The Gangapur Co-operative Sugar factory in Marathwada’s drought-prone region of Aurangabad district is on auction by the Maharashtra State Cooperative Bank Limited (MSCB)due to a default of Rs 89.64 crores. The mill has failed to repay the loan.
The funded banks and financial institutions want to lease out the mill for 15 years in order to recover its debts and have attached it in accordance with the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
The mill is embroiled in corruption scandals, with directors blaming one another for siphoning off money and profits, leaving farmers who hoped for better prospects high and dry.
‘It is no longer a ‘cooperative’ but a ‘corruptive’ industry. You can predict what will happen next. The mill will be sold to a private investor, who will wave a magic wand and turn the loss-making mill profitable. Of course, these ‘private hands’ will include visible and invisible politicians,’ laments farmer R K Nirmal.
The method of operation
Farmers in Maharashtra are suspicious of a ‘conspiracy’ to convert their co-operative sugar mills into a private enterprise in order to seize the assets, particularly sprawling property tracts worth many crores. The MSCB has been auctioning off loss-making sugar mills to recover loans for the last few years, but the auctioning process has raised many questions.
The MSCB is the state’s apex cooperative bank, with deposits totaling ₹20,849 crore and working capital of ₹33,454 crores. It has complete control over all 31 District Central Co-operative Banks (DCCB). The DCCBs are the backbone of the State’s cooperative economy, with ₹87,998 crores in deposits and working capital of ₹1,10,501 crore (as of March 3, 2020).
National Bank for Agriculture and Rural Development (NABARD) in accordance with Section 35(b) of the Banking Regulation Act of 1949, conducted a statutory inspection and opened Pandora’s Box of the MSCB’s financial position as of March 31, 2010.
Agriculture expert Nishikant Bhalerao says, ‘This report was the beginning of the untangle of the scam on paper; otherwise, it was in the public domain, but not on paper,’
Following the NABARD report, the RBI directed that the MSCB’s board be disbanded and an administrator be appointed in a May 4, 2011, order.
‘All parties’ MLAs, MPs, and politicians have dominated the bank. These directors of MSCBs and DCCBs are the same people who have a direct or indirect interest in sugar factories. These Directors make loans to mills founded by themselves or their relatives. Massive corruption by directors causes the mills to go bankrupt and default on their loans. The MSCB then calls for an auction of the factories, and the same local MLAs buys out at throwaway prices,’ explains activist Sampatrao Pawar, who has served in the agricultural cooperative sector for almost three decades.
Examination of auctions
Sugar mills with a negative net worth can obtain pre-seasonal and short-term credit from cooperative banks in the form of unsecured loans. ‘Prima facie, therefore, the NABARD report indicates that these directors had complete knowledge of the transaction and, despite this, either sanctioned the loan to such units and/or sold out the properties of such units at a throwaway price, resulting in a substantial loss to the Bank,’ the Bombay High Court stated.
‘There were numerous irregularities in the auctioning of sugar mills. Auctioning mills is a pointless exercise because it is predetermined who will bid and win the mill,’ claims social activist Anna Hazare, who has filed a High Court petition in connection with MSCB and sugar mill corruption cases. Anna Hazare has demanded the Enforcement Directorate (ED) investigate the auctioning of all sugar mills in the state of Maharashtra.