Will Decriminalisation of Section 56(1) of NABARD Act Help Business Grow or Create Hurdles?

To secure ‘Ease of doing business’ in India and boost the economy in times of COVID-19, the government has indicated intention to decriminalise offences under the NABARD Act. The author here argues that such a move will not achieve intended goals and is antithetical to the intention of the Act itself.

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The Indian economy has been in bad shape for the last few years. It was already plummeting before the COVID-19 pandemic hit came. It is now seeing an abysmal fall.

Addressing these issues, the Central Government with a view to improving business sentiments and the ease of doing business released a notification on 8th June indicating its intention to decriminalise certain penal provisions relating to economic offences in some selected legislations. One of these provisions is Section 56(1) of the NABARD Act.

Importance of Penalisation of Malicious Intention

Section 56(1) of the NABARD Act, says that whoever in any return, balance sheet, or other document information furnished under the Act or wilfully makes a false statement would be punished with imprisonment that may extend to three years and be also liable to be fined.

This Section seeks to deter and punish white-collar crimes which involve intentional deception to carry out financial frauds and secure pecuniary gain at the cost of the welfare of the ultimate stakeholders. The nature of the offence mentioned in Section 56 is of a financial fraud involving the loss of public funds. The decriminalisation of this provision would be a major setback to the larger public interest.

“The decriminalisation of this provision would be a major setback to the larger public interest.”

On July 1st, 2016, the Reserve Bank of India released its ‘Master Directions on Frauds’ where it stressed on the importance of penalising any attempt or act of fraudulent nature in relation to banks. Justice Sadhana Jadhav of the Bombay High Court in her order dated 13 December 2016 in Shri Ravikant Maruti Bagal Vs. The State of Maharashtra (CRIMINAL BAIL APPLICATION NO 1204 OF 2016) remarked:

“Criminal prosecution is not a recovery process. However, the prosecution has to be taken to its logical end as it is an offence against the state and the consumers of the bank, who had to face financial difficulties because of the conduct of the applicant. This aspect needs to be taken into consideration mainly for the purpose that the account-holders of a cooperative bank are mostly farmers and the amount is to be used for maintaining and enhancing the agrarian economy and also for the survival of the farmers.”

It may, therefore, be noted the offense provided under Section 56 of the NABARD Act is one which involves an element of ‘mens rea’ i.e intention. Policymakers and Courts have taken strict view on this so as to deter white-collar crimes.

Legislative Intent of NABARD Act

While presenting the NABARD Bill in the Lok Sabha, the then Finance Minister, Mr. R. Venakatraman,  maintained:

‘It is our intention to establish the National Bank as the apex organisation with respect to all matters relating to policy, planning and operational aspects in the flow of credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in the rural areas. The new Bank will be a single integrated agency for meeting the credit needs of all types of agricultural and rural development and help in the implementation of policies and programmes…’

This makes it clear that stakeholders of the NABARD Act were intended to be those who were generally at the lowest rung of the society with respect to access to equitable credit facilities.

The Economic Survey of India 2019-2020 suggested doubling farmer’s income to address issues such as access to credit, insurance coverage, and investments in agriculture.  India has relatively lower farm mechanisation which needs to be addressed.  The food processing sector requires more focussed attention as it can play an important role in reducing post-harvest losses and aid the creation of an additional market for farm outputs.

“These statistics show that although the agriculture sector is the most important sector for the economy, problems such as low access to credit for farmers have not been resolved.”

These statistics show that although the agriculture sector is the most important sector for the economy, problems such as low access to credit for farmers have not been resolved. Hence, the circumstances in which the NABARD Act was brought into being still exist and decriminalisation of the only provision which deals with the commission of financial fraud with respect to the NABARD Act will only exacerbate the existing problems.

Sustained Attack on Agriculture

According to data obtained by an RTI application, in the first year of its implementation, only 25% of the total beneficiaries of the PM-KISAN scheme received a sum of Rs. 6000 in their accounts. Despite a normal agricultural produce this year, farmers had to sell their produce at about 10-15% lower than the Minimum Support Price.

“However, various farmer associations have expressed concerns about this prospective change saying that the moves of the governments are tilted towards helping the companies involved in agri-business and not farmers.”

Recently, the government announced changes in the Agricultural Produce Marketing Committee (APMC) architecture stating that a central law will be formulated to provide adequate choices to the farmer to sell their produce at a remunerative price, barrier-free inter-state trade and a framework for e-trading of agriculture produce.  However, various farmer associations have expressed concerns about this prospective change saying that the moves of the governments are tilted towards helping the companies involved in agri-business and not farmers.

During the COVID-19 pandemic, the one sector that has suffered the least as compared to other sectors in the Indian economy is the agriculture sector. However, some of the policies of the government have backfired and invited the wrath of the farmer associations. In the name of increasing ‘ease of doing business’, the decriminalisation of Section 56(1) will have chances of adding to the already existing woes of Indian farmers.

Counter effects to the economy

According to the Ministry of Finance, the proposed move of decriminalising the offenses of the nature mentioned in Section 56(1) is aimed at improving the ease of doing business. But the nature of fraudulent offenses mentioned in the said Section is in no sense minor. In 2018, late Arun Jaitley, who was the Finance Minister, had warned about the effects of bank fraud on ease of doing business. He had pointed out that if bank frauds keep happening, the entire ease of doing business would be affected. Such bank frauds not only threaten the integrity of national banks but also destabilise the economy and are bad for the sentiments of honest individuals.

“A leeway to fraudulent activities may also promote negative sentiments in the minds of honest investors.”

The actions proposed are ‘expected to go a long way in improving ease of doing business’ but researches have shown that the prevalence of fraudulent activities threatens the integrity of national banks and in turn have the potential to destabilise economies in the long run. A leeway to fraudulent activities may also promote negative sentiments in the minds of honest investors.

It is therefore abundantly clear that the proposed move is not the best way to improve business sentiments and ease of doing business. Such a move may threaten the very environment which facilitates healthy business.

Unclogging of Courts by Other Methods

One of the intended objectives is to reduce the pendency of cases in Courts which leads to inconvenient rigmarole and therefore affects business sentiments. Decriminalising malafide and wrongful acts is not solution to this problem, but it is to address the problems such high vacancies of judicial officers.

India’s ranking in the ‘Ease of doing Business’ Index is not satisfactory. The pandemic has added to that woe by inducing large-scale unemployment and lack of profit generation on the part of the employers. The agricultural sector is no exception to this phenomenon. However, relaxing section 56(1) of the NABARD Act is no solution to that problem. In fact, such a drastic step can ultimately hurt the agricultural working force.

Agriculture is one of the sectors that strengthened the national backbone of India and made us self-sufficient so far as food availability is concerned. In this moment of crisis, if we do not support the cause of farmers and genuinely care for their interests, we would be doing a great disservice to them.

(Jagriti Pandey, is a student of the National Law University, Patna, and a member of Shramik Saarthi. Views are personal and do not necessarily reflect the views of The Leaflet.)