DIAMOND JUBILEE BANK BACHAV SAMITI v. STATE OF GUJARAT
2005-10-26
AKSHAY H.MEHTA, K.R.VYAS
body2005
DigiLaw.ai
AKSHAY H. MEHTA, J. ( 1 ) THIS petition under Article 226 of the Constitution of India has been filed on behalf of the depositors of Diamond Jubilee Cooperative Bank Ltd. , having its administrative office at Salabatpura, Main Road, Surat, [ hereinafter referred to as the Bank] to safeguard their interest. This petition is, therefore, in the nature of public interest litigation. ( 2 ) IT is the grievance of the petitioner that on account of acts of malfeasance and misfeasance of Ex-Directors and Ex-Officers of the Bank in collusion and association with outsiders i. e. loanees/borrowers, the Bank has ultimately gone into liquidation jeopardizing the deposits of thousands of depositors. It is the say of the petitioner that respondents no. 1, 2 and 3 have completely failed to safeguard the interest of the depositors and now after liquidation, respondent no. 4 has failed to discharge its statutory obligation as provided under the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 [hereinafter referred to as the Act]. Respondent no. 4 i. e. Deposit Insurance and Credit Guarantee Corporation [hereinafter referred to as the Corporation] has been established for the purpose of insurance of deposits and guaranteeing the credit facilities and for other matters connected therewith or incidental thereto under the Act. (1) According to the petitioner, the Bank is a cooperative bank constituted under the Gujarat Cooperative Societies Act, 1961 to carry on the banking business. It is in existence for more than 40 years by now and till recently it was a renowned and prominent bank in the southern area of Gujarat. According to the petitioner, the Bank has more than 85,000 depositors and out of this, 35% of the depositors are senior citizens. It was consistently making profit in the past, but later on due to large-scale frauds committed on it by none else than its former directors and officers in collusion with their associates who are the borrowers of large amounts from the Bank and thereby the Bank has been plunged into deep financial crisis, from which recovery, at present seems difficult. (2) It is the say of the petitioner that the Bank is an insured bank as defined under section 2 (i) of the Act and it has been paying premium to the Corporation. However, when it appeared to the Reserve Bank of India respondent no.
(2) It is the say of the petitioner that the Bank is an insured bank as defined under section 2 (i) of the Act and it has been paying premium to the Corporation. However, when it appeared to the Reserve Bank of India respondent no. 3 that it was necessary to prevent the affairs of the bank being conducted in a manner detrimental to the interest of the depositors, it cancelled the licence issued in favour of the Bank on 19th June, 2004. The Bank was also ordered to be taken into liquidation and Liquidator was appointed on 23rd June, 2004 by the State Registrar of Cooperative Societies. Thereafter, steps to lodge the claim of the Bank vis-a-vis the depositors were taken and this Court by order dated 14th February, 2005 directed the Liquidator to lodge the claim within one week therefrom with the Corporation. The same has been done. As per the requirement of the Act and the regulations, the Chartered Accountants M/s. Rathi Sharda and Associates have been appointed by respondent no. 3 to verify the claim of the Bank. That has been done on 22nd February, 2005. The Chartered Accountants so appointed have verified the claim and have submitted it to the Corporation on 23rd March, 2005. According to the petitioner, despite the fact that period as prescribed under the provisions of section 17 (2) of the Act is already over on 20th April, 2005, the Corporation has not discharged its liability arising under section 16 (1) of the Act by making payment to the depositors in accordance with the provisions of section 17 (1) of the Act. It is, therefore, submitted at the hearing by Mr. Shalin Mehta, learned advocate appearing for the petitioner that even at the interim stage of the proceedings respondent Corporation may be directed to comply with the provisions of sections 16 and 17 of the Act and to make necessary payment to the depositors. (3) It may be noted here that the petition was filed in the year 2003 when the Bank was still carrying on its business and it was not ordered to be wound up. But in view of the subsequent developments the petitioner was required to submit draft amendment, and also in view of the preliminary objection raised by Mr. SB Vakil, learned Senior Advocate then appearing for respondent no. 4.
But in view of the subsequent developments the petitioner was required to submit draft amendment, and also in view of the preliminary objection raised by Mr. SB Vakil, learned Senior Advocate then appearing for respondent no. 4. By way of amendment, the petitioner sought to incorporate in the petition the events that took place after filing of it and also to add certain relief clauses which became necessary in view of the subsequent developments. The proposed amendment was vehemently opposed by respondents no. 3 and 4. But by CAV Order dated 15th September, 2005, this Court elaborately discussed and dealt with the submissions raised in favour as well as against the proposed amendment and ultimately allowed the request of the petitioner granting the amendment and directing it to carry it out on or before 19th September, 2005. The record shows that the amendments have been carried out in time and as such now they are forming part of the petition. The amended relief clause, namely para. 28 (HH) reads as under :- Pending admission and final disposal of the present petition, Your Lordships may be pleased to direct the respondent No. 4 Deposit Insurance and Credit Guarantee Corporation to pay forthwith to each depositor of the Diamond Jubilee Cooperative Bank [in liquidation] the sum payable under Sections 16 and 17 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961. This is over and above several other prayers that have been made in the petition. Mr. Mehta has submitted that the other prayers can be granted, if thought fit by this Court, after full-fledged hearing of the petition. But so far the aforesaid prayer is concerned, it is required to be granted even during pendency of the petition considering the statutory requirement and the liability of respondent no. 4 to fulfill that requirement under the Act and also to ensure that the small depositors may not have to wait for the return of their hard earned money for many years to come. He has, therefore, prayed for admission of the matter to final hearing and in the meanwhile grant of interim relief in terms of para. 28 (HH) of the petition. (4) It is again necessary to note here that though respondent no.
He has, therefore, prayed for admission of the matter to final hearing and in the meanwhile grant of interim relief in terms of para. 28 (HH) of the petition. (4) It is again necessary to note here that though respondent no. 4 Corporation does not deny its liability to pay to the depositors of the Bank, it has adopted a stance that first the order of priority has to be decided by this Court vis-a-vis the payment to be made by the Liquidator from the sum that may be recovered by the Bank from the defaulters and only when the order of priority is determined and the Corporation is placed in the category where it is ensured the repayment of full amount paid to the depositors it can be asked to discharge the liability under section 17. According to respondent no. 4, the necessity to determine the correct priority has arisen on account of the circular issued by the Registrar, Cooperative Societies, State of Gujarat, dated 4th November, 2004. By the said circular, the Registrar of Cooperative Societies, has fixed the order of priority of liabilities of the urban cooperative bank under liquidation to be paid by the Liquidator of the bank and as per the schedule thereof, Corporation is placed in category No. 5 along with 5 other creditors. According to the Corporation, it cannot be placed in category no. 5 along with other creditors by the Registrar, Cooperative Societies, State of Gujarat, whereby the statutory order of priority granted in its favour is defeated. It has, therefore, insisted that unless and until the question regarding order of priority is resolved by this Court or by any competent authority, the Corporation should not be called upon to discharge its liability vis-a-vis the depositors. It has, therefore, strongly objected to grant of relief in terms of para. 28 (HH) of the petition. (5) It is also required to be noted here that an application was submitted on behalf of newly added respondent no. 7 being Civil Application for Direction No. 7124 of 2005 to be joined as party to the present proceedings on the ground that the Gujarat State Cooperative Bank Ltd. , is the apex bank of the cooperative banking institutions in the State and it is concerned with not only the depositors of respondent no.
7 being Civil Application for Direction No. 7124 of 2005 to be joined as party to the present proceedings on the ground that the Gujarat State Cooperative Bank Ltd. , is the apex bank of the cooperative banking institutions in the State and it is concerned with not only the depositors of respondent no. 5 Bank, but depositors of about 23 other urban cooperative banks who are facing acute financial difficulties. As a parent body of the cooperative banking institutions in the State, it is its duty to safeguard the interest of all the depositors since these depositors, being large in number, cannot get together and form an association to protect their interest. In the application, prayer was made that it be permitted to intervene in the present proceedings and by order dated 10th August, 2005 this Court has granted the application and has permitted it to intervene in the proceedings. The record shows that it is numbered as respondent no. 7 as intervener. ( 3 ) IN view of the aforesaid, we have been now called upon to decide whether the petition requires detailed consideration by this Court on its various issues and for that purpose admission to the final hearing and also to consider whether to grant interim relief in terms of para. 28 (HH) during pendency and final disposal of the petition. ( 4 ) WE have heard Mr. Shalin Mehta, learned Advocate for the petitioner, Mr. SN Shelat, Ld. Advocate General for respondents no. 1 and 2, Mr. Mihir H Joshi, Ld. Senior Advocate appearing with Mr HV Chhatrapati for respondents no. 3 and 4, Mr. Dharmesh Shah, learned Advocate for the Liquidator/administrator of respondent no. 5 Bank and Mr. KG Vakharia, learned Senior Advocate appearing with Mr. Mehul Vakharia, learned Advocate for the intervener. (1) Mr. Shalin Mehta has submitted that respondent no. 5 is an insured bank as defined under the provisions of the Act and the deposits of the depositors are also duly insured with respondent no. 4. Therefore, it is the statutory duty of respondent no. 4 to reimburse the depositors of the Bank the loss suffered by them on account of large-scale scam which has ruined the Bank.
5 is an insured bank as defined under the provisions of the Act and the deposits of the depositors are also duly insured with respondent no. 4. Therefore, it is the statutory duty of respondent no. 4 to reimburse the depositors of the Bank the loss suffered by them on account of large-scale scam which has ruined the Bank. He has submitted that the liability under section 16 of the Act has already accrued and respondent Corporation is now under statutory obligation to discharge its liability in accordance with the provisions of section 17 of the Act, but that is not being done and, therefore, it may be directed to discharge its liability forthwith, even by interim direction. He has further submitted that all the necessary requirements prior to respondent no. 4 making payment, namely preparation of list of depositors and its submission to the Corporation by the Liquidator and the verification of the claim of the depositors/bank by the Chartered Accountants, etc. have been fully complied with and there is no reason for respondent no. 4 to delay the payment. It is submitted by Mr. Mehta that respondent no. 4 cannot avoid to make the payment to depositors while objecting to the circular of the State and by insisting upon fixation of order of priority first and then to make the payment. According to Mr. Mehta, this is more so when Corporation has not chosen to challenge the said circular. He has, therefore, prayed that this Court may admit the petition and pass appropriate interim direction requiring respondent no. 4 to make the payment to the depositors of respondent no. 5 - Bank. (2) Mr. Shelat, Ld. Advocate General appearing for respondents no. 1 and 2 has submitted that the question of deciding order of priority would come at a later stage when payment is to be made by the Liquidator in accordance with section 21 of the Act. At present Corporation cannot avoid the payment to depositors on that ground. He has further submitted that when the Bank has paid premium of Rs. 4,50,000/- annually to Corporation, it is the duty of Corporation to discharge its liability arising under section 16 of the Act. It is also submitted by Mr. Shelat that first of all the Liquidator will have to satisfy the statutory dues and the dues of the workers, etc.
4,50,000/- annually to Corporation, it is the duty of Corporation to discharge its liability arising under section 16 of the Act. It is also submitted by Mr. Shelat that first of all the Liquidator will have to satisfy the statutory dues and the dues of the workers, etc. and thereafter, from the surplus amount, to make the payment to respondent no. 4. (3) Mr. KG Vakharia, learned Senior Advocate for the intervener has submitted that by virtue of amendment of the Act in the year 1968, which has come into force with effect from 1st July, 1971, the cooperative banks have been taken into the sweep of the Act and the depositors of the cooperative banks have been extended the coverage of insurance vis-a-vis their deposits under the Act. He has further submitted that in view of amendment in the Act, the State Government has even amended the Gujarat Cooperative Societies Act in accordance with the amendments made in the Act so as to facilitate the concerned authorities to comply with the amended provisions of the Act. He has drawn our attention to Chapter 10-A of the Cooperative Societies Act, which contains of only one section namely section 115 (A) , which deals with insured cooperative banks. Mr. Vakharia has also invited our attention to various provisions of the Act to cull out the scheme of the Act and has submitted that when the cooperative banks have been taken into the fold of the provisions of the Act and coverage of insurance has been extended even to the depositors of the insured cooperative bank, the Corporation cannot avoid its liability on the ground of priorities. He has submitted that question of repayment would arise under section 21 to the Corporation by the Liquidator only when payment has been made in accordance with sections 16 and 17 of the Act and thereafter the Corporation will be entitled to receive from the residuary amount with the Liquidator. In his submission the Corporation is in the business of insurance and like other insurance companies created under the General Insurance Act, the Corporation also carries on the business activity. In support of this submission, he has laid emphasis on words to contract occurring in sub-section (1) of section 3 of the Act along with other provisions of the Act.
In his submission the Corporation is in the business of insurance and like other insurance companies created under the General Insurance Act, the Corporation also carries on the business activity. In support of this submission, he has laid emphasis on words to contract occurring in sub-section (1) of section 3 of the Act along with other provisions of the Act. He has, therefore, submitted that the Corporation is statutorily bound to make payment to the depositors. He has, however, submitted that on the whole he supported the petitioner but at this stage relief contained in para. 28 (HH) cannot be granted, as that would have adverse effect on similarly situated depositors of other banks who are in liquidation too. (4) So far Mr. Mihir Joshi, learned Senior Advocate appearing for respondent no. 3 and 4 is concerned, he has submitted that provisions of sections 16 and 17 cannot be considered in isolation but the entire scheme of the Act has to be kept in view before ordering the Corporation to make payment under section 17 of the Act. He has submitted that the Act is a welfare legislation and it is meant for depositors of the insured bank all over the country and if the Corporation is required to make payment to depositors of a particular bank without first ascertaining its correct position in the order of priority, it will lead to injustice being caused to thousands of other depositors. According to him, Corporation is not in insurance business and if it is required to make payment to the depositors without full repayment being assured, it will lose its capital resulting into non-payment to other deserving depositors. He has, therefore, submitted that insistence of the Corporation on to have decision on the question of order of priority first is not at all unreasonable or illegal. He has invited our attention to several provisions of the Act such as sections 15, 22 and 23 to substantiate his submission that Corporation is not at all in the business of insurance. He has further submitted that the State Government ought not to have issued the aforesaid circular placing the Corporation in category no. 5 along with 5 other creditors so as to receive on pro-rata basis what has been left over after making payment to creditors of 4 preceding categories.
He has further submitted that the State Government ought not to have issued the aforesaid circular placing the Corporation in category no. 5 along with 5 other creditors so as to receive on pro-rata basis what has been left over after making payment to creditors of 4 preceding categories. Lastly, he has submitted that the Corporation does not deny its liability to make payment, but not at this stage i. e. not till the order of priority is determined since the State Government cannot upset the order of priority fixed under the Act. In continuation of this submission he has also added that this is not a case of subrogation since the Corporation stands on a higher pedestal than the depositors. ( 5 ) HAVING carefully considered the submissions of the learned counsels appearing for the parties and having perused the relevant record of the petition and also having perused various statutory provisions of the Act as well as of the Gujarat Cooperative Societies Act, now we proceed to discuss and deal with the controversies and to decide whether this petition deserves admission and if yes, whether relief in terms of para. 28 (HH) of the petition can be granted. (1) To begin with the discussion, we may first turn our attention to the statement of objects and reasons. They have been specified in the Bill introduced in the Lok Sabha on 31st August, 1961 as Bill No. 54 of 1961 and it has been published in the Gazette of India, Extraordinary Part-II section 2 on August 31, 1961. 1. The question of establishing a statutory Corporation for insuring deposits in commercial banks has been under consideration for some time. Various suggestions or proposals in this connection, including the recommendations made by the Shroff Committee on finance for the private sector which reported in 1954, have been examined in consultation with the Reserve Bank and the representatives of the commercial banks, and it is now considered desirable that the scheme should be implemented at a very early date. 2. The Deposit Insurance Corporation will be established as a wholly-owned subsidiary of the Reserve Bank with a paid-up capital of a crore of rupees. It will insure all deposits in commercial banks including the State Bank and its subsidiaries, other than the deposits belonging to the Central Government or to a State or foreign Government or to the insured banks.
The Deposit Insurance Corporation will be established as a wholly-owned subsidiary of the Reserve Bank with a paid-up capital of a crore of rupees. It will insure all deposits in commercial banks including the State Bank and its subsidiaries, other than the deposits belonging to the Central Government or to a State or foreign Government or to the insured banks. The limit of the insurance cover will be Rs. 1,500 but this limit may be raised by the Corporation with the previous approval of the Central Government. The premium rate will be determined by the Corporation from time to time with the previous approval of the Central Government. The maximum rate for which provision is being made in the Bill is 15 naye paise per hundred rupees per annum. 3. The Corporations liability will arise and be discharged in the event of the liquidation of a bank or the enforcement in relation to it of a scheme of compromise or arrangement or reconstruction or amalgamation. The payments due to the depositors up to the limit of the insurance cover offered by the Corporation will be made in the most convenient and expeditious manner which may be possible. Thus, it is clear that the object of the Parliament to establish a statutory Corporation as a wholly-owned subsidiary of Reserve Bank of India with a paid up capital of a crore of rupees was to ensure safety to deposits in commercial banks and other matters connected therewith or incidental thereto and to see that payment is made in most convenient and expeditious manner. Upon receiving the assent of the President, the Bill culminated into the Act. (2) It is also necessary to keep in view certain provisions of the Act. Section 2 gives definitions. Section 2 (dd) defines cooperative bank. It means a State Cooperative Bank, a Central Cooperative Bank and and a Primary Cooperative Bank.
Upon receiving the assent of the President, the Bill culminated into the Act. (2) It is also necessary to keep in view certain provisions of the Act. Section 2 gives definitions. Section 2 (dd) defines cooperative bank. It means a State Cooperative Bank, a Central Cooperative Bank and and a Primary Cooperative Bank. Section 2 (gg) defines eligible Cooperative Bank ; means a Cooperative Bank the law for the time being governing which provides that an order for the winding up, or an order sanctioning a scheme of compromise or arrangement or of amalgamation or reconstruction, of the bank may be made only with the previous sanction in writing of the Reserve Bank; xxx xxx xxx xxx xxx if so required by the Reserve Bank in the public interest or for preventing the affairs of the bank being conducted in a manner detrimental to the interests of the depositors or for securing the proper management of the bank, an order shall be made for the supersession of the committee of management or other managing body (by whatever name called) of the bank and the appointment of an Administrator therefor for such period or periods not exceeding five years in the aggregate as may from time to time be specified by the Reserve Bank; xxx xxx xxx xxx xxx the liquidator or the insured bank or the transferee bank, as the case may be, shall be under an obligation to repay the Corporation in the circumstances, to the extent and in the manner referred to in Sec. 21. Clause (i) defines insured bank. It means a corresponding new bank or a banking company or a Regional Rural Bank or an eligible cooperative bank for the time being registered under the provisions of this Act and includes for the purposes of sections 16, 17, 18 and 21 - Clause (ii) defines a cooperative bank referred to in clause (a) or clause (b) of Section 13-C, the registration whereof has been cancelled under Section 13, or as the case may be, under Section 13-C. (3) Clause (j) of section 2 defines insured deposit. It means the deposit or any portion thereof the payment whereof is insured by the Corporation under the Corporation under the provisions of this Act. Section 6 of the Act prescribes the constitution of Board of Directors; whereas section 13-A of the Act deals with registration of cooperative banks.
It means the deposit or any portion thereof the payment whereof is insured by the Corporation under the Corporation under the provisions of this Act. Section 6 of the Act prescribes the constitution of Board of Directors; whereas section 13-A of the Act deals with registration of cooperative banks. It prescribes that no cooperative bank shall be registered under this section unless it is an eligible cooperative bank. Clause (b) of sub-section (2) of section 13-A states that the Corporation shall register as an insured bank (i) every cooperative bank which has come into existence after the commencement of the Deposit Insurance Corporation (Amendment) Act, 1968 as a result of division of any other cooperative society carrying on business as a cooperative bank. Section 13-C deals with cancellation of registration of cooperative banks and section 13-D envisages the circumstance in which Reserve Bank may require winding up of cooperative banks. This provision includes that when in the opinion of the Reserve Bank of India continuance of cooperative bank was prejudicial to the interest of the depositors, it can order winding up. Section 15 deals with payment of premium and section 15-A deals with cancellation of registration of an insured bank for non-payment of premium. Section 16 is important provision of the Act for the purpose of the present proceedings. It deals with liability of Corporation in respect of insured deposits. The relevant portion of sub-section (1) of section 16 is as under :- Where an order for the winding up or liquidation of an insured bank is made, the Corporation shall, subject to the other provisions of this Act, be liable to pay to every depositor of that bank in accordance with the provisions of section 17 an amount equal to the amount due to him in respect of his deposit in that bank at the time when such order is made. Of-course the ceiling limit is prescribed, which is Rs. 1,500/-, but it is now stated before us by the learned advocates that the said ceiling limit has been increased to Rs. 1 lac as the amount payable by the Corporation to any-one depositor. Section 17 deals with manner of payment by Corporation in case of winding up of an insured bank.
1,500/-, but it is now stated before us by the learned advocates that the said ceiling limit has been increased to Rs. 1 lac as the amount payable by the Corporation to any-one depositor. Section 17 deals with manner of payment by Corporation in case of winding up of an insured bank. Sub-sections (1) and (2) thereof read as under :- (1) Where an insured bank has been ordered to be wound up or to be taken into liquidation and a liquidator, by whatever name called, has been appointed in respect thereof, the liquidator shall, with the least possible delay and in any case not later than three months from the date of his assuming charge of office, furnish to the Corporation a list in such form and manner as may be specified by the Corporation showing separately the deposits in respect of each depositor and the amounts of set-off referred to in sub-section (3) of Sec. 16. (2) Before the expiry of two months from the receipt of such list from the liquidator, the Corporation shall pay [the amount payable under Sec. 16 in respect of the deposit of each depositor- (a) directly to the depositor, or (b) to the depositor through such agency as the Corporation may determine, or (c ) to the liquidator]. Section 19 deals with discharge of the liability of Corporation upon payment of amount under section 17 or under section 18 in respect of deposits. Section 20 states that if the depositor who is entitled to be paid in accordance with section 17 or section 18 cannot be found or is not readily traceable, adequate provision shall be made by the Corporation for such payment and the amount of such provision shall be accounted for separately in its books. Section 21 being an important section, is reproduced fully : 21. Repayment of the amount to Corporation.- (1) where any amount has been paid under Sec. 17 or Sec. 18 or any provision therefor has been made under Sec. 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.
(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 Sec. 18, such sum or sums as make up the amount paid or provided for by the Corporation in respect of that deposit. Chapter IV includes topics regarding funds, accounts and audit of the Corporation. Section 26 makes a provision for advance by Reserve Bank of India to the Corporation on its request. ( 6 ) HAVING seen the aforesaid provisions of the Act, it is clear that respondent no. 5 being insured cooperative bank and the deposits of the depositors being insured deposits, the depositors are entitled to receive the payment of sum equivalent to their deposits provided the individual amount of deposit does not exceed Rs. 1 lac. When respondent no. 5 - Bank was ordered to be wound up and the Liquidator/administrator was appointed, the liability of respondent Corporation arose under the provisions of section 16 of the Act, subject to fulfillment of certain other statutory requirements, to make payment to the depositors of respondent no. 5 in accordance with section 17 of the Act. According to the petitioner, upon winding up of the Bank, the Liquidator within three months from the date of his assuming the charge of office, was required to furnish to Corporation a list in such form and manner as may be specified by the Corporation showing separately the deposits in respect of each depositor and the amount of set-off and that has already been done, then the Corporation is bound to make payment within two months thereof. But that has not been done. There is much substance in the say of the petitioner.
But that has not been done. There is much substance in the say of the petitioner. When the liability has accrued under section 16 of the Act, it is incumbent upon the Corporation to make payment in accordance with section 17 of the Act. The Corporation has to only see whether the list as specified by it is prepared and submitted by the Liquidator within three months of his assuming office and the claim of the bank/depositors is verified by the Chartered Accountants and if that is found to be in order, within two months thereof the payment has to be made. The record of this petition shows that the Liquidator has been appointed on 23rd June, 2004. He has also prepared the list and submitted to the Corporation. Necessary verification has also been done by the Chartered Accountants, namely Rathi Sharda and Associates on 23rd March, 2005. The Liquidator has lodged the claim with Corporation on 19th February, 2005. The payment, therefore, ought to have been made within 60 days thereafter. That would come to 20th April, 2005. However, the same has not been made till this date and as stated above, the reason advanced by the Corporation is the confusion created by the circular of the State. A close perusal of provisions of sections 16, 17 and 21 of the Act would give clear picture that as soon as the insured cooperative bank is ordered to be wound up, liability of Corporation to pay to every depositor would arise, of-course subject to other provisions of the Act. However, the other provisions only envisage compliance of certain requirements, namely preparation of the list of the depositors, its verification by the Chartered Accountant and the submission of the claim before the Corporation in the form and in the manner as suggested by the Corporation to the Liquidator. When these requirements are fulfilled, the Corporation has to make payment in accordance with section 17 of the Act. The payment can either directly be made to the depositors or it can be done with the help of such agency as the Corporation may determine or through the Liquidator.
When these requirements are fulfilled, the Corporation has to make payment in accordance with section 17 of the Act. The payment can either directly be made to the depositors or it can be done with the help of such agency as the Corporation may determine or through the Liquidator. If the depositor who is entitled to receive the payment under section 17 or under section 18 of the Act, is not to be found or is not readily traceable, the Corporation has to make adequate provision for such payment and the amount of such provision has to be separately accounted for in the account books. When the statutory Corporation is called upon to make the payment and to discharge its liability, it cannot avoid it on the ground that unless and until the full repayment by the Liquidator is assured, it will not discharge its liability. The Corporation has assured the repayment of the deposits by charging premium from respondent no. 5, since the Bank is a registered bank under section 13-A (2) (a) of the Act. Whether there is a contract of insurance entered into between the Bank and the Corporation under the powers conferred upon it by section 3 (1) of the Act as contended by Mr. Vakharia, can be considered and decided at the appropriate stage. Nevertheless it is the statutory duty as well as moral obligation on respondent Corporation to make the payment to the depositors since this is a welfare legislation. If the depositors, the Bank and the Corporation are to be compared with the parties under general insurance laws and in particular the insurance of motor vehicles, they would be in the position of third party the insured and the insurance company respectively. Whatever claim the Corporation may have against the Bank, it cannot dissuade the Corporation from first making payment to the depositors and to get its liability arising under section 16 of the Act discharged. It is true unlike the insurance companies, the Corporation in every case is required to be repaid the amount in accordance with the provisions of section 21 of the Act by the concerned bank upon receiving its lost funds from the defaulters.
It is true unlike the insurance companies, the Corporation in every case is required to be repaid the amount in accordance with the provisions of section 21 of the Act by the concerned bank upon receiving its lost funds from the defaulters. In other words under section 21 read with section 2 (gg) (v) the Liquidator is required to repay the amount that may have been paid by the Corporation to the depositors under section 17 or 18 of the Act. The provisions of section 21 either read in isolation or read conjointly with other sections, does not give any other meaning but only the meaning that the Liquidator has to repay the amount what has already been paid or to pay the amount of which the provision has been made by the Corporation under section 20 of the Act. According to Mr. Mihir Joshi, till such time the circular was not there, the Corporation had been discharging its liability arising under section 16 of the Act, as and when it arose, of-course subject to fulfillment of other requirements of the Act. But the circular has now created hurdle in its way in discharging its liability forthwith. However, we are not at all impressed with the said submission. The circular of the State Government if it creates difficulty in the way of Corporation in discharging its liability, it can challenge it in appropriate proceedings before the proper forum. In these proceedings which are initiated at the instance of the depositors, it cannot insist upon the Court to first decide the question of priority and then to grant other reliefs if thought fit. The Corporation cannot shirk its responsibility to challenge the resolution if it hurts it, on the ground that it is invalid and it is not required to be challenged or that it is merely a guideline prescribed by the State Government and the same is not required to be challenged. At the same time not make the payment expressing apprehension that the Liquidator will follow the guidelines. Even void-ab-initio or invalid act has to be first declared as such and then the rest of the things will automatically fall to ground.
At the same time not make the payment expressing apprehension that the Liquidator will follow the guidelines. Even void-ab-initio or invalid act has to be first declared as such and then the rest of the things will automatically fall to ground. But the Corporation is not even intending to take first step and quite contrary to its say, it calls upon this Court to first decide the order of priority in this petition meaning thereby it is seeking to challenge the circular in an indirect way. That is not permissible. When the Corporation is established for the purpose of safeguarding the deposits of the depositors, it has to justify the confidence that has been reposed in it by the framers of the statute. As stated in the petition, there are around 85,000 depositors of respondent no. 5 Bank and to be precise 83,454 who are having their deposits below Rs. 1 lac and the amount that is required to be paid to them is Rs. 83. 97 crores. 35% of these depositors are senior citizens. They have invested their hard earned money and the savings by way of deposits in the Bank with a fond hope that their amount will be safe and it would fetch decent income for them. They made the deposits to maintain themselves and to have peaceful and comfortable life as an aftermath of retirement without realizing or doubting that the unscrupulous, avaricious persons at the helm of the affairs of the bank, in association with equally unscrupulous outsiders as their associates in the form of borrowers, would shatter their hope and make their life absolutely miserable and render them completely dependent on their relatives. The framers of this legislation had foreseen such eventualities and with this precise aim, namely to secure the depositors; against such disaster, has established the Corporation by framing the Act. It is, therefore, not only statutory duty of the Corporation but even moral as well as pious duty to see to it that such persons are not left to the mercy of others. In our opinion, therefore, the Corporation is required to make the payment without waiting for a decision on order of priority in the matter of payment by the Liquidator to the creditors. ( 7 ) IT is now to be considered by us whether during pendency of the petition the Corporation can be directed to make this payment.
In our opinion, therefore, the Corporation is required to make the payment without waiting for a decision on order of priority in the matter of payment by the Liquidator to the creditors. ( 7 ) IT is now to be considered by us whether during pendency of the petition the Corporation can be directed to make this payment. It may be appreciated here that the order of winding up was passed in the month of April 2004. Thereafter the Liquidator was appointed. Even the Liquidator did not submit the claim within the stipulated time. Thus, there was already delay at first instance. Thereafter, on completion of other requirements, the Corporation was required to make the payment in the month of April, 2005 almost one year after the date of liquidation, but that has not been done. We are now nearing the end of the year 2005. As stated above, as many as 35% of total number of depositors are senior citizens. There is already delay caused in making payment by the Corporation. In fact in the order dated 28th March, 2005 it has been recorded by the previous Division Bench of this Court [ Coram : AR Dave and PB Majmudar, JJ. ] that the learned Senior Advocate who then appeared for respondent no. 4, had submitted that in view of provision of section 17 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, the amount payable to the concerned depositor shall be paid to them through the Liquidator of respondent no. 5. This statement has been made by the learned counsel after the issuance of circular of the State Government. Thus, even upto March 2005 the Corporation did not have any objection to make payment to the depositors. It was only waiting for the completion of the formalities as required under the Act, namely preparation of list, verification of the claims by the Chartered accountant, etc. As can be seen from the statement of objects and reasons upon the insured bank going in liquidation payment has to be made by the Corporation in convenient and expeditious manner. (1) Further in our opinion, even if the Corporation is directed to make payment of the deposits to the depositors of the Bank, no prejudice is likely to be caused to it.
(1) Further in our opinion, even if the Corporation is directed to make payment of the deposits to the depositors of the Bank, no prejudice is likely to be caused to it. Firstly because, under the Act it is bound to discharge the liability arising in view of sections 16 and 17 of the Act. It is to be done within stipulated time, subject to compliance of certain formalities that have been prescribed in other provisions of the Act. Nowhere it is envisaged that such liability has to be discharged by the Corporation only upon assurance of repayment of full amount that has been paid by it under sections 17 and 18 of the Act. Section 21 (2) (a) requires Liquidator to make repayment to the Corporation out of the amount, if payable by him in respect of any deposit such sum or sums as make up the amount paid or provided for. The Liquidator can repay the Corporation only out of amount which he is able to recover from the defaulters, erring officers of the bank and the money realized by selling assets of the bank and that too after satisfying the statutory due, etc. Thus there is always an element of uncertainty regarding the full repayment to the Corporation by the Liquidator in every case. As against that, a depositor of amount upto Rs. 1 lac is assured payment of full amount by the Corporation in case the concerned bank goes in liquidation. Secondly because the Corporation is not likely to be rendered pauper or indigent if the question of order of priority is not decided forthwith and despite that, it is directed to make the payment under section 17. The scheme of the Act provides that the Corporation is adequately protected by the Reserve Bank of India. The Corporation is wholly owned subsidiary of the Reserve Bank of India as stated above. It is true that by virtue of section 43 of the Act, provisions of Companies Act do not apply to the Corporation, however, the Corporation can, in view of section 26 (1) of the Act receive advance from the Reserve Bank of India from time to time subject to ceiling limit of outstanding at one time.
It is true that by virtue of section 43 of the Act, provisions of Companies Act do not apply to the Corporation, however, the Corporation can, in view of section 26 (1) of the Act receive advance from the Reserve Bank of India from time to time subject to ceiling limit of outstanding at one time. Not only that, section 27 also provides for receiving advances from General Fund or the Credit Guarantee Fund which are maintained under section 22 of the Act to Deposit Insurance Fund. Section 23 (1) of the Act states the sources from which there can be inflow of the amounts to the Deposit Insurance Fund. Thus, there is no Immediate danger of the Corporation running into financial difficulty if the payment is made to the depositors of the Bank. Thirdly the Corporation itself is responsible for not getting this issue i. e. fixation of order of priority decided expeditiously. The circular of the State Government is dated 4th November, 2004. The Corporation has resented its placement in category V along with 5 other unsecured creditors, meaning thereby to receive amount under section 21 on pro-rata basis from residual amount. It is the say of the Corporation that the Act, under section 21 assures full repayment and the Liquidator is bound to discharge the statutory obligation and the statute itself has determined its order of priority. Of-course this proposition of law canvassed by the Corporation is vehemently disputed by the petitioners as well as other respondents, except the Reserve Bank of India. Be that as it may; but if according to the Corporation, Central Statute has decided its priority, it is obvious that it cannot be upset by the circular of the State Government. Even if the Corporation entertained an apprehension that the Liquidator, being States agency, is bound to follow the circular, then it should get the issue adequately decided by the appropriate forum. It cannot depend on some-one elses proceedings wherein, according to it, this issue can as well be decided. It is alright that the proceedings of the present petition are pending before us but had these proceedings not been there, could the Corporation have raised this contention.
It cannot depend on some-one elses proceedings wherein, according to it, this issue can as well be decided. It is alright that the proceedings of the present petition are pending before us but had these proceedings not been there, could the Corporation have raised this contention. It is extremely difficult for us to see any reasonableness in the stand taken by the Corporation that it will not get the issue regarding order of priority in the matter of payment by the Liquidator decided by challenging the State Governments circular and it will also not pay to depositor inspite of the situation as contemplated under sections 16 and 17 has arisen. No-one knows when the issue will be decided. The fate of the depositors cannot depend on the whim of the Corporation. Thus, the above discussion shows that there is prima-facie case of the petitioner regarding payment under section 17 of the Act and that has been established by it and the balance of convenience is heavily in favour of the petitioner. ( 8 ) THUS, considering the overall circumstances, in our opinion, interim relief as claimed in para. 28 (HH) of the petition is required to be granted and it is ordered to be granted. We direct the respondent no. 4 Corporation to pay to the depositors in accordance with the provisions of section 17 of the Act. ( 9 ) SINCE there are other controversial issues involved in the petition, which require detailed consideration by this Court and after deciding the same whether to grant all or any of the reliefs prayed for by the petitioner, the petition deserves admission to final hearing. Hence, Rule. [ Kshitij R Vyas, J. ] [ Akshay H Mehta, J. ] * Pansala. After the order is pronounced, Mr. HV Chhatrapati, learned advocate appearing for respondents no. 3 and 4 requests for stay of the implementation of the order for a period of six weeks. Mr. Shalin Mehta, learned advocate for the petitioners and other learned advocates appearing for the respondents other than respondents no. 3 and 4, have strong objection to that. We do not see any reason to accede to the request made by Mr. Chhatrapati since there is already delay in making payment to the depositors by the Corporation. Mr.
Mr. Shalin Mehta, learned advocate for the petitioners and other learned advocates appearing for the respondents other than respondents no. 3 and 4, have strong objection to that. We do not see any reason to accede to the request made by Mr. Chhatrapati since there is already delay in making payment to the depositors by the Corporation. Mr. Chhatrapati further requests that considering the fact that huge amount is to be paid to the depositors by the Corporation and the Diwali holidays are fast approaching, reasonable time to comply with the directions of this Court be granted. He prays for grant of six weeks time for the same purpose. However, in our opinion, the time of three weeks would be sufficient for the Corporation to comply with the directions and we earnestly hope that the directions contained in this order will be complied with in right spirit by the respondent Corporation. .