The judicial intervention stems from a writ petition filed by advocates Punya Prasad Khatiwada and Dipak Bikram Mishra when dairy farmer arrears reached roughly Rs 7 billion. At the height of the payment crisis, private dairy companies affiliated with the Dairy Industry Association and the Nepal Dairy Association accounted for approximately Rs 6 billion in unpaid dues, while the state-owned Dairy Development Corporation (DDC) owed roughly Rs 900 million.

In its ruling, the division bench emphasized that ensuring timely payments to smallholders is an essential state responsibility. The court warned authorities that tripartite pacts and administrative pledges must not serve merely as tools to silence or divert the concerns of marginalized rural producers who lack direct access to policymaking circles. The bench noted it had not received definitive evidence that payment schedules had become fully normalized across the country.

The liquidity crunch in Nepal’s dairy sector worsened after retail milk prices reached Rs 100 per litre, coinciding with an economic slowdown that dampened consumer purchasing power. As liquid milk sales contracted, processors converted excess procurement into skimmed milk powder and butter, leaving hundreds of tonnes of capital locked in warehouse inventories and severely disrupting cash flows needed to pay primary producers.