower-like conditions to secure payments. .The Court was dealing with a plea by farmers who claimed that despite the Court's earlier ruling on the issue. they were still treated as borrowers by banks which was affecting their credit ratings.The counsel for the farmers submitted that they were now apprehensive like never before following the suicide of a farmer. The farmers raised concern that despite the court's judgment, they and other farmers who took loans under the 'PRS Scheme' would continue to be treated as borrowers. .Advocate Santosh Peter, the standing counsel for the Kerala State Civil Supplies Corporation (‘Supplyco’), replied that these apprehensions were unfounded since under the ‘PRS Scheme, the borrower is the ‘Supplyco’ and not the farmers..After hearing the parties, the Court asked Supplyco to inform the banks that they cannot treat farmers as and that a farmer's credit rating cannot be impacted by PRS loans.In response, Supplyco's counsel requested two days to get formal instructions. .The case will be heard next on November 22..[Read Order]