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Current Affairs

UP’s sugarcane Act amendments

Date: 25 February 2022 Tags: Bills & Laws

Issue

The Uttar Pradesh law to allow the state to attach the assets of sugar mills in case of default of payments has been opposed by bankers.

 

Background

Delay in sugarcane payments has been a consistent issue plaguing the agrarian sector in the state. It is expected to play a role in ongoing election.

 

Details

  • The amendment is called the UP Sugarcane (Regulation of Supply and Purchase) – Second Amendment Act, 2021.

  • The act was recently used by the government to adjust dues to Lalitpur Power Generation Company Ltd (LPGCPL).

 

The issue

  • Bankers believe that the law is against banking principles and undermines the Insolvency and Bankruptcy Code (IBC).

  • They accuse the law of violating the “waterfall” mechanism mentioned under section 53 of the IBC. It concerns the priority of the dues being cleared in case of default for any corporation.

  • The guidelines suggest that workmen of the defaulting corporation and secured creditors have the highest priority for having their dues cleared.

 

The LPGCPL & BHSL issue

  • The Bajaj Hindusthan Sugar Ltd’s (BHSL) owed Rs 1000 crore as sugarcane dues to farmers and the state government owed same amount to Lalitpur Power Generation Company Ltd (LPGCPL).

  • The LPGCPL is the subsidiary of BHSL. The state government made payments to BHSL instead of LPGCPL for supplying power to the state’s electricity department.

 

Problems

  • The bankers fear that they will not be able to recover their dues if state government starts attaching assets without following IBC.

  • They further say that both BHSL and LPGCPL are separate legal entities and not transferring amount to LPGCPL puts it at risk of default.