Modus operandi is to make co-op banks lend to the mills, which are run to ground, and buy the units when they come up for foreclosure
The Maharashtra State Cooperative Bank Limited (MSCB) is in the process of auctioning the Aurangabad-based Gangapur Co-operative Sugar Mill. The mill in the drought-prone region of Marathwada has failed to repay a loan of ₹89.64 crore. The bank wants to lease out the mill for 15 years to recover its dues and has attached it, per the provisions of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

The mill is mired in corruption controversies with directors blaming one another for siphoning out money and profits while farmers, who hoped for better prospects, have been left high and dry.

“It’s not ‘co-operative’ but ‘corruptive’ sector now. You see what will happen next. The mill will go into private hands that will wave a magic wand and the loss-making mill will become profitable. Of course, these ‘private hands’ will be of visible and invisible politicians” rues R K Nirmal a farmer.

The modus operandi

As one after another co-operative sugar mills get auctioned in Maharashtra, farmers smell a “conspiracy” to convert their units into a private enterprise to grab the assets, especially sprawling land tracts worth many crores. For the last few years, the MSCB has been auctioning loss-making sugar mills to recover loans, but many questions hang over the auctioning process.

The MSCB is the apex co-operative bank in the State with deposits of ₹20,849 crore and a working capital of ₹33,454 crore. It controls all 31 District Central Co-operative Banks (DCCB). With ₹87,998 crore of deposits and a working capital of ₹1,10, 501 crore (as of March 3, 2020), the DCCBs are the pivot of the State’s co-operative economy.

A statutory inspection of the MSCB’s financial position as of March 31, 2010, by the National Bank for Agriculture and Rural Development (NABARD) under Section 35(b) of the Banking Regulation Act, 1949, opened the Pandora’s Box.

“This report was the beginning of the unravelling of the scam on record; otherwise in the public domain, but not on paper,” says agriculture expert Nishikant Bhalerao.

Following the Nabard report, the RBI, in a May 4, 2011, order, directed that the board of the MSCB be superseded, and appointed an administrator.

“The bank has been dominated by MLAs, MPs, and politicians of all parties. These people, who are directors of the MSCB and DCCBs, are the same people who have direct and indirect interest in sugar mills. Directors of MSCB and DCCBs give loans to mills started by them or their relatives. Massive corruption by directors pushes the mills into financial crisis and they default on loans. The MSCB then auctions the mills and the same politicians buy these mills in auction at throwaway prices,” activist Sampatrao Pawar, who has worked in the agricultural co-operative sector for over three decades, explains how the racket operates.

Probe of auctions
Indeed, both, the Nabard report and the Bombay High Court, in a 2019 verdict, have confirmed this modus operandi of the sugar barons. The co-operative banks extend pre-seasonal and short-term credit, as unsecured loans, to sugar mills having negative net worth. “Prima facie, therefore, the report of Nabard indicates that these directors were having complete knowledge regarding the transaction and in spite of that, either they sanctioned the loan to such units and/or sold out the properties of such units at a throwaway price, which resulted in a substantial loss to the Bank,” the Bombay HC noted.

“There have been massive irregularities in auctioning of sugar mills. Auctioning of mills is just a futile exercise as it is pre-decided who will bid and get the mill,” alleges social activist Anna Hazare, who has approached the High Court over MSCB and sugar mill corruption cases. Hazare has demanded that the Enforcement Directorate (ED) probe the auctioning of all sugar mills in Maharashtra.