IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 1541 of 1987 AND S.C.A. NOS.1541/87, 1842/87, 3182/87, 1655/87, 350/87, 982/87, 1049/87, 1410/87, and 1991/87 For Approval and Signature: Hon'ble MR.JUSTICE N.N.MATHUR ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? Yes J 2. To be referred to the Reporter or not? Yes 3. Whether Their Lordships wish to see the fair copy of the judgement? No 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? No 5. Whether it is to be circulated to the Civil Judge? No -------------------------------------------------------------- Appearance: S.C.A. NOS.1541/87, 1842/87, 3182/87 AND 1655/87 : MR K.G.VAKHARIA, SR ADVOCATE WITH MR TUSHAR MEHTA FOR THE PETITIONERS MR J.M.THAKOR, ADVOGATE GENERAL WITH MRS HARSHA DEVANI, AGP FOR THE STATE MR RAJNI MEHTA FOR GENERAL INSURANCE CORPORATION OF INDIA MR J.D.AJMERA FOR UNION OF INDIA MR P.M.RAVAL, SR ADVOCATE FOR GUJARAT STATE COOPERATIVE BANK LTD MR SHIRISH JOSHI FOR DISTRICT COOPERATIVE BANK S.C.A. NO. 1409/87, 1410/87 AND 1991/87 : MR B.M.MANGUTIA FOR THE PETITIONER MR J.M.THAKOR ADVOCATE GENERAL WITH MRS HARSHA DEVANI, AGP FOR THE STATE MR RAJNI MEHTA FOR GENERAL INSURANCE CORPORATION OF INDIA MR J.D.AJMERA FOR UNION OF INDIA MR P.M.RAVAL, SR ADVOCATE FOR GUJARAT STATE COOPERATIVE BANK LTD MR SHIRISH JOSHI FOR DISTRICT COOPERATIVE BANK LTD qS.C.A. NO. 350/87 AND 982/87 : MR S.K.ZAVERI FOR THE PETITIONERS MR J.M.THAKOR, ADVOCATE GENERAL WITH MRS HARSHA DEVANI, AGP FOR THE STATE MR RAJNI MEHTA FOR GENERAL INSURANCE CORPORATION OF INDIA MR J.D.AJMERA FOR UNION OF INDIA MR P.M.RAVAL, SR. ADVOCATE WITH MR HARIN RAVAL FOR GUJARAT STATE COOPERATIVE BANK LTD -------------------------------------------------------- CORAM : MR.JUSTICE N.N.MATHUR Date of decision: 07/08/96 JUDGEMENT 1. No case law, only verbal gymnastic, of course based on record. in this group of Special Civil Applications under the label of social action litigation filed by village level Primary Co-operative Societies engaged in the activities of Agriculture Credit to its farmer members echoing the grievance of not indemnifying the damages to their crop during the drought year of 1985, has raised key and substantial question for consideration among various topical issues hotly debated before me, thus, "Whether under the Crop Insurance Scheme 1985-86, petitioners are entitled to damages on the basis of the calculations against the loan advanced from January 1985 to March 1985 and from 1st October, 1985 to 10th November 1985 in addition to admitted position of eligible claim during the period between 1st April 1985 to 30th September 1985." Prefatory Note. 2. Ours is a agriculture dominated country. A majority of total population depend primarily on agriculture which lives in rural areas. Credit is needed by rural population for meeting agriculture production as well as consumption requirements and as such during the pre-independence days village money lenders had monopoly of providing credit to poor farmers and agricultural laborers exploiting them to maximum possible. Since the land was the only almost security that the agriculturists had to offer, his failure to repay the loans secured against it meant in due course alienation of land and hence his means of livelihood. In course of time, new most powerful force emerged in the country side that of rich farmers "Kulaka". This class of farmers occupied dominant position in rural credit even pushing professional money lenders very much down the ladder. Their behavior was still worst than that of the professional money lenders. Various legislative enactments were taken to regulate money lending business. Debt Relief Acts were enacted to give some relief to farmers. But Legislative enactment did not yield desired effect on account of device of variety of legal camouflage for illegality. It was considered that the provisions of law were inadequate to tackle the evil of indebtedness . They were at the most corrective and not preventive measures. Keeping in view that the National Agricultural Development Policy rests on the principle of plan modernisation mechanism of output based on full utilisation of man power and equal access to opportunity to all class of farmers, it was thought to mobilize all rural resources through the Bank or otherwise. Emphasis was laid on adoption of integrated approach to the problem i.e. evolution of an integrated credit system for agriculture. There are two systems of agricultural credit viz. institutional and noninstitutional. Noninstitutional sector consists of money lenders as well as commission agents etc. Institutional sector consists of cooperative commercial banks and regional rural Banks etc. At the same time, thinking was in favour of promoting multi purpose primary cooperative societies in the rural areas. Cooperative system was recognized as an instrument of planned action more suitable for dispensation of agriculture credit. A recent development of significance in the rural credit field is of setting up of rural Banks. The rational behind setting up such Banks consists in the fact that for several years, State Policy in widening and intensifying the institutional coverage of rural credit laid emphasis on the development of cooperative credit structure as a major instrument of building up viable rural credit scheme. Various Committees were appointed by the Reserve Bank of India to study working of cooperative movement and its role in providing credit. The committee of "Taccavi" loans and cooperative credit, recommended that the cooperative is to be accepted as an ultimate sole institutional agency for provision of agriculture credit. The government having accepted as a matter of policy need of linking orienting credit towards production programmes and repaying capacity an "Action Programme" for development of cooperative credit was formulated and circulated to the State Government of spelling out measures necessary in the direction of implementation. This "Action Programme" attached foremost importance to orientation credit production. It emphasized that "Credit is to be production oriented and is to be determined on the basis of need and repaying capacity. Credit required for fertilizers, pesticides, seeds, etc., should be disbursed in kind and there should be seasonality in timing of disbursement of credit and its recovery." 3. The introduction of "Credit Loans" system was one of the main features of "Action Programme" for orienting credit production. Under the plan, production was the main purpose of arrangement of finance and short term loans were to be given on basis of anticipated crop. The loans were related to the estimated outlay in raising credits and recoveries were to be made as and when the crop was sold from proceeds of the sale. Under this system, credit requirements were to be made under three component formula:- (i) The Initial cash component to take care of imputes required under traditional level of cultivation; (ii) Second component to be provided in kind to cover additional inputs such as fertilizers, pesticides, insecticides, etc. (iii) Cash component to be used for additional labour charges that may be needed for utilisation of imputes under second component. 4. The cultivator's credit need falls into three broad categories" 1. Long term for capital investment in agriculture such as, construction of tube wells, land levelling, terracing purchase of tractor and other costly machines. Long term loan is normally for a period of 5 to 15 years. 2. Medium Term:- For meeting outlet relating to replacement and maintenance of wasting assets and for capital investment or purchase of comparatively small machines. Term loan is normally for 3 to 5 years. 3. Crop Loan:- mainly for financing current expenditure in connection with raising of crops. 5. The agriculture is fought for uncertainty arising among others from natural calamity such as drought, flood etc. Any such calamity destroys the crop and affect the cultivators' capacity to repay the loans. Thus, keeping all this in view, the Government decided to introduce comprehensive scheme for crop insurance which was announced by the Union Finance Minister in his budget speech in the year 1985-86, which is extracted as under:- "A crop failure, in the event of a drought or flood, can have disastrous effect on the livelihood of our farmers and their families. The Government has, therefore, decided to introduce a comprehensive scheme of crop insurance. Henceforth, there will be a built-in insurance cover for all crop loans. The insurance cover will be provided upto 150 per cent of the crop loan. To begin with, the scheme will be extended to wheat, paddy, oilseeds and pulses. The insurance charges will be low. The marginal and small farmers will be subsidized to the extent of two-thirds of the insurance charges by Central and State Governments on a matching basis. Details of the scheme, which are being worked out, will be announced separately." 6. The details of the scheme were finalized in consultation with the Ministry of Finance and the General Insurance Corporation of India (hereinafter referred to as "GIC"). Brief outlines of the Crop Insurance Scheme : 7. The Central Government decided to introduce the scheme throughout the country commencing from "Kharif 1985". The scheme is being operated through GIC. The brief outline of the scheme is given as under:- Object:- (A) To provide financial assistance to the agriculturists in the event of failure of crops on account of famine, flood, cyclone and such other natural calamities. (B) To make arrangement for providing credit to the farmers for the next sowing season in the event of the crop failure during the current season. (C) To increase the production of food crops, pulses and oilseeds. (1) This scheme is being operated by the General Insurance Corporation. (2) The following crops are covered under the scheme. (A) Paddy, wheat and Millets. (B) Oilseeds and pulses. (3) The farmers borrowing loans from the Coop. financing institutions, Commercial Bank, Regional Rural Banks are covered under the scheme. Almost, equal to 150% of the crop loan is eligible for insurance coverage. (4) The risk under the scheme is in the ratio of 2:1 between G.I.C. and State Government. (5) The premium rates are as under:- (A) 2 percent of the insurance amount in the case of paddy, wheat and Millet. (B) 1 percent of the insurance amount in the case of oilseeds and pulses. (6) The amount of Insurance Premium for the crop covered under the scheme forms the credit limit and the same is deducted as premium amount while releasing the actual loan. 8. Thus, in brief this scheme covers crops of oilseeds, pulses, paddy and "Bajara". "The ratio of premium for crop of oil seeds and pulses is 1% while in the case of paddy and "Bajara" is 2%. The amount of insurance taken under this scheme is pagged at 1 1/2 times the amount of crop loan obtained by the farmers for raising the crop insured. Thus scheme is compulsory and the banks are given mandate to collect premium from the borrowers and remit the same to GIC. Under the scheme GIC to act as a leading Insurer. The State Government is to set up a State Crop Insurance Fund and to act as co-insurer to the extent of 33.1/3%. The scheme is to be administered jointly and in close collaboration of State Government. The scheme does not specify specific month or period to be covered under the scheme. It only mentions the crop loans issued from "Kharif 1985". The Insurance Charges i.e. premium is to be included as an additional amount in the scale of business. SEQUENCE OF EVENTS : 9. After declaration made by the Union Finance Minister in Parliament in February 1985 as a follow up action, the Government of India prepared a "Crop Insurance Scheme" which was discussed in a Workshop organized at New Delhi on 01.05.1985. This workshop was attended by Agriculture Production Commissioners (APC)/ Secretary (Agriculture)/ Secretary (Cooperation)/ Registrar of Cooperatives Societies, Managing Directors of State Co-operative Banks of States and Union Territories. The workshop was also attended by the representatives of Cabinet Secretariat, Ministry of Finance (Insurance Division), Banking Division, Planning Commission, Reserve Bank of India, NABAD and GIC. The Additional Secretary to the Government of India, Ministry of Agriculture Rural Development sent letter dated 3.5.1985 to all the Chief Secretaries of all the State Governments and Union Territories apprising them of the comprehensive crop insurance scheme and about the discussion held in the workshop. The State Governments were requested to take immediate action for adopting and implementing the new scheme from "kharif 1985" season. The State Governments were also advised to take steps to organize meeting of the State level Bankers Committees. It was further advised that the matter may be placed for discussion in the State Level Coordination Committee and if necessary, workshop on crop insurance may be organized. The General Manager, NABAD, also sent letter dated 7.5.1985 to the Managing Director, State Cooperative Bank in all the States and Union Territories and also the Chairman, Regional Rural Banks, informing that the crop insurance scheme has been finalized by the Government of India. It was made clear that the scheme of crop insurance essentially covers for the crop loans issued by the Bank and therefore, it is important that the Banks take full advantage of the scheme. It was further made clear that the loans already disbursed the insurance premium to be paid will have to be suitably adjusted out of the future installments due to be disbursed by sanctioning additional loan to the extent necessary. The Reserve Bank of India under further Instruction dated 6.7.85 advised All Indian Scheduled Commercial Banks to sanction additional loan for the Kharif Season 1985 to cover premium amount and remit it to Nodal offices. They were also asked to collect from Branches/Nodal offices data on number of farmers and amount of crop loans covered under the scheme during "kharif 1985", with cropwise details and send the same to them by 13.9.1985. NABAD also sent further instructions with respect to the Crop Insurance Scheme to the Managing Directors, State Cooperative Banks of all States and Union Territories and the Chairman, Regional Rural Banks under the Communication dated 9.7.1985. On 17.7.1985, the National Conference on Crop Insurance Scheme was held at New Delhi under the Chairmanship of Secretary (Agriculture and Co-operation) which was attended by officers of the Ministry of Agriculture and Rural Development, Ministry of Finance (Insurance Division), Reserve Bank of India, GIC, representative from the State Governments and Union Territories and the State Cooperative Banks. Summary record of the discussion in the said Conference held on 17.7.1985 was sent for information to all the concerned. As per consensus arrived at, it was agreed to cover all the crop loans disbursed for specified crops from 01.04.1985 onwards and also to provide cut off date as on 31st October for sending proposals to GIC for "kharif" season. The State of Gujarat adopted the Resolution dated 01.08.1985 decided to implement the crop insurance scheme introduced by the Government of India for "kharif 1985" crops in the State of Gujarat in collaboration with the GIC. The State Government also constituted the Insurance Fund Committee under the chairmanship of the Additional Chief Secretary (Finance Department). On 19.10.1985, the Officer-in-charge, GIC, Ahmedabad sent letters to NODAL Offices/ Cooperative banks/ Commercial Banks/ TRBC, informing that for receiving declaration with remittance Insurance Charges for "kharif 1985" is 31.10.1985 and therefore, declaration for loans disbursed in September 1985 be sent to him by 07.10.1985 and further declaration for the loans disbursed in October 1985 be sent to him on or before 31.10.1985. The Officer-in-charge sent a letter to the Manager, Amreli District Co-operative Bank, advising them to cover the loans disbursed by them at the earliest date and send necessary declaration with remittance of the Insurance Charges. The Government of Gujarat, convened the meeting on 21.10.1985 under the chairmanship of K.G. Ramnathan, Secretary to the Government of Gujarat, Agriculture and Rural Development, to review implementation of the Crop Insurance Scheme in the State of Gujarat. This meeting was attended by the Dy. Director of Insurance, Dy. General Manager, NABAD, Manager, Gujarat State Cooperative Bank and the Managers, District Cooperative Banks. It was pointed out by the Chairman in the said meeting that even though the cut off date for sending declaration and the premium by the Nodal Bank is 31.10.1985, most of the District Cooperative Banks have not sent necessary declaration and further the list of defined area for "Bajri" crop was received very late and therefore, the cut off date is further extended for a period of 10 days or so. In October 1985, the GIC received declarations from the NODAL Banks and the certificates were issued by the authorized persons of GIC certifying that loanee farmers are covered to the extent of 150% of the loans disbursed in terms of comprehensive crop insurance scheme as incorporated in the agreement entered into between GIC and the Head Office of the Bank concerned. The Registrar, Co-operative Societies, addressed a letter dated 23.10.1985 to the General Manager, Gujarat State Co-operative Bank Ltd., stating that in view of the decision taken in the meeting held at Gandhinagar on 21.10.1985, the last date for remitting premium and submitting declaration is 31.10.1985 and as such, necessary direction in this regard may be issued to the District Cooperative Banks. The State Co-operative Bank was also asked to impress upon the District Co-operative Banks that the scheme is compulsory and is useful for borrowing agriculturists. The Circular dated 26.10.1985 was also issued by the Gujarat State Cooperative Bank to all the District Central Cooperative Banks in which it was made clear that, as the current year is the first year of the insurance scheme under which the procedure has to be completed by 31.10.1985. The Director of Agriculture, sent letter dated 28.10.1985 to the Morangi Vividh Karyakari Sahakari Mandali Ltd., informing that the last date for remitting the premium amount and submitting declaration is 10.11.1985. 10. There was drought in various districts, and as such, the claims were raised for indemnifying the damages under the crop insurance scheme. The Chairman of GIC Shri Ashok Goyenka first time made press statement on 11.06.1986, stating that the claims filed under the newly introduced Crop Insurance Scheme for a total sum amounting to Rs 110.34 crores for "kharif 1985" crop which was more than 10 times of the premium of Rs. 9.33 crores. He admitted that heavy claims were on account of drought condition in the year 1985. He also said that nowhere in the world, crop insurance which was means of promoting agriculture was profitable proposition. He further clarified that under the crop insurance scheme, the Central Government bears 2/3rd of risk while the State Government bears 1/3rd of risk. He pointed out that, out of claims of Rs 101.3 crores, substantial claims were from State of Gujarat, amounting to Rs 73.55 crores. However the officer-in-charge, G.I.C. under impugned the Communication dated 31.10.1986, informed that the loans disbursed prior to 01.04.1985 in the State of Gujarat can not be covered under the scheme. It was stated that the said stand was taken under the advice of the Government of India, Ministry of Agriculture. It was further stated that they are shortly arranging refund of Insurance Charges in respect of the same insurance of the said loans cancelling the insurance. Shri J.M. Patel, Chairman, Gujarat State Cooperative Bank Ltd. sent detailed letter dated 11.10.1986 to Shri C.N.S. Shastri, Managing Director, GIC, asking him to reconsider the issue of settlement of the insurance scheme against the premium collected in the month of October 1985 and upto 10.11.1985. Since the representation and other efforts did not yield, the writ petition was filed in April 1987. CASE AND CONTENTIONS OF THE PARTIES : SPL.C.A. NOS. 1541/87, 1842/87, 3182/87 AND 1655/87 : 11. This group of Special Civil Applications arises from the different districts of Saurashtra region. The S.C.A. No. 1541/87 and No. 1842/87 arise from Amreli district, S.C.A. No. 3182/87 from Bhavnagar district and S.C.A. No.1655/87 from Jamnagar district. In this group of the Special Civil Applications, the petitioners seek directions setting aside the decision of fixing the date of 01.04.1985 and 30.09.1985 as the cut off dates for the purpose of settling the insurance claims of the farmers for the insured crops for 1985 kharif season. The common grievance is that their claims have not been entertained by the respondents on the ground that the crop loans for kharif 1985 season commenced only after April 1995 and ends on 30.09.1985. It is stated that, as per practice and usages prevailing in the State of Gujarat, the kharif season commences from the month of January and extends upto November every year, depending on the rainfall in the area. It is also stated that, for the purpose of agriculture operations, right from the month of January, the farmers are required to take loans and advances from the Primary Co-operative Societies. In the year 1985, rainy season started late, the first rain had fallen somewhere in or about July 15, 1985 and because of the late rainy season, "kharif season" was also pushed back to the end of November 1985. It is also stated that the respondents accepted the premium on the basis of which the loans disbursed from the month of January 1985 to 10th November 1985 without raising any objection, as such, now they are precluded from rejecting their claims on the ground that the loans prior to 01.04.1985 and beyond 30.09.1985 are not covered under the same. The impugned action is malafide and afterthought as the respondents - GIC did not anticipate drought in the first year and as such, in order to avoid liability, the cut off dates have been provided arbitrarily. 12. Mr K.G.Vakharia, Sr. Advocate appearing in this group of petitions has submitted that it is implicit in the comprehensive crop scheme as well as the follow up letters and circulars that sum insured was for 1985 kharif insured crops. The sum insured was to be calculated on the basis of crop loan in relation to kharif crops. The scheme was introduced as late as in the month of August 1985 and put into implementation somewhere in the month of October 1985 in the State of Gujarat. Still, all the concerned authorities treated the entire advances in relation to 1985 kharif insured crops for the purpose of collection of premium. 13. During the course of arguments, while reading the summary record of discussion in the National Conference on Crop Insurance held on July 17, 1985, at New Delhi, learned counsel in view of the recorded consensus that all crop loans disbursed for the specified crops from 01.04.1985 onwards should be covered under the scheme, has given up the claims for the period prior to 01.04.1985. He has vehemently argued that there is no mention of the cut off dates of 30th September 1985 in any of the letters or the circulars or the Minutes of any Meetings or Conferences. He further submits that, no cut of dates as 30th September 1985 was ever talked about, except in September 1986 when the liability was denied. He submits that the clue to know kharif period under the scheme is as to how the scheme was understood. He further submits that once the premium was accepted, it was not open for GIC to refund the premium and deny the liability fixed. It is also stated that GIC is only an instrumentality of the scheme of the Government of India. In order to substantiate the contentions, learned counsel has referred to various documents on record. He has heavily placed reliance on the summary on record of the Conference dated July 17, 1985 and submitted that, under clause (2) while it was agreed by all concerned that loan shall be disbursed from 01.04.1985, no outer limit of the period has been provided. He has further referred to sub-para (6) which, on the contrary, provides for cut off dates for sending proposals to GIC for kharif season as 30th October 1985. Mr Vakharia has also referred to the Dictionary meaning of "kharif" as given in the English Short Oxford Dictionary and the Gujarati Dictionary viz. Bhagwat Go Mandal. S.C.A. NO.