Indian court decrees 'right to life overrides right to do business'

[bilby]

The article seems clear enough to me; Sugar stocks held by the mills were used as collateral for loans totalling Rs3,000crore (crore is 10,000,000, so this is 30 billion rupees, or about US$490million) from the State Bank of India.

The sugar mills owed money to cane growers whose crops they had been supplied but had not yet paid for, and the growers petitioned the Allahabad high court to force the mills to pay them what they were owed, even if they had to sell the sugar stocks to do this, and the court granted that petition.

Thank you for the details.

That doesn't change my position--the mills are bankrupt, seize them and hand them over to their creditors, the banks. From what you say there might be some criminal matters involved also.

The US has a legal system that strongly favours banks and large corporations. This is how the US government has decided to do things in the US. It is a cultural oddity; The laws were written by politicians who are in the pockets of banks and large corporations, so it isn't surprising. Nor is it based on any underlying or fundamental natural law.

India has its own government, and it's own laws. They are not the same as US law, and nor should we expect them to be.

If you assume that an Indian court applying Indian law will always (or even often) reach a similar judgement to that a US court applying US law would reach given the same facts, then you are going to be wrong quite a lot of the time. If you believe that the Indian legal system should be the same as the US system, then you are wrong right now.

In this case, the State Bank of India would very much like Indian law to be a mirror of US law; but it is not, and the Indian Supreme Court, as final arbiter of what Indian law says, have said as much.

The US way of doing things is, possibly, better for the economy - in that it prioritises what 'the economy', as represented by big corporations and banks, might want. But the Indian system recognises that not being paid, for banks, is a matter of economic interest, while for farmers it is a matter of life and death.

US farmers who go unpaid for crops they have delivered to processors may suffer hardships, but they are unlikely to die. The law has differences to reflect the differing circumstances. The US way is not the only way, nor the best way.

 

[dismal]

Thank you for the details.

That doesn't change my position--the mills are bankrupt, seize them and hand them over to their creditors, the banks. From what you say there might be some criminal matters involved also.

The US has a legal system that strongly favours banks and large corporations.

The US has a bankruptcy system that strongly favors secured creditors over unsecured creditors. It doesn't matter if you are a big corporation, a farmer, or an average Joe. It matters if you are a secured creditor or an unsecured creditor.

And keep in mind everyone also has the option not to be a creditor at all.

 

[Axulus]

If the sugar hadn't been paid for within the time alloted, then wouldn't this be a breach of contract and that the mills don't have legal ownership to the sugar? If so, then it would seem that the sugar can not be used as collateral by the bank.

First, as mentioned before the facts of this particular case are too garbled for me to make sense of.

But the logic you have outlined would not apply in a US court. Yes, the company not paying a supplier would result a breach. Yes, the breach would result in a claim. But an unsecured trade creditor's claim would rank below a secured lender's claim. If there is enough money to pay everyone, unsecured creditors get paid but if there isn't priority goes to secured creditors.

Why wouldn't the farmers secure their credit with the product they are delivering? If I were to buy a car on credit and stop making payments, repo men will come take that car away, regardless of whether I have a secured loan with the bank.

 

[dismal]

First, as mentioned before the facts of this particular case are too garbled for me to make sense of.

But the logic you have outlined would not apply in a US court. Yes, the company not paying a supplier would result a breach. Yes, the breach would result in a claim. But an unsecured trade creditor's claim would rank below a secured lender's claim. If there is enough money to pay everyone, unsecured creditors get paid but if there isn't priority goes to secured creditors.

Why wouldn't the farmers secure their credit with the product they are delivering? If I were to buy a car on credit and stop making payments, repo men will come take that car away, regardless of whether I have a secured loan with the bank.

I don't think a sugar processing plant is going to give you a mortgage on the property in exchange for a bundle of sugar. But you can ask. The cost of documenting it may be more than the sugar is worth. The more practical option would probably be to insist on cash and not become a creditor at all.

When you borrow money against a car that loan is secured by the car. You have given them the contractual right to seize the car. If you do not give them this right the loan is unsecured and they would have to go after your general finances. If you filed bankruptcy they would be lumped along with the other unsecured creditors behind the secured creditors. But they probably won't lend you the money to buy the car unless it is secured by the car. Then if you come to bankruptcy there could be some unsecured guy who claims he will commit suicide if he doesn't get paid the money you owed him for a remodeling job but the court would award the car to the lender whose loan was secured by the car. The job of the court is to apply the law, not referee who has the biggest sob story among the creditor group.

 

[bilby]

Why wouldn't the farmers secure their credit with the product they are delivering? If I were to buy a car on credit and stop making payments, repo men will come take that car away, regardless of whether I have a secured loan with the bank.

I don't think a sugar processing plant is going to give you a mortgage on the property in exchange for a bundle of sugar. But you can ask. The cost of documenting it may be more than the sugar is worth. The more practical option would probably be to insist on cash and not become a creditor at all.

When you borrow money against a car that loan is secured by the car. You have given them the contractual right to seize the car. If you do not give them this right the loan is unsecured and they would have to go after your general finances. If you filed bankruptcy they would be lumped along with the other unsecured creditors behind the secured creditors. But they probably won't lend you the money to buy the car unless it is secured by the car. Then if you come to bankruptcy there could be some unsecured guy who claims he will commit suicide if he doesn't get paid the money you owed him for a remodeling job but the court would award the car to the lender whose loan was secured by the car. The job of the court is to apply the law, not referee who has the biggest sob story among the creditor group.

Indian law (I linked to the relevant statute a few posts ago) requires that the mill owners pay the growers in cash on delivery; and provides for a financial penalty, in the form of a required 'interest' payment of 7.5%pa, for mill owners who do not pay within 15 days - presumably the 15 day grace period was intended to allow for the bureaucratic delays inherent in getting large sums of cash from Indian banks in the 1950s (the law in question was passed in 1953).

A subsequent section of the same act prohibits mill owners from using sugar that has not been paid for as collateral for further loans.

Under Indian law, this implies that the growers were secured creditors, and so the court has ruled. The State Bank of India tried, unsuccessfully, to assert that their right as a secured creditor under the terms of their loan agreement extinguished the rights of the growers under the Uttarakhand Sugarcane (Regulation of Supply and Purchase) Act, 1953; The courts have repeatedly ruled against SBI in this regard, and the Supreme Court has now ordered that the mill owners sell the sugar and use the proceeds to pay the farmers what they are owed, in accordance with Section 17(5) of the act.

The statute law is not the same as it is in the US; but the principles of law that are being applied by the court in interpreting the relevant statute law are very similar. The Indian Supreme Court hasn't overturned any statute by their decision (which would be beyond the lawful authority of the judiciary, as doing so is reserved to the legislative branch); rather they have done their job of interpreting the law (under which both claimants are legally secured creditors), and have found that the grower's claim supersedes the bank's, on both legal and humanitarian grounds.

 

[Loren Pechtel]

The US has a legal system that strongly favours banks and large corporations. This is how the US government has decided to do things in the US. It is a cultural oddity; The laws were written by politicians who are in the pockets of banks and large corporations, so it isn't surprising. Nor is it based on any underlying or fundamental natural law.

Our legal system favors secured creditors over unsecured creditors. I can't see how any other system makes sense--what's the point of security if it's not going to be enforced?

However, in this case it seems to me the mills pledged security that wasn't really theirs to pledge.

 

[hinduwoman]

What Bilby said.
Also another economics question -- if the stock is not paid for how can it be the property of another entity which can be claimed a third entity as colleteral? until the stock is paid for shouldnot the growers be still the owners? Is it different in USA?