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

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 extension to all farmers regardless of landholding size. SC found classification justified as small/marginal farmers face greater climate damage due to lack of capital/technology and belong to economically weaker sections. Court applied rational nexus test, finding scheme constitutionally valid despite being under-inclusive. SC rejected HC's view that electoral promise basis made scheme constitutionally suspect. Appeal allowed, HC judgment set aside.

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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.

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