Legal Problems of Fulfillment of Conditions for Granting Subsidies (Grants) to Agricultural Producers

El'nikova Elena Vasil'evna PhD in Law Associate Professor of Department of Entrepreneurial and Corporate Law, Kutafin Moscow State Law University (MSAL) 125993, Russia, Moscow,, Sadovaya-Kudrinskaya str., 9 evelnikova@msal.ru

         The provision of financial assistance to agricultural producers in the form of subsidies, including grants, is one of the most popular areas of state support for small and medium-sized enterprises in the agricultural sector. The need for additional sources of financing is due to both the peculiarities of agricultural production itself, including the significant separation in time of its initial and final stages, the risk of adverse weather and climatic conditions and their negative consequences for the harvest, and the presence of disparity in market prices for agricultural products and other products necessary for its production (fuel andlubricants, pesticides and agrochemicals, metal, etc.).

         The relations between the agricultural commodity producer - the recipient of the subsidy and the authorized executive body of the subject of the Russian Federation are regulated through the conclusion of an agreement on the provision of a subsidy (grant), the terms of which include obligations for the use of the provided budget funds, the content of which is largely determined by the regulatory legal acts of the subject of the Russian Federation. In fact, the recipient of the subsidy (grant) is forced to agree with the proposed terms of their use, without being able to develop and coordinate them. However, practice shows that some conditions for granting subsidies (grants) initially contain significant risks of their non-fulfillment and, as a result, the onset of liability in the form of the obligation to return the received budget funds in full. In other cases, regional regulatory legal acts expand the list of conditions for granting grants in the form of subsidies without proper justification, which creates additional problems in the process of their use.

         It should be borne in mind that the provision of state financial assistance to agricultural producers on a gratuitous and irrevocable basis is essentially aimed at achieving effective use of budgetary funds for the development of peasant (farmer) and other agricultural enterprises. Proceeding from this, in general, the return of the received budget funds should be considered as an undesirable legal result, which should be applied only in exceptional cases, for example, when committing intentional fraudulent actions on the part of the recipient of the subsidy. In cases where there are individual insignificant violations of the conditions for the implementation of a subsidy (grant), other legal consequences should be applied that are not related to the obligation to fully refund budget funds.

         Unfortunately, the current legislation is not flexible in regulating the legal consequences of violations of the conditions for granting subsidies to legal entities, individual entrepreneurs, as well as individuals - producers of goods, works, services. The Budget Code of the Russian Federation, if the recipients of subsidies violate the conditions established when they are granted, provides for the only legal consequence – the return of the funds received to the corresponding budget of the Russian Federation (clause 3.1. of Article 78).Such an approach does not contribute to the achievement of effective legal regulation, since in this case the legal means – responsibility in the form of the obligation to return budget funds - is aimed at preventing their embezzlement, which in itself does not allow to realize the main purpose of providing subsidies – to promote the development and increase the efficiency of peasant (farmer) and other agricultural enterprises.

         It seems that a more effective approach from the standpoint of achieving the goals of legal regulation would be a differentiated approach of the legislator to determining liability measures in case of violation by the recipients of subsidies of the terms of their provision, in which, along with the return of funds, other legal consequences would be applied, in particular, measures of civil liability, such as a penalty, payment of interest for use of funds, compensation of losses, as well as modification of the grant agreement.

         In order to establish, in the presence of violations of which conditions for the provision of budgetary funds, the application of civil liability measures is more justified, let us turn to the consideration of individual cases of violation of the terms of the grant (subsidy) agreement that have become the subject of consideration within the arbitration practice of courts.

         A considerable number of cases are associated with risks when choosing contractors by grantees. The most typical situation is when budgetary funds are transferred to the counterparty as an advance payment, but subsequently the delivery of goods (performance of works, provision of services) is not carried out by them and the grantee cannot provide full evidence of the expenditure of budgetary funds in accordance with their intended purpose. The unscrupulous behavior of the counterparty does not release the grantee from responsibility for non-compliance with the terms of the grant. Thus, all negative consequences are assigned to the grantee. It should be pointed out that the interests of the budget have additional protection by including in the grant agreement a mandatory condition on ensuring the possibility of financial control over the grantee's counterparties. However, the interests of the grantee himself in case of unfair behavior of the counterparty in the context of his obligations to comply with the conditions for granting the grant are not protected by either the norms of substantive or procedural legislation. Most often, the courts refuse to satisfy petitions for the involvement of counterparties in the consideration of such cases, indicating that the relationship between the grantee and his counterparty should be considered within the framework of a civil dispute.

         Only in some exceptional cases, the courts refuse to satisfy the requirements for the return of the grant, taking into account the active behavior of the grantee himself. For example, in one of the cases considered, a farmer, having received budgetary funds for the creation of a farm, undertook to spend them on the purchase, among other things, of agricultural machinery – tractor rakes, a rotary mower, a water dispenser and a mounted sprayer. To this end, she signed a contract with another farmer, to whose account the funds were transferred, but later they were supplied only with a rake and a mower, and a water dispenser worth more than one hundred and forty rubles was not delivered. The court took into account that the grantee took all possible actions to protect her violated rights, in particular, she appealed to the arbitration court with a claim to bring an unscrupulous counterparty to responsibility for violating obligations under the contract. In addition, the grantee clearly complied with the conditions for granting the grant, assuming the obligation to obtain the consent of the authorized regional executive body for each transaction (URL:https: //agrobook.ru/blog/user/inga/zhizn-posle-granta-kak-gosudarstvennye-subsidii-stanovyatsya-nachalom-bankrotstva-i (date of application: 14.12. 2022)). Of course, the behavior of the grantee should be taken into account when considering such disputes, but along with this, material and procedural legal means aimed at protecting the interests of grantees should still be considered and included in the legislation.

         One of the mandatory conditions for granting a grant is to maintain the activities of the farm for a certain period (most often. five years) from the date of transfer of budgetary funds. This condition is aimed at ensuring the stability of the agricultural sector by maintaining the number and functioning of agricultural farms. Upon termination of their activities before the deadline, the funds provided in the form of a subsidy (grant) must be fully returned in accordance with clause 3.1. of Article 78 of the Budget Code of the Russian Federation. Thus, the legislator establishes a general legal consequence, regardless of the reason (reason) for the termination of the farm. We believe that in order to ensure the property interests of not only the Russian Federation and its subjects, but also agricultural producers, there is an objective need for a more flexible legal regulation, involving a differentiated approach of the legislator to the establishment of legal consequences depending on the grounds for termination of the farm.

         Often there are situations associated with the need to change the head of the farm due to both objective reasons (death, conscription, mobilization) and other circumstances (for example, transition to public service). However, in the event of such situations, in the case of a grant in the form of a subsidy, the possibility of replacing the grantee has not been provided for by regulatory legal acts until now, which is a problem requiring legal resolution.

         As an exception, it is possible to point to the adoption of the Decree of the Government of the Russian Federation No. 2064 dated 15.11.2022 "On Amendments to Annexes No. 6, 8 and 12 to the State Program for the Development of Agriculture and Regulation of Agricultural Products, Raw Materials and Food Markets" (Collection of Legislation of the Russian Federation, 28.11.2022, No. 48, Article 8460) (hereinafter – Resolution No. 2064), which made additions to the named program regarding the interaction of authorized regional executive bodies and heads of farms called up for military service for mobilization into the Armed Forces of the Russian Federation, who are recipients of the Agrostartap grant. In accordance with the specified regulatory legal act, the content of the decision taken in this situation by the authorized regional executive body depends on the stage of implementation of the grant, the liquidation of the individual entrepreneur - the head of the farm, the possibility (impossibility) of continuing the activities of the farm itself.

         The most preferable option provided for by the above-mentioned resolution is the preservation of the farm and the continuation of its activities after the change of the head of the farm in the manner prescribed by Article 18 of Federal Law No. 74–FZ of 11.06.2003 "On Peasant (Farmer) economy" (Rossiyskaya Gazeta, No. 115, 17.06.2003) (hereinafter - the Law on the Farm), which presupposes the existence of mutual consent of the members of the farm and amendments to the agreement concluded by them. Only one of its members, who must be registered as an individual entrepreneur, can become the new head of the farm. If there is a candidate who is not a member of the farm, the assignment of the powers of the head of the farm to him is possible only after he acquires the status of a member of the farm. The change of the head of the farm does not entail a change (termination) of the status of the farm farm as a grantee. The grant agreement should be amended accordingly by concluding an additional agreement, after which the new head of the farm carries out the further implementation of the project of creation and (or) development of the economy in accordance with the said agreement.

         A more complicated situation arises when there is no possibility of continuing the activities of the farm with a new head and the implementation of state registration of the termination of the activities of the mobilized head of the farm as an individual entrepreneur or the termination of the farm itself. In this situation, the legal consequences are determined depending on the stage of implementation of the project for the creation and (or) development of a farm, which is considered completed if the funds of the Agrostartap grant are used in full, and the grantee is released from responsibility for not achieving the planned performance indicators. If the funds of the Agrostartap grant are not used or are not used in full, a decision is made to ensure the return of unused budget funds to the budget of the subject of the Russian Federation from which they were transferred, after which the project of creation and (or) development of the farm is recognized as completed with similar legal consequences for the grantee.          The considered Resolution No. 2064, of course, is a definite step forward in establishing the legal consequences due to the inability of the grantee to continue carrying out activities for the creation and (or) development of farms, but it is relevant only to the recipients of the Agrostartap grant and cannot be applied in other cases.

         The situation related to the impossibility of continuing the existence of the farm with a new head and its termination due to the death of the grantee or for other reasons remains practically unresolved. In the first case, the question arises about the permissibility of imposing obligations to return the unused amount of grant support to the budget of the subject of the Russian Federation on the grantee's heirs. Currently, neither hereditary nor budgetary legislation contains legal norms regulating this situation. However, it could well be resolved on the basis of general provisions on the universality of hereditary succession, provided that the civil nature of the grant agreement in the form of a subsidy is recognized and its qualification as a civil contract. In this case, the authorized executive body of the subject of the Russian Federation, after receiving information about the death of the grantee and the termination of the farm, would have the opportunity to send, in accordance with the established procedure, to the notary at the place of opening the inheritance case, a request for the return of the unused part of the grant.

         If it is impossible to continue the existence of the farm for other reasons (other than the death of the head of the farm), as well as when a claim is made for the return of the subsidy (part of it) in violation of the terms of its provision, the question arises about the admissibility of involving members of the farm as co-defendants (if any). The study of the arbitration practice of considering disputes on claims for the return of subsidies initiated by authorized regional bodies shows the existence of different approaches to decision–making due to the lack of a uniform understanding of whether an individual entrepreneur - the head of a farm, or the farm as a whole, is an obligated party to an agreement (contract) on the provision of a subsidy (grant). In our opinion, it should be assumed that the satisfaction of claims at the expense of the property of the grantee alone is possible if the farm is represented only by its head – an individual entrepreneur. If there are several members in its composition, the requirements for the return of budgetary funds can be satisfied at the expense of the property not only of the head of the farm, but also of the farm itself, which belongs to its members on the right of joint ownership, unless otherwise established by agreement between them (paragraph 3 of Article 8, paragraph 3. of Article 6 of the Law on the Farm). If a farm established as a legal entity acts as a grantee, then civil legislation provides for subsidiary liability of members of the farm for its obligations (Clause 4 of Article 86.1 of the Civil Code of the Russian Federation).

         Proposals on the expediency of civil qualification of the agreement under consideration have already been made by us earlier^[1]. However, a different approach prevails among representatives of financial and legal science, considering a grant as a financial and legal category (subsidy or its separate type) ^[2,3,4]. Such an understanding, in our opinion, does not correspond to the very essence of the relationship between the grantee and the authorized executive body of the subject of the Russian Federation, which are not in a relationship of subordination (subordination) with each other, as a consequence, the relationship between them cannot be considered as public law. In addition, the regulation of the relations in question exclusively by the norms of budget legislation will not even allow the subsidiary application of the norms of civil law without special reference to that in budget legislation, which in itself cannot provide a complete and comprehensive legal regulation of relations in connection with the grant.

          The analysis of court decisions shows that when assessing the legality of the grantee's actions to spend budget funds within the framework of the grant received, the courts take into account not only the subordinate federal acts and regulatory legal acts of the subjects of the Russian Federation, but the provisions of civil legislation. Thus, the court satisfied the requirement of the Ministry of Agriculture to return the grant in connection with its use not in accordance with the intended purpose, considering the existence of only one contract insufficient to confirm the grantee's expenses, indicating that they were not provided with a document confirming the transfer of ownership of the real estate object (the decision of the Arbitration Court of the Ulyanovsk region of September 08, 2014 on case no. A72-1152/2014 // URL : https://sudrf.cntd.ru / document/414570498 (accessed date: 14.12.2022)).

         Summarizing the above, we note that the conditions for granting and using subsidies should not create additional encumbrances for agricultural producers, the amount of which is comparable to the amount of financial support, otherwise the interest in applying for subsidies (grants) loses all meaning due to economic inexpediency.

         Qualification of the agreement on the provision of subsidies (grants) as a civil law contract, it would allow for more relevant legal regulation of relations in connection with the provision of budgetary funds to agricultural producers due to the possibility of changing the agreement in question by concluding additional agreements, applying civil liability measures, general provisions on contracts and obligations, including the grounds for termination of obligations, ways to ensure and fulfill them, and also the norms of hereditary legislation.

         Recognition of the civil nature of the grant agreement will create additional opportunities to resolve disputes between the grantee and the authorized regional body by concluding a settlement agreement, the content of which will allow adjusting some of the initial conditions for granting subsidies (grants) taking into account the interests of both parties to such an agreement.