PSU banks SBI, Punjab National Bank move Supreme Court over loan payments from sugar mills

Written by Indu Bhan | Indu Bhan | New Delhi | Updated: Oct 11 2014, 03:25am hrs
Sugar millThe banks have told the apex court that such HC order would erode their collateral value. Reuters
Public sector banks SBI and Punjab National Bank on Friday moved the Supreme Court challenging the Allahabad High Courts order that asked the Akhilesh Yadav government to auction sugar seized from sugar mills and distribute the entire sale consideration towards clearing cane dues to farmers through the respective District Magistrate's.

Seeking the first right on the liquidation proceeds, the banks have told the apex court that such HC order would erode their collateral value and further discourage lending to the cash-starved sugar industry in Uttar Pradesh.

A bench headed by Chief Justice HL Dattu has posted the matter for hearing on Monday.

Expressing concern over loans to private sugar millers in the state turning into NPA's, the banks said that they should get back the money they loaned to the mills on priority basis.

The banks in their appeals further said that the HC order would result in the entire sale proceeds of mills going towards cane payments, thus nothing would be left for millers to pay loan installments and this would affect the banking sector's interests.

They further said that denying banks their first charge and giving precedence to farmers goes against established lending norms.

The HC had directed district magistrates concerned to monitor as well as "cooperate" with defaulting mills in the state in offloading their sugar stocks at "best possible prices" and that all cane arrears, amounting to Rs 4,626 crore, be cleared by October 31. At present, the state government holds 2.98 million tonne of sugar from 23 cooperative mills for auction.

The HC on August 13 had directed private mills to liquidate 15% of their sugar stocks in three weeks at a floor price of Rs 3,100 per quintal. However, in its final verdict last month, the court had not mentioned any floor price for the sale.

The HC had passed the order last month on a petition filed by V M Singh, convenor of Rashtriya Kisan Mazdoor Sangathan. The state government and private mills in the state have fighting over cane pricing for years. Mills have blamed the state government for arbitrary fixing of cane prices. While the Centre had fixed the cane price at Rs 210 per quintal, the state advised price of the raw material in UP was as high as Rs 280 per quintal, although the state had initially offered incentive worth Rs 11 per quintal.