UP sugar stock auction: banks claim priority on proceeds

With the auction of seized sugar stock of Uttar Pradesh private sugar mills seeming imminent, the banks have pleaded before the Allahabad High Court seeking priority on the proceeds for repayment of their secured loans advanced to mills.

The mills usually take working capital loans on movable assets i.e. sugar stock. The term loans are taken on immovable assets, such as factory, land etc.

Currently, the state government is holding 2.98 million tonnes (MT) of sugar belonging to private mills for auction following their failure in clearing dues. The HC is hearing a case pertaining to UP sugarcane arrears, which currently stand at over Rs 5,400 crore for the 2013-14 crushing season. The case was filed by Rashtriya Kisan Mazdoor Sangathan (RKMS) convener V M Singh.

So far, State Bank of India (SBI), Punjab National Bank (PNB) and UP Cooperative Bank have submitted separate petitions before the HC seeking first right on the liquidation proceeds of sugar stock.

The division HC bench presided by Chief Justice D Y Chandrachud directed the state government to apprise the court about the status of working capital loans secured by private mills.

Now, the state sugarcane department would collect district wise data about the bank limit enjoyed by individual mills, which would then be collated for whole of UP.

The next date of hearing in the case has been fixed on August 12.

Almost 70 percent of the 95 private units in UP have taken working capital loans. The consolidated sum for all mills is likely to run into several thousands of crores.

The total seized stock would fetch the state government under Rs 9,000 crore, if the sugar stock was to be auctioned, say for instance at the rate of Rs 30/kg.

On August 1, the government had informed the HC it could not auction the stock due to uninterested buyers and 'kanwar mela' in western UP, where majority of the mills are situated.

The government had so far registered over 60 First Information Reports (FIR) and issued Recovery Certificates (RCs) against 52 mills.

Pursuant to RCs issued by the cane commissioner, the respective district administration had seized the sugar stock for auction, so that farmers' dues could be settled.

Besides, sugar belonging to 23 cooperative mills estimated at 0.23 MT was also available with the government.

UP sugar sector is estimated at Rs 30,000 crore and represents the largest organised industry. Sugarcane farming supports over 4 million farmers.