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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.1035 OF 2008

DEPOSIT INSURANCE & CREDIT  GUARANTEE CORPORATION     ... APPELLANT

VERSUS RAGUPATHI RAGAVAN & ORS.   ... RESPONDENTS

WITH

CIVIL  APPEAL  NOS.  1116,  1923,  1924,  1925,  1926, 1927, 1928, 1929, 1930, 1931, 1932, 1934 AND 1935 OF 2009, CIVIL APPEAL NOS. 5333, 5334, 5335, 5336 AND 5337-5339 OF 2012.

J U D G M E N T

ANIL R. DAVE, J.

1. Judgment dated 20th November, 2006 delivered in

Writ Appeal No.261 of 2006 by the Madurai Bench of

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the Madras High Court has been challenged in the

main appeal.  For the sake of convenience, we have

considered facts of the main case for deciding the

common  issues  which  are  involved  in  all  these

appeals.   

2. The appellant, who has approached this Court,

was not a party to the litigations before the High

Court,  but  has  been  constrained  to  approach  this

Court as the direction given by the learned Single

Judge as well as by the Division Bench of the High

Court  in  the  aforestated  writ  appeal  affects  the

appellant adversely and therefore, the appellant had

submitted an application for permission to file the

Special  Leave  Petition  against  the  aforestated

judgment.   Permission  was  granted  to  the  present

appellant and therefore, this appeal.

3. The appellant is Deposit Insurance and Credit

Guarantee  Corporation  (hereinafter  referred  to  as

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‘the Corporation’).  The function of the Corporation

is to insure deposits made by depositors with the

banking companies and the said Corporation has been

constituted under the provisions of Section 3(1) of

the  Deposit  Insurance  and  Credit  Guarantee

Corporation Act, 1961 (hereinafter referred to as

‘the Act’). The Act had been enacted with a very

laudable purpose.  Normally a person deposits his

savings or invests his money by way of a saving bank

account or a fixed deposit with banking companies,

including  cooperative  banks,  without  taking  much

care  of  ascertaining  financial  condition  of  the

bank, possibly because of the trust reposed by him

in the Reserve Bank of India, which regulates the

banking business in the country.   

4. In the event of any financial difficulty faced

by  the  banking  company,  the  depositors  would

generally lose substantial amount of their deposits,

in whichever form made, because normally at the end

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of  the  winding-up  proceedings,  the  unsecured

creditors  get  very  little  amount.   So  as  to

safeguard the interest of such small depositors or

investors, who have parked their funds with banking

companies, the Act had been enacted to insure the

amount deposited by the depositors and to guarantee

repayment of certain amount to such investors, when

the banking company is in financial difficulty and

is ultimately wound-up.

5. In  the  instant  case,  we  are  concerned  with

Theni Cooperative Urban Bank Ltd., doing its banking

business  mainly  in  District  Theni  of  Tamil  Nadu.

The aforestated Bank, which had been registered as

an insured bank with the Corporation on 1st July,

1980, was in financial difficulties and therefore,

the Reserve Bank of India had cancelled its licence

to  do  banking  business  under  Section  22  of  the

Banking  Regulations  Act,  1949  on  23rd May,  2002.

However, the said order cancelling the licence was

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kept in abeyance for a period of six months by an

order dated 7th June, 2002.

6. Ultimately, the said bank could not discharge

its  obligations  and  therefore,  on  24th December,

2002,  the  Joint  Registrar  of  the  Co-operative

Societies,  Theni,  was  appointed  as  an  Official

Liquidator to carry out liquidation proceedings.  

7. As stated hereinabove, the said bank had been

insured  with  the  Corporation  and  therefore,  the

Official  Liquidator  prepared  a  claim  list  of  the

depositors etc. as per the provisions of Section 17

of the Act and forwarded the same to the Corporation

on 21st May, 2003.

8. As the Corporation had insured the bank, as per

the provisions of the Act, the Corporation settled

the statutory claims of the depositors by releasing

a  sum  of  Rs.3,26,87,846.12,  and  thereby  maximum

amount  payable  to  each  depositor  had  been  paid.

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Thus, the amount which the Corporation was liable to

pay  to  the  depositors  under  the  provisions  of

Section  16  of  the  Act  had  been  paid  by  the

Corporation through the Official Liquidator.

9. It is pertinent to note that the Corporation

does not insure the entire amount paid by all the

depositors.  According to the provisions of Section

16 of the Act, at the relevant time the amount which

was insured in respect of each depositor of the said

bank was Rs.1 lakh and therefore, every depositor

was paid the amount of deposit or a sum of Rs.1

lakh, whichever was less.

10. Though the aforestated amount had been released

by the Corporation, all the depositors could not be

paid the entire amount they had deposited with the

bank because the amount insured in respect of each

depositor was only Rs.1 lakh.  So, those who had

deposited more than one lakh rupees with the bank,

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were not paid the amount to the extent to which

their deposits exceeded Rs.1 lakh.   

11. In  the  aforestated  background,  Writ  Petition

Nos.6768 and 7372 of 2005 had been filed in the

Madurai Bench of the Madras High Court by some of

the  depositors  praying  that  the  amount  which  had

remained unpaid on their fixed deposits be directed

to be paid to them by the Joint Registrar of the

Co-operative Societies, who had been appointed as

the Official Liquidator.  In the said petitions, the

aforestated officer, i.e. the Official Liquidator as

well  as  the  Special  Officer,  Theni  Co-operative

Urban  Bank  Ltd.  were  impleaded  as  respondents.

After  hearing  the  concerned  parties,  by  an  order

dated 27th July, 2005, the learned Single Judge was

pleased to direct the Special Officer to pay the

amount  deposited  by  the  depositors  with  accrued

interest thereon within 8 weeks from the date of

receipt of a copy of the said order by the Special

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Officer.  Upon perusal of the said order, it appears

that the said petitions had been disposed of at an

admission stage and even before any reply was filed

on behalf of the Official Liquidator.    

12. Be  that  as  it  may,  the  said  order  was

challenged by the respondents by filing Writ Appeal

No.261  of  2006.   At  the  time  of  hearing  of  the

appeal,  the  learned  counsel  appearing  for  the

Official Liquidator had submitted before the High

Court that the bank had been ordered to be wound–up

on 24th December, 2002, and an Official Liquidator

had  been  appointed,  who  had  disbursed  the  amount

received from the Corporation.  It had also been

submitted  before  the  High  Court  that  upon

disbursement  of  the  amount  received  from  the

Corporation, the balance amount at the disposal of

the Official Liquidator was to be refunded to the

Corporation as per the provisions of the Act as the

Corporation had a preference over the claim of the

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depositors, who had already received Rs.1 lakh from

the  Corporation.   Ultimately,  after  hearing  the

learned  counsel,  the  High  Court  came  to  the

conclusion that the Corporation had no preferential

right and the amount which was with the Official

Liquidator should have been distributed among the

depositors.  The Official Liquidator as well as the

Special Officer had been directed to carry out the

said  instructions  within  a  particular  period  and

thus the writ appeal had been disposed of.

13. The Corporation was not a party before the High

Court, but the right of the Corporation to get back

the amount in preference over other depositors in

pursuance of the provisions of the Act was adversely

affected  by  virtue  of  the  impugned  judgment  and

therefore, the Corporation filed the Special Leave

Petition  which  has  now  been  converted  into  this

appeal.   These are the circumstances in which this

appeal has been placed before us for hearing.

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14. According  to  the  learned  counsel  for  the

Corporation,  the  directions  given  by  the  learned

Single Judge as well as the Division Bench in appeal

by the High Court are contrary to the provisions of

the Act.   The learned counsel had taken us through

the provisions of the Act, more particularly, the

provisions of Sections 16, 17, 21 and 22 and the

provisions of the Banking Regulations Act, 1949, so

as to establish the case of the Corporation to the

effect that after payment by the Corporation to the

depositors to the extent to which the deposits had

been guaranteed, the surplus should be put at the

disposal of the Corporation subject to the provision

of Section 21 of the Act.  Till the said surplus is

paid to the Corporation, subject to the provisions

regarding making payment of winding up expenditure,

dividend to be paid as per the provisions of Section

21 of the Act, the depositors could not have been

given any further amount.  Any payment to depositors

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at that stage would be contrary to the provisions of

the Act and by virtue of the orders passed by the

High Court, the Official Liquidator was directed to

act contrary to the provisions of the Act.

15. It had been submitted by the learned counsel

that the High Court did not consider any of the

provisions  of  the  Act  or  the  provisions  of  the

Banking  Regulations  Act,  1949  before  passing  the

impugned  order.   According  to  him,  once  each

depositor is paid the amount deposited or Rs.1 lakh,

whichever is less, the Official Liquidator of the

Bank should have given the amount to the Corporation

as per the provisions of Section 21 of the Act.  In

view  of  the  aforestated  legal  position,  the  High

Court committed an error by giving a direction to

the  Official  Liquidator  that  the  amount  which  he

had,  should  be  distributed  among  the  depositors.

Doing so would be absolutely contrary to the Scheme

and spirit of the Act.  The learned counsel had

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narrated  the  object  with  which  the  Act  had  been

enacted and the Corporation had been set-up, which

has been narrated hereinabove.  

16. On  the  other  hand,  the  learned  counsel

appearing for the depositors had submitted that it

was  the  duty  of  the  Official  Liquidator  to

distribute the amount which he had with him among

the  depositors  as  it  is  done  in

insolvency/winding-up  proceedings.    According  to

him, the Corporation having paid the amount which it

had  guaranteed  to  pay,  had  no  right  to  get  any

amount from the Official Liquidator as the bank had

been paying premium to the Corporation in accordance

with the provisions of the Act and therefore, it was

the duty of the Corporation to disburse the amount

guaranteed among the depositors.  After paying the

said amount,

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the Corporation had no right of whatsoever type to

get any amount from the Official Liquidator or the

Special Officer.

17. We have heard the learned counsel at length and

have also considered some judgments referred to by

them and the provisions of the Act and the Banking

Regulations Act, 1949.

18. Upon hearing the learned counsel appearing for

the parties and looking at the facts of the case, we

are of the view that this appeal deserves to be

allowed.   We  note  the  fact  that  Writ  Petition

Nos.6768 of 2005 and 7372 of 2005 had been finally

disposed of at an admission stage.  In the said

petitions, the present appellant Corporation was not

made  a  party,  though  it  was  stated  before  the

learned Single Judge that according to the statutory

provisions of the Act, the Official Liquidator had

to make payment to the Corporation.   In view of the

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said submission, in our opinion, it would have been

better if the Corporation had been impleaded as one

of the respondents.  In that event, the stand of the

Corporation and the provisions of the Act could have

been known in detail by the learned Single Judge.   

19. Be that as it may, now we are concerned with a

direction given by the High Court to the Official

Liquidator  and  the  Special  Officer  of  the  Bank,

which  is  in  liquidation,  whereby  they  have  been

directed to pay the unpaid amount to the depositors

instead of paying the same to the Corporation.

20. The object with which the Act has been enacted

has  been  stated  hereinabove  in  a  nutshell.   The

object was to insure the depositors so that they may

not have to stand in a queue before the Official

Liquidator for every paisa deposited by them with

the  concerned  bank.   As  on  today,  as  per  the

provisions of Section 16(1) of the Act, a sum of

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Rs.1 lakh is being insured or guaranteed in respect

of each depositor.  So a depositor is safe and he

has not to wash his hands off his deposit if the

amount deposited by him is less than Rs.1 lakh.  The

Official Liquidator, as per the provisions of the

Act, has to give details about the depositors and

the amount deposited by them in a prescribed form

within  three  months  from  the  date  on  which  the

liquidation order is passed or from the day on which

he takes charge, whichever is later and within two

months  from  the  date  on  which  the  details  are

submitted to the Corporation,  the Corporation has

to make payment to the above extent either to the

depositors directly or to them through the Official

Liquidator.

21. Thus, as per the above-referred Scheme, each

depositor, including each original petitioner, must

have  received  Rs.1  lakh  from  the  Official

Liquidator.  Initially, upon the bank being ordered

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to be wound-up, the original petitioners and other

depositors had a right to recover Rs.1 lakh or the

amount  deposited,  whichever  was  less,  from  the

Official  Liquidator  and  the  said  amount  must  had

been paid to them when the petitions were filed.   

22. According to the provisions of the Act, after

payment  to  the  above  extent  is  made  to  each

depositor,  if  any  amount  is  available  at  the

disposal of the Official Liquidator, which he might

have  recovered  from  the  borrowers  or  from  other

sources, he has to pay the said amount to the extent

to which the amount had been paid by the Corporation

as per the provisions of Section 21 of the Act.

Section 21 of the Act reads as under :-

“21. (1) Where any amount has been paid under  section  17  or  section  18  or  any provision  therefor  has  been  made  under section 20, the Corporation shall furnish to the liquidator or to the insured bank or to the transferee bank, as the case may be, information as regards the amount so paid or provided for.

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2)  On  receipt  of  the  information  under sub-section  (1),  notwithstanding  anything to the contrary contained in any other law for the time being in force, - (a) the liquidator shall, within such time

and  in  such  manner  as  may  be prescribed,  repay  to  the  Corporation out of the amount, if any payable by him in respect of any deposit such sum or sums as make up the amount paid or provided  for  by  the  Corporation  in respect of that deposit;

(b) the insured bank or, as the case may be, the transferee bank, shall, within such time and in such manner as may be prescribed,  repay  to  the  Corporation out of the amount, if any, to be paid or credited in respect of any deposit after  the  date  of  the  coming  into force  of  the  scheme  referred  to  in section 18, such sum or sums as make up the amount paid or provided for by the  Corporation  in  respect  of  that deposit.”

23. It  is  pertinent  to  note  that  when  the

Corporation had paid to the depositors as per the

insurance scheme under the Act, the Corporation gets

a right under the aforestated Section 21 of the Act

to get money from the Official Liquidator.

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24. One has to look at sub-Section (2) of Section

21, which in unequivocal terms, directs the Official

Liquidator to make the payment to the Corporation as

it  has  been  stated  in  the  said  sub-section,

notwithstanding anything to the contrary contained

in any other law for the time being in force.  Thus,

the  Official  Liquidator,  as  per  clause  2(a)  of

Section 21 of the Act, has to repay the amount to

the Corporation.   

25. The aforestated Section 21 not only makes it

obligatory on the part of the Official Liquidator to

repay the said amount to the Corporation, but it

also clarifies that there shall not be any other

preferential  creditor  who  would  be  getting  any

amount from the Official Liquidator till the amount

payable under Section 21 of the Act is paid to the

Corporation.  

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26. In  view  of  the  aforestated  clear  legal

position, in our opinion, the High Court was not

right when it directed the Official Liquidator to

determine  the  mode  of  payment  by  ignoring  the

aforestated statutory provision.   

27. The Corporation was not represented before the

learned  Single  Judge,  but  at  least  before  the

Division Bench, the learned counsel appearing for

the Official Liquidator had drawn attention of the

Bench  to  the  aforestated  legal  provisions  of  the

Act.   Moreover, provisions of Regulation 22 of the

Deposit Insurance and Credit Guarantee Corporation

General Regulations, 1961 (hereinafter referred to

as ‘the Regulations’) had also been referred to by

the learned counsel. The said Regulation 22 reads as

under :

“22.  The  amounts  repayable  to  the Corporation  under  sub-section  (2)  of section 21 of the Act shall be paid from time to time by, -

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(a)  the  liquidator  as  soon  as  the realisations and other amounts in his hands,  after  making  provision  for expenses  payable  by  that  time,  are sufficient to enable him to declare a dividend of not less than one paisa. in the Rupee to each depositor.

(b)  the  insured  bank  or  the  transferee bank, as the case may be, as soon as the realisations and other amounts in its hands, after making provision for expenses  payable  by  that  time  in respect of such realisations or other amounts in its hands are sufficient to enable  it  after  the  date  of  coming into force of the scheme referred to in section 18 of the Act, to pay or credit in respect of each depositor a sum  not  less  than  one  paisa  in  the Rupee.”

28. The  aforestated  Regulation  22  also  provides

that the Official Liquidator, after making necessary

provision  for  the  expenses  in  relation  to  the

liquidation  proceedings  and  for  declaration  of

dividend, as prescribed in the Regulations, has to

make payment to the Corporation.  

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29. In  view  of  the  aforestated  statutory  legal

provision, in our opinion, the High Court should not

have given the direction which, if complied with,

would  run  contrary  to  the  statutory  provisions

incorporated in the Act.

30. Even  if  one  looks  at  the  entire  issue  from

different point of view, one would believe that all

the depositors have by and large equal right. If the

amount  deposited  is  less  than  Rs.1  lakh,  each

depositor  gets  the  amount  in  full,  but  if  the

deposit is exceeding Rs.1 lakh, then only the amount

which is in excess of Rs.1 lakh may not be given to

the  depositor,  unless  the  bank  in  liquidation  is

having sufficient funds which can be given to all on

pro-rata basis after providing for expenditure in

the liquidation proceedings and after repaying the

amount to the Corporation as per the provisions of

the Act.   The Act in a way guarantees repayment of

Rs.1 lakh to each depositor.  The High Court or any

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other authority has no power to direct payment in

excess of Rs.1 lakh by ignoring statutory provisions

of the Act and the Regulations made thereunder.

31. For the aforestated reason, we are of the view

that the High Court had exceeded its authority while

giving a direction to the Official Liquidator, which

is not in consonance with the statutory provisions

and therefore, we set aside the judgment and order

delivered by the learned Single Judge as also by the

Division Bench and direct the Official Liquidator

and the Special Officer to act in accordance with

the statutory provisions.   

32. The  appeal  is,  accordingly,  allowed  with  no

order as to costs.

CIVIL APPEAL NOS.1116, 1923, 1924, 1925, 1926, 1927, 1928, 1929, 1930, 1931, 1932, 1934 AND 1935 OF 2009

33. So far as Appeal No.1116 of 2009 and similar

matters are concerned, we record the fact that they

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have  been  filed  at  an  interlocutory  stage  and

therefore, the said appeals are disposed of with a

direction to the High Court to decide the matters,

which are pending before it, in the light of the law

laid down hereinabove.

CIVIL  APPEAL  NOS.5333,  5334,  5335,  5336  AND 5337-5339 OF 2012

34. In all the aforestated appeals, some compromise

had been arrived at among the parties before the

learned  Single  Judge,  but  the  same  had  been

challenged before the Division Bench.   The Division

Bench had quashed and set aside the order, whereby

the litigants had entered into a compromise and the

matters  had  been  remanded  to  the  learned  Single

Judge.  We dismiss the aforestated appeals as the

matters  have  been  remanded  to  the  learned  Single

Judge.   However,  we  direct  that  the  present

appellant shall be impleaded as a party-respondent

before the learned Single Judge so that all Writ

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Petitions can be decided afresh after considering

the  provisions  of  the  Act  and  after  hearing  the

present appellant.

35. The  appeals  are,  thus,  disposed  of  with  no

order as to costs.

        …………………………………………………….J                         (ANIL R. DAVE)

…………………………………………………….J              (DIPAK MISRA) NEW DELHI;  JULY 01, 2015.