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Sunday, November 29, 2020

In Farm Act, negotiating inequality

The Price Assurance Act as well as the Produce Trade and Commerce Act need to account for the reality of capitalism for the settlement mechanism to have any real meaning: All parties in a commercial transaction are equal but some are more equal than others.

Updated: November 6, 2020 2:48:55 pm
Bombay hc, maharashtra farmers, maharashtra farm loans, maharashtra banks farm loans, maharashtra farmers loan eligibility, indain express newsUnder the Price Assurance Act, the farmer and a Sponsor are required to agree to resolve disputes — in the farming agreement — through a conciliation board.

Written by Vishwajith Sadananda

Choice and the invisible hand of the free market are at the heart of the Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020. According to the Ministry of Agriculture & Farmers Welfare, this law (along with the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020) intends to recognise and support the freedom of choice for farmers. To enable this choice, the Price Assurance Act protects the farmer in her transactions with the Sponsor (who is any person, firm, company, etc. in a “farming agreement” with the farmer to buy produce) — at least on paper. Among other safeguards, it creates payment obligations for the Sponsor, protects the rights of the share cropper, and disallows the Sponsor from taking ownership of or permanently modifying the farmer’s land or premises through a written agreement.

But safeguards and rights are only as good as the systems that permit their enforcement. And the systems that permit their enforcement under the Price Assurance Act are built on counterintuitive, almost fatal foundations — the provisions on conciliation and settlement of disputes.

Under the Price Assurance Act, the farmer and a Sponsor are required to agree to resolve disputes — in the farming agreement — through a conciliation board. Representatives of the parties to the agreement constitute the conciliation board, and such representation is required to be fair and balanced. If a dispute arises, the parties must refer the dispute to the conciliation board so constituted. Any settlement reached through the conciliation process is final and binding on the parties.

The Price Assurance Act also contemplates a scenario where parties have not agreed on a conciliation clause in the farming agreement. In the event of a dispute, then, the jurisdictional Sub-Divisional Magistrate may constitute a conciliation board for settling the dispute. The Act is silent on the composition of such a conciliation board, however. It is safe to assume that the Sub-Divisional Authority may be guided by the law passed along with the Price Assurance Act, that is, the Produce Trade and Commerce Act, to constitute a board comprising a chairperson appointed by the Sub-Divisional Magistrate, and an equal number of representatives — between two and four in number — of the parties to the dispute on their recommendation.

In short, the Price Assurance Act requires parties to explore conciliation whether or not they agreed to conciliation in their agreement, and negotiate a settlement. In doing so, it assumes that the fairest, most cost-effective manner to settle disputes is to first attempt a negotiated settlement. However, such settlement may not lead to terms that are fair, reasonable and conscionable to both parties due to power imbalances between them — turning the “attempt” into “compulsion”.

In a dispute resolution process without a third party arbiter – such as a judge or an arbitrator – where the ability to negotiate is the key to protect one’s interest, the party with greater bargaining power may control the settlement process and the outcome. To be sure, power is dynamic, contextual and takes varied forms that may not be obvious to the observer. It may, therefore, be unwise, patronising even, to assume that a farmer is the weaker party in every transaction with a Sponsor. That said, in a country where 86.2 per cent of farmers are small and marginal — owning less than two hectares of land, and just 47.3 per cent of the crop area; where almost 70 per cent of agricultural households spend more than they earn; where almost a quarter of all farmers live below the poverty line, safeguards against potential power imbalances in the settlement process are crucial for the Price Assurance Act to meaningfully attain its goals.

But why are safeguards against potential power imbalances in the settlement process necessary? As Owen W Fiss, a seminal critic of negotiated settlements, shows, the weaker party may not have the resources or wherewithal to analyse the information needed to predict the outcome of the dispute, should the settlement process fail and lead to litigation. This informational imbalance, thus, warps the perception of the weaker party entering into a negotiated settlement, forcing her to accept terms that are against her interests. Perhaps more importantly, she may need the amount in dispute more immediately and thus be influenced to settle on terms dictated by the more powerful party as a way of accelerating payment, even if she is aware that she would be entitled to more money should the dispute be ultimately litigated. Absent safeguards to offset asymmetries in bargaining power, the process of settlement enables the stronger party to bring a sniper rifle to a game of darts.

Under the Price Assurance Act, settlement terms are binding on both parties. However, the Supreme Court has held in Brojo Nath Ganguly that “[c]ourts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract, or an unfair and unreasonable clause in a contract entered into between parties who are not equal in bargaining power”. As a result, one could argue that the weaker party could walk away from a settlement without suffering adverse legal consequences if the terms of the settlement are unconscionable. But such an argument assumes that the weaker party is not only aware that she can walk away without liability, but also financially capable of proving this in the litigation that will follow.

Thus, by stipulating a bare and binding settlement process without anything more — and without an adjudicator to question the enforceability of unfair terms— the Price Assurance Act practically permits the enforcement of unfair and unreasonable farming agreements.

This is not to say that settlement as a concept has no value. Indeed, settlement ought to be encouraged to avoid an expensive and time-intensive court process, especially given the temporal failings of the Indian judicial system. Nevertheless, conciliation and settlement derive their legitimacy through consensuality and party control. Both these legitimising factors are absent in Price Assurance Act as it does not correct for asymmetries of power, and turns a blind eye to one party taking control over the entire settlement process. The Price Assurance Act as well as the Produce Trade and Commerce Act need to account for the reality of capitalism for the settlement mechanism to have any real meaning: All parties in a commercial transaction are equal but some are more equal than others.

The writer is an advocate practicing in the Karnataka High Court

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