2021 (11) TMI 1188 - SC - Indian Laws

SC upholds loan waiver scheme for small marginal farmers, rejects challenge under Article 14

State of Tamil Nadu and Ors. Versus National South Indian River Interlinking Agriculturist Association

SC reversed HC judgment that struck down loan waiver scheme for small and marginal farmers. HC held scheme violated Article 14 as arbitrary and directed ... Seeking quashing G.O. Ms. No. 50 which granted loan waiver to small and marginal farmers - exercise of powers of judicial review - scheme granting exemption only to 'small farmers' and 'marginal farmers' is arbitrary and violative of Article 14 of the Indian Constitution - scheme is under-inclusive and over-inclusive - High Court held the grant of loan waivers only to small and marginal farmers to be arbitrary and directed the Appellant to grant the same benefit to all farmers irrespective of the extent of landholding - HELD THAT:- The application of the impugned scheme to only the small and the marginal farmers is justified for two reasons: (i) A climate crisis such as drought and flood causes large scale damages to small holdings as compared to the large holdings due to the absence of capital and technology; and (ii) The small and marginal farmers belong to the economically weaker Section of society. Therefore, the loan waiver scheme in effect targets the economically weaker Section of the rural population. The scheme is introduced with an endeavor to bring substantive equality in society by using affirmative action to uplift the socially and economically weaker sections. Due to the distinct degree of harm suffered by the small and marginal farmers as compared to other farmers, it is justifiable that the benefit of the scheme is only provided to a specified class as small and marginal farmers constitute a class in themselves. Therefore, the classification based on the extent of landholding is not arbitrary since owing to the inherent disadvantaged status of the small and marginal farmers, the impact of climate change or other external forces is unequal. The High Court in the impugned judgment has observed that the scheme is both under-inclusive and over-inclusive since the total extent of land held by a person is calculated based on the information in the landholding register which permits discrepancies. It also held the scheme to be under-inclusive for not extending the benefit to 'other farmers' or the 'large farmers'. The meaning and ambit of under-inclusiveness and over-inclusiveness has been discussed in an erudite exposition by Justice K.K. Mathew, writing for a Constitution Bench in State of Gujarat v. Ambica Mills [1974 (3) TMI 108 - SUPREME COURT] where it was held that Since the classification does not include all who are similarly situated with respect to the purpose of the law, the classification might appear, at first blush, to be unreasonable. But the Court has recognised the very real difficulties under which legislatures operate -- difficulties arising out of both the nature of the legislative process and of the society which legislation attempts perennially to re-shape -- and it has refused to strike down indiscriminately all legislation embodying classificatory inequality here under consideration. While non-classification arbitrariness is tested based on the proportionality test, where the means are required to be proportional to the object, classification arbitrariness is tested on the rational nexus test, where it is sufficient if the means share a 'nexus' with the object. The degree of proof under the test would impact the judgment of this Court on whether the law is under-inclusive or over-inclusive. A statute is 'under-inclusive' if it fails to regulate all actors who are part of the problem. It is 'over-inclusive' if it regulates actors who are not a part of the problem that the statute seeks to address. The determination of under-inclusiveness and over-inclusiveness, and degree of deference to it is dependent on the relationship prong ('rational nexus' or 'proportional') of the test. The Scheme in issue was introduced in pursuance of an electoral promise made by the then party in power in Tamil Nadu. The High Court seems to have been of the view that because the scheme was in pursuance of an electoral promise, it is constitutionally suspect. This view was made on an assumption that no study must have been conducted before the electoral promise was made. It is settled law that a scheme cannot be held to be constitutionally suspect merely because it was based on an electoral promise - The scheme propounded by the State of Tamil Nadu passes muster against the constitutional challenge. The High Court has erred in holding otherwise. During the pendency of the proceedings the State has granted a broader coverage, based on its assessment of the situation. The appeal is allowed and the judgment of the Madras High Court at the Madurai Bench dated 4 April 2017 is set aside. Issues Involved:1. Judicial review of a government policy.2. Arbitrariness and violation of Article 14 of the Indian Constitution.3. Under-inclusiveness and over-inclusiveness of the scheme.Detailed Analysis:1. Judicial Review of a Government Policy:The State of Tamil Nadu argued that the court should not review the scheme as it is a fiscal policy decision. The court acknowledged that judicial review of policy is limited to compliance with fundamental rights and constitutional provisions. The court cited precedents such as Asif Hammed v. State of Jammu & Kashmir and R.K. Garg v. Union of India, emphasizing that economic policies should be viewed with greater latitude. The court recognized that the loan waiver scheme is a social policy aimed at eliminating inequality, and thus, it falls within the purview of Directive Principles of State Policy. The court concluded that while the scheme does not impose a burden but affords a benefit, it still needs to be examined for compliance with Article 14.2. Arbitrariness and Violation of Article 14:The Respondent challenged the scheme as discriminatory for excluding farmers with landholdings exceeding 5 acres. The court reiterated that Article 14 forbids class legislation but allows reasonable classification. The classification must be based on intelligible differentia and have a rational relationship to the objective. The court found that the classification based on landholding is justified as small and marginal farmers face greater harm due to limited resources and capital. The court cited the Situation Assessment of Agricultural Households report, which showed significant capital deficits and higher indebtedness among small and marginal farmers. The court concluded that the classification is not arbitrary as it targets economically weaker sections and aims to bring substantive equality.3. Under-inclusiveness and Over-inclusiveness of the Scheme:The High Court had held the scheme to be both under-inclusive and over-inclusive. The Supreme Court explained that under-inclusiveness occurs when a classification does not include all similarly situated individuals, while over-inclusiveness includes individuals not affected by the mischief the law aims to address. The court cited Ambica Mills and N.P. Basheer to justify under-inclusiveness based on degrees of harm, administrative convenience, and legislative experimentation. The court emphasized that the rational nexus test, rather than the proportionality test, applies to classification. The court found that the scheme's classification based on landholding does not violate Article 14 as it is neither based on grounds in Article 15 nor on an individual's innate traits.Conclusion:The Supreme Court allowed the appeal, setting aside the Madras High Court's judgment. The court held that the loan waiver scheme's classification based on landholding is justified and does not violate Article 14. The scheme, introduced in pursuance of an electoral promise, passes constitutional muster, and the High Court erred in holding otherwise. All pending applications were disposed of.