Courts can review interest on agri loans in states: SC

In a decision with far-reaching consequences for agricultural indebtedness, the Supreme Court has held that the courts can review the rate of interest where the state debt relief laws covered banks and other lending institutions.

The top court said Section 21A of the Banking Regulation Act, 1949 would not apply to such states where debt relief laws were in force. Section 21A interdicts courts to reopen a loan transaction between a bank and debtors on the ground that the rate of interest charged by the banking company is excessive.

A bench of Justices R F Nariman and Navin Sinha ruled that Section 21A would not be applicable to agricultural debts in states where state debt relief laws were in force.

The court passed its judgement on a writ petition filed by Jayant Verma and others, challenging the constitutional validity of Section 21A. The petitioners led by advocate Sanjay Parikh relied upon Parliamentary Standing Committee report on Agriculture 2006-07 to contend that Section 21A should be abolished in so far as it



applied to rural indebtedness.

They contended that 2,56,913 farmers committed suicide between 1995 to 2010. This is because of usurious rates of interest being charged by banks, which courts cannot interfere with under Section 21A.

State subject

The court said agriculture as a subject matter is entirely and exclusively left to the states in all its aspects. Any argument that has the effect of making relief of agricultural indebtedness a concurrent subject by which Parliamentary legislation ousts state legislation must, therefore, be rejected, it said.

"Where Section 21A incidentally trenches upon the State Debt Relief Acts, enacted under Entry 30, List II (state list under the Constitution), so far as relief of agricultural indebtedness is concerned, where there is state legislation on the same subject matter which directly clashes with Section 21A, Section 21A will have to give way to the State Debt Relief Acts in so far as relief from agricultural indebtedness due to banks is concerned," the court held.