Dismissed

Karad Merchant Sahakari Credit Sanstha Maryadit and Anr. v. Reserve Bank of India and Ors.

Bombay HC24 Feb 2014WP/2082/2010

Case brief

AI extract

What is this about?

Credit cooperatives challenged DICGC's liability limit of Rs.1 lakh per depositor under the DICGC Act and the Banking Regulation Act upon a bank's liquidation. The Court rejected the challenges, upholding the statutory limit and the constitutionality of the provisions.

What did the court decide?

Petitions dismissed; Rule discharged; no order as to costs.

Karad Merchant Sahakari Credit Sanstha Maryadit and Anr… — Banking and Recovery | Bombay HC (2014)

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WP-2082-6579-JUDGMENT

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION

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WRIT PETITION NO. 2082 OF 2010

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1.	Karad Merchant Sahakari Credit Sanstha Maryadit, Karad	] ]
	through its authorised signatory Shri Kishor Shankarsa Zad Age 47, Occupation : Service Residing at 7, 8 Somwar Peth,	] ] ] ]
	Karad, District Satara	]
2.	Mahila Merchant Nagari Sahakari Pat Sanstha Maryadit, Karad Through its Authorised Signatory Shri Pandurang Santram Yadav Age 40 years, Occupation Service Residing at Surya Complex, Shaniwar Peth, Karad	] ] ] ] ] ] ]	..Petitioners
	versus
1.	Reserve Bank of India	]
	Central Office, Mumbai – 1	]
2.	The Deposit Insurance & Credit Guarantee Corporation,	] ]
	RBI Building, Mumbai Central – 8	]
3.	Union of India Through its Secretary (Banking and Insurance), Ministry of Finance Notice be served upon the Attorney General of India.	] ] ] ] ]
4.	State of Maharashtra Through Co-operative Department	] ]
5.	The Commissioner for Co-operative & Registrar of Co-operative Societies	] ]
	Maharashtra State, Pune	]
	Central Building, Camp, Pune 1	]
6.	Vasantdada Shetkari Sahakari Bank Limited	] ]
	Sangli, through its Liquidators Shri V. P. Patil,	] ]
	Age – Adult, Occupation Service	]

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And Shri J. P. Shinde	]
Age Adult, Occupation Service And	]
Shri B. B. Yadav	]
Age Adult, Occupation Service,	]
Notice to be served upon the	]
Registered office of Respondent	]
No. 6 Bank i.e. Sangli – Miraj Road	]
Sangli 416416	]	..Respondents

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WITH

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WRIT PETITION NO. 6579 OF 2011

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1.	Raigad Zilla Nagari Sahakari ]
	Patasanstha Mahasangh Limited ]
	Alibag, Raigad, through ]
	its Chairman Girish Tulpule ]
	having its Registered office at ]
	Sahakar Bhavan, Ground Floor, ]
	Alibag 402201, Dist : Raigad ]
2.	Kundalika Nagari Sahakari ]
	Patsanstha Ltd. ]
	through its Chairman Jaiprakash ]
	Joshi, having its Registered office at ]
	Roha, Dist : Raigad ]
3.	Keshav Smruti Nagar Sahakari ]
	Patasanstha Ltd. ]
	through its Secretary Sanjay Guruji ]
	having its Registered office at Panvel]
	Taluka Panvel, Dist : Raigad ]
4.	Tulja Bhavani Nagari Sahakari ]
	Patsanstha Ltd. ]
	through its Chairman Makrand ]
	Nimkar, having its registered office at]
	Panvel, Taluka Panvel, Dist: Raigad]
5.	Kamal Mahila Patsanstha Panvel ]
	through its Chairman Sou. Dipali ]
	Dilip Dhavatre, having its Registered ]
	office at Panvel, Taluka Panvel ]
	Dist : Raigad ]
6.	Shree Vyapari Gramin Bigarsheti ]

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7. 8. 9.	Sahakari Patsanstha Ltd. through its Secretary Mrs. Neelam Rajesh Kadam, having its Registered office at Varasgaon, Taluka Roha, Dist : Raigad Sahyadri Gramin Bigarsheti Sahakari Patsanstha Ltd. through its Chairman Baburao Bhaguji Bhonkar, having its Registered office at Mangaon, Taluka Mangaon, Dist : Raigad Shree Jogeshwari Merchant Sahakari Patsanstha Ltd. through its Chairman Kishor Jain, having its Registered Office at Nagothane, Taluka Roha, District Raigad Pitambar Charitable Trust, a Public Trust, Registered under the Bombay Public Trust Act, having its office at Goregaon, Tal : Mangaon, District Raigad	] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ..Petitioners
	versus
1. 2. 3. 4. 5.	Reserve Bank of India Central Office, Mumbai 400 001 The Deposit Insurance & Credit Guarantee Corporation R.B.I. Building, Mumbai Central 400 008 Union of India through its Secretary (Banking & Insurance, Ministry of Finance), Notice to be served upon the Attorney General of India State of Maharashtra through Co-operative Department, Mantralaya, Mumbai 400 032 The Commissioner for Co-operative & Registrar of Co-operative Societies Maharashtra State, Pune, Pune Central Building, Camp, Pune 01	] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ] ]
6.	The Goregaon Urban Co-operative Bank Limited	] ]

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through its Official Liquidator at ] Goregaon, Taluka Mangaon, ] Dist: Raigad ] ..Respondents

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Mr. Tejas D. Deshmukh with Mr. Samrat Shinde for Petitioners in WP 2082 of 2010.

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Mr. C. G. Gavnekar for Petitioners in WP 6579 of 2011.

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Mr. Parag Sharma i/b. Udwadia & Udeshi for Respondent No. 2 in WP 2082 of 2010.

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Mr. Mihir Mody and Mr. Bhomin Badani i/b. K. Ashar & Co. for Respondent No. 2 in WP No. 6579 of 2011.

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Mr. V. S. Gokhale – AGP for Respondent Nos. 4 and 5 in both Petitions.

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Mr. S. R. Ganbavale for Respondent No. 6 in WP 2082 of 2010. Mr. H. G. Misal for Respondent No. 6 in WP 6579 of 2011. Mrs. Purnima Awasthi for Respondent No. 3 in WP 2082 of 2010.

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CORAM : A. S. OKA & M. S. SONAK, JJ.

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Date of Reserving the Judgment : 20.01.2014 Date of Pronouncing the Judgment : 24.02.2014

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JUDGMENT ( Per : M. S. SONAK, J.) :-

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1] Rule. With the consent of the learned counsel appearing for

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the parties Rule is made returnable forthwith.

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2] As substantially common issues of fact and law arise in these two Petitions, the same are being disposed of by a common judgment and order.

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3] The Petitioners in these Petitions question the interpretation adopted by the Deposit Insurance and Credit Guarantee

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Corporation (DICGC) in relation to the provisions contained in Section 16(1) of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (“said Act”) and in the alternate challenge the constitutional validity of the second proviso to Section 16(1), Section 19 and Section 21(2)(a) and (b) of the said Act and the proviso to sub-Section (10) of Section 43A of The Banking Regulation Act, 1949 (B.R. Act).

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4] The facts as obtain in Writ Petition No. 2082 of 2010, which are sufficient for appreciating the setting in which the aforesaid challenges arise are that the Petitioners are Credit Societies registered under the provisions of the Maharashtra Co-operative Societies Act, 1960; The Petitioners have invested / deposited a sum of Rs.1805.60 Lakhs and Rs.332.88 Lakhs respectively with Vasantdada Shetkari Sahakari Bank Limited, Sangli (Respondent No. 6); The Reserve Bank of India (Respondent No. 1) vide order dated 06.01.2009 has cancelled the banking licence of the Respondent No. 6 under Section 22 of the B. R. Act; As a consequence, the Registrar of Co-operative Societies, by an order dated 16.02.2009 has ordered the winding up of the Respondent No. 6 and appointed a Liquidator to take charge; As on the date of winding up order, the Petitioner No. 1 claims that it was entitled to

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receive an amount of Rs.1921.76 Lakhs and the Petitioner No. 2 an amount of Rs.354.07 Lakhs along with interest from the Respondent No. 6; The Deposit Insurance and Credit Guarantee Corporation (“DICGC”), by way of insurance indemnity is however paying / offering an amount of only Rs.1,00,000/- to each of the Petitioners, by treating the Petitioners as ' one unit each ' for the purpose of Section 16 of the said Act; Further, the Petitioners apprehend that the DICGC by relying upon Sections 19 and 21 of the said Act read with Section 43A of the B.R. Act would insist upon preferential recovery from the Liquidator of the meagre insurance indemnity amount paid by the DICGC upon realisation of the assets of the Respondent No. 6, which is presently being wound up.

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In such circumstances, the Petitioners contend that the provisions of the said Act are being improperly interpreted and in the alternate the provisions of the said Act and the B.R. Act, referred to herein above are ultra vires , illegal, unconstitutional, null and void.

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5] Mr. Deshmukh and Mr. Gavnekar, learned counsel appearing for the Petitioners in both the Petitions have made the following submissions in support of their Petitions:-

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(A) The DICGC, has incorrectly interpreted the provisions of

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the said Act. The correct interpretation would require the DICGC to treat each of the numerous small investors /depositors who have invested / deposited amounts with the Petitioner Societies as ' one unit each '. Thereby, the DICGC would be bound to indemnify each such small investor / depositor to extent of Rs.1,00,000/- each. Instead, based upon an incorrect interpretation, the DICGC by treating the Petitioner Societies as ' one unit each ' offers to indemnify the Petitioners upto Rs.1,00,000/- each when in fact the amounts payable to the petitioners societies are Rs.1,921.76 Lakhs and Rs.354.07 Lakhs respectively. In resorting to such an interpretation, the DICGC ignores the vital circumstance that insurance premia is levied upon the entire body of deposits and not merely to the extent of Rs.1,00,000/- per depositor. Such an interpretation is inconsistent with the objective of the said Act.

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(B) The second proviso to Section 16(1) of the said Act completely cuts down and nullifies the main provisions contained in Section 16(1) of the said Act. This cannot be a legitimate purpose for the insertion of a proviso. The proviso, which is severable from the main provision, is clearly ultra vires, illegal, unconstitutional, null and void.

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(C) The second proviso to Section 16(1) of the said Act brings about a classification between depositors having deposits of less

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than Rs.1,00,000/- and more than Rs.1,00,000/-. Based upon such classification, which by itself is artificial, complete insurance indemnity is offered to the former class, whereas only partial insurance indemnity upto the extent of Rs.1,00,000/- is offered to the latter class. Such classification is based upon no intelligible differentia. In any case, the differentia, if any, has absolutely no nexus with the object of the said Act. The second proviso to Section 16(1), which is severable and which brings about such classification, violates Article 14 of the Constitution of India.

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(D) The provisions contained in Sections 19 and 21 of the said Act read with the proviso to sub Section 10 of Section 43A of the B.R. Act enables the DICGC to preferentially recover the paltry amounts which it may have paid towards insurance indemnity from out of the assets of the bank under liquidation. Thus, the provisions enable the DICGC to take away by one hand what it may have frugally granted, by the other. In such circumstances, the provisions are ex facie arbitrary, illegal, unconstitutional, null and void.

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6] Mr. Sharma and Mody, the learned counsel appearing for the DICGC, to begin with, raised a preliminary objection to the maintainability of the Writ Petition No. 2082 of 2010 on the ground that the Petitioners therein had earlier preferred Writ Petition No.

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6869 of 2009 based upon the very same cause of action and in order to challenge the very same provisions of the said Act and the B.R. Act. The said Petition was withdrawn and therefore based upon the principles analogous to those contained in Order 23 Rule 1 and 2 of the Civil Procedure Code, they contended that Writ Petition No. 2082 of 2010 may not be entertained.

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7] In order to consider the aforesaid objection, we called for the record and proceedings in Writ Petition No. 6869 of 2009. The said Writ Petition was disposed of by an order dated 04.01.2010, which reads thus :

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“ On the request of learned counsel for the Petitioner, Petition allowed to be withdrawn with liberty.”

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8] In Writ Petition No. 2082 of 2010 as originally filed, there was no disclosure with regard to writ petition No. 6869 of 2009. However, the Petition was since amended to incorporate the pleading that Writ Petition No. 6869 of 2009 came to be withdrawn as it was represented that the issue of constitutional validity has been settled by this Court in Writ Petition No. 5535 of 2007 and the Petitioners required some time to consider their position. The Petition was however withdrawn 'with liberty'.

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9] In our opinion, since there is no serious denial to the amended pleadings and there is reference to ' liberty' in the order dated 04.01.2010, it may not be appropriate to non suit the Petitioners at the threshold by applying the principles analogous to Order 23 Rule 1 and 2 of the Civil Procedure Code. In the facts of the case, it is obvious that the liberty reserved was for filing a fresh petition. Accordingly, the preliminary objection raised by Mr. Mody, is hereby rejected.

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10] Mr. Mody and Mr. Sharma then submitted that the issues raised in the present Petition stand covered by the decisions of this Court in the case of Bharatmata Mahila Nagri Sahakari Patsanstha Maryadit, Kopargaon vs. The Deposit Insurance and Credit Guarantee Corporation and Ors .¹ and in the case of N. Arun Swamy alias Narayanswami Arun Swamy and ors. vs. Reserve Bank of India and ors .² Further, they took us through the returns filed on behalf of the DICGC and submitted that there is no constitutional infirmity in the provisions under challenge.

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11] In order to appreciate the rival contentions, a brief reference

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shall have to be made to the provisions of the said Act and the Deposit Insurance Scheme in place on account of the enactment of

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2 W.P. No. 651 of 2007 decided on 16.08.2007

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1 W.P. No. 5533 of 2007 decided on 18.09.2008

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the said Act.

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12] The Statement of Objects and Reasons to the said Act records that the question of establishing a statutory corporation for insuring deposits in commercial banks has been under consideration for some time. Various suggestions or the 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. 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

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naye paise per hundred rupees per annum. The Corporation's 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 expedient manner which may be possible.

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13] The said Act establishes the Deposit Insurance Credit Guarantee Corporation. Sections 10 and 11 provide that every bank shall be registered as an insured bank with the DICGC and the intimation of the registration thereof sent to every insured bank. Section 15 provides payment of premium by the insured banks. The actual amount of premium is to be determined by the DICGC with the previous approval of the Central Government from time to time but the maximum rate is not to exceed 15 naye paise per hundred rupees per annum. Section 16 deals with liability of the DICGC in respect of the insured deposits. The deposits were to be insurable upto Rs.1,500/- in case of each individual depositor, but this limit, may, if necessary be raised by the DICGC from time to time having regard to its financial position and to the interest of the banking system of the country as a whole, with the previous approval of the

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Central Government. The DICGC's liability upto to the limit of insurance cover offered by it will arise and is discharged in the event of the liquidation of the insured bank. The liability in the event of liquidation of an insured bank will be for the payment of the sums due to the deposits upto the limit of the insurance covered offered by the DICGC. Sections 17 to 21 deal with the manner in which the DICGC's liability is to be discharged and for the subsequent reimbursement to the DICGC of any amounts paid by it. The provisions have been made for payments directly to the depositors, in case this proves to be either necessary or desirable. The liquidator in the event of winding up of an insured bank will be required to pay to the DICGC, instead of the depositor concerned, any sums which may become due for disbursement to such depositors individually after the DICGC has discharged its liability to them. These repayments to the DICGC will be authorized, notwithstanding anything to the contrary in any other law, and will be made until the amounts disbursed by the DICGC to, or account of, the depositors have been repaid in full. Sections 22 to 27 provide for constitution and maintenance of a deposit insurance fund for meeting the liabilities of the DICGC on account of insured deposits and of a general fund to account for the receipts and disbursements other than those attributable to the Deposit

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Insurance Fund. Sections 28 to 32 deal with accounting systems and procedures. Section 33 deals with appointment of the DICGC's staff. Sections 34 to 38 provide for the returns and information from the insured banks and matters connected therewith. Sections 39 to 42 deal with fidelity of directors and issues connected therewith. Section 45 empowers the Central Government to issue directions. Sections 46 to 49 contains provisions for adjudication of disputes and penalties. Section 50 empowers the Board to frame Regulations.

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14] Since the issue of interpretation and validity of Sections 16, 17 and 19 of the said Act arise, the provisions contained therein are transcribed below for convenience of reference :

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“16. Liability of Corporation in respect of insured deposits .- (1) 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:

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Provided that the liability of the Corporation in respect of an insured bank referred to in clause (a) or clause (b) of sub-section (1) of section (13) or clause (a) or clause (b) of section 13C shall be limited to the

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deposits as on the date of the cancellation of the registration:

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Provided further that the total amount payable by the Corporation to any one depositor in respect of his deposit in that bank in the same capacity and in the same right shall not exceed^* one lakh rupees.

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Provided further that the Corporation may, from time to time, having regard to its financial position and to the interests of the banking system of the country as a whole, raise, with the previous approval of the Central Government, the aforesaid limits of one thousand and five hundred rupees.

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(2) Where in respect of an insured bank a scheme of compromise or arrangement or of reconstruction or amalgamation has been sanctioned by any competent authority and the said scheme provides for each depositor being paid or credited with, on the date on which the scheme comes into force, an amount which is less than the original amount and also the specified amount, the Corporation shall be liable to pay to every such depositor in accordance with the provisions of Section 18 an amount equivalent to the difference between the amount so paid or credited and the original amount, or the difference between the amount so paid or credited and the specified amount, whichever is less :

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Provided that where any such scheme also provides that any payment made to a depositor before the coming into force of the scheme shall be reckoned towards the payment due to him under that scheme,

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This increased limit is w.e.f. 01.05.1993

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then the scheme shall be deemed to have provided for that payment being made on the date of its coming into force.

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(3) For the purposes of this section, the amount of a deposit shall be determined after deducting therefrom any ascertained sum of money which the insured bank may be legally entitled, to claim by way of set-off against the depositor in the same capacity and in the same right. (4) In this section,

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(a) “original amount” in relation to a depositor means the total amount due by the insured bank immediately before the date of coming into force of the scheme of compromise of arrangement or, as the case may be, of reconstruction or amalgamation to the depositor in respect of his deposit in the bank in the same capacity and in the same right :

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Provided that where under the proviso to subsection (2), the scheme is deemed to have provided for any payment being made on the date of its coming into force, the amount of such payment shall be included in calculating the original amount:

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(b) “specified amount” means one thousand and five hundred rupees, or as the case may be, the amount fixed by the Corporation under the third proviso to subsection (1).

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17. Manner of payment by Corporation in case of winding up of insured banks .- (1) Where an insured bank has been ordered to be wound up or to be taken

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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

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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 Section 16.

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(2) Before the expiry of two months from the receipt of such list from the liquidator, the Corporation shall pay the amount payable under Section 16 in respect of the deposit of each depositor:

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(a) directly to the depositor, or

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(b) to the depositor through such agency as the Corporation may determine, or

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(c) to the liquidator.

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(3) Where the Corporation pays under subsection (2), any amount in respect of the deposit of a depositor to the liquidator, the liquidator shall pay or cause to be paid that amount to the depositor and any expenses incurred by the liquidator in making such payment shall be treated as expenses incurred in the winding up of the insured bank.

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19. Discharge of the liability of Corporation .- Any amount paid by the Corporation under Section 17 or Section 18 in respect of a deposit shall, to the extent of the amount paid, discharge the Corporation from its

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liability in respect of that deposit.”

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15] In our opinion, the provisions contained in the aforesaid Sections do not admit of any ambiguity as such. The DICGC, in terms of Section 16(1) of the said Act, is no doubt liable to pay ' every depositor of that bank an amount equal to the amount due to him in respect of his deposit ' in that bank when order of liquidation or winding up of such bank is made. The second proviso to Section 16(1) of the said Act, however, limits the liability in that the 'total amount' payable by DICGC ' to any one depositor in respect of his deposit in that bank in the same capacity and in the same right ' upto Rs.1,00,000/-. This means that if the deposits held by a depositor in the insured bank as on the date of winding up or liquidation is less than or upto Rs.1,00,000/-, then such depositor is entitled to avail insurance indemnity upto the entire extent of his deposit. However, if the deposits held exceed Rs.1,00,000/- in the same capacity and in the same right, then the insurance indemnity shall extend upto Rs.1,00,000/- only.

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16] The reference and emphasis in the aforesaid provisions is clearly to the ' depositor of the bank which is being wound up or under liquidation ' and to 'his deposit'. The phraseology

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employed in the second proviso like ' any one depositor ', ' in respect of his deposit ' and ' in the same capacity and

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in the same right ' clarifies the position that the DICGC is no way concerned with the investors or depositors who may have invested or deposited with the Petitioners. The Petitioners, are no doubts depositors with the insured bank, which in the present case is the Respondent No. 6. Therefore, in view of the liquidation of Respondent No. 6 bank, the DICGC is liable to offer insurance indemnity to the Petitioners to the extent of Rs.1,00,000/-. There is no further obligation towards depositors / investors who may have made deposits / investments with the Petitioners. In the light of the clear provisions, it is futile to suggest any other interpretation either by resort to verbal semantics or by invitation to refer to the legislative intent and on the said basis press the mischief rule of interpretation. The pre-conditions for resort to the mischief rule of interpretation is that there must arise some ambiguity in the interpretation of statutory provisions. As observed earlier, the provisions under consideration, do not admit of any ambiguity.

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17] The circumstance that premium is levied upon the entire body

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of deposits, in our opinion, makes no difference to the statutory interpretation. It must be remembered that such levy is a part of a

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statutory insurance scheme under the provisions of the said Act. The Scheme levies a meagre premium as compared to what might have been levied under a general insurance policy. The scheme is statutorily designed taking into consideration not just the financial position of the DICGC, but also ' the interest of the banking system of the country as a whole .' This is clear from the third proviso to Section 16(1) of the said Act, which makes special reference to such parameters in the context of increasing the limits of insurance cover to depositors of insured bank under liquidation. The interpretation suggested by the Petitioners was rejected by this Court in the case of Bharatmata (supra) whilst dealing with a plea that a set off be permitted against the amounts payable by the borrowers of the credit societies before any liability in terms of Sections 16, 17 and 18 of the said Act is determined. This Court ruled that liability of DICGC is to each depositor of the bank under liquidation and upto the extent of Rs.1,00,000/- only. If the contention regards set off is accepted, then the same would virtually amount to grant of undue priority or preference to depositors / investors of credit societies contrary to the provisions of the said Act.

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18] The circumstance that some hardship may occasion in

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individual cases, is not strictly speaking relevant to statutory interpretation. Such hardship in individual cases has to be juxtaposed against the benefit which the statutory insurance scheme imparts to numerous small depositors with banks, where said banks are ordered to be wound up or liquidated. The observations of the Supreme Court in the case of Fatehchand Himmatlal vs. State of Maharashtra³ , are apposite.

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“Every cause claims its martyr and if the law, necessitated by practical considerations, makes generalizations which hurt a few, it cannot be helped by the Court. Otherwise, the enforcement of the Debt Relief Act will turn into an enquiry into scrupulous and unscrupulous creditors, frustrating through endless litigation, the instant relief to the indebted which is the promise of the legislature.”

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19] For all the aforesaid reasons, we see no merit in the Petitioners first contention regards interpretation of the provisions of Sections 16, 17 and 19 of the said Act.

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20] The Petitioners second contention revolves around the meaning and true purpose of insertion of a 'proviso'. According to

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the Petitioners, a proviso ought not to nullify the provisions contained in the main enactment. If it does so, then the proviso

3 (1977) 2 SCC 670

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does not serve its proper purpose and ought to be struck down as ultra vires, arbitrary, unconstitutional, null and void.

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21] In the present case, we are of the opinion that the proviso in question does not completely cut down or nullify the provisions contained in the main enactment. The main enactment contained in Section 16(1) provides that the DICGC shall be liable to pay every depositor of the bank an amount equal to the amount due to him in respect of his deposit in that bank when an order of winding up or liquidation of that bank is made. The proviso does not wipe out the said liability. The proviso only restricts such liability upto the extent of Rs.1,00,000/-. The proper function of a proviso is to accept and deal with a case which would otherwise fall within the general language of the main enactment. In the case of Sundaram Pillai v. Pattaboraman⁴ , the Supreme Court held that by and large the proviso may serve the following four different purposes:-

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(1) qualifying or excepting certain provisions from the main enactment;

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(2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable;

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(3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus

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acquire the tenor and colour of the substantive enactment itself; and

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(4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision.

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22] Based on the aforesaid Authority of the Supreme Court, it can be said that the proviso in the present case qualifies or excepts certain provisions from the main enactment. There is nothing arbitrary or ultra vires in the proviso. The proviso, particularly when read in the context of the Statement of Objects and Reasons of the said Act, makes clear the legislative intent that the liability of DICGC was to extend upto the limit to be prescribed in the proviso and not any further. In such circumstances, we are unable to see any merit in the Petitioners contention that the proviso is either ultra vires, arbitrary, illegal, unconstitutional, null and void.

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23] The third challenge relates to the alleged breach of the doctrine of reasonable classification, which by now is accepted as one of the concomitants of the equality clause enshrined in Article 14 of the Constitution of India. In our opinion however, the classification between depositors having deposits of less than Rs.1,00,000/- and beyond is certainly based upon an intelligible

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differentia. Such classification is neither artificial nor can it be said that there is any ambiguity about the same. Further, if the objective of the said Act is to protect the interests of the small depositors when the banks in which their deposits are held go into liquidation, then the differentia adopted, certainly has a rational nexus with the objective. The charge of breach of the doctrine of reasonable classification therefore does not appeal to us.

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24] In the return filed by the DICGC it is pointed out that at the time when the said Act was enacted, the insurance cover provided was only upto Rs.1,500/-. However, consistent with the provisions contained in the third proviso to Section 16(1) of the said Act, the DICGC from time to time, having regard to its financial position and to the interest of banking system of the country as a whole, with the previous approval of the Central Government has raised the limit of insurance cover which presently stands at Rs.1,00,000/-. The classification between depositors having deposits of less than Rs.1,00,000/- and depositors having deposits of more than Rs.1,00,000/- is therefore based upon the principle referred to in the third proviso. Besides, in effecting such a classification, the DICGC also relies upon empirical data in its possession. In the return, it is pointed out that by the present limit of insurance cover of

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Rs.1,00,000/-, almost 89% of deposit accounts as on 31.03.2009 in the banking system as a whole, stand fully protected. This level of insurance cover works out to 2:2 times the per capita GDP of India, when in fact the international bench mark in this regards is between 1 to 2 times the per capita GDP. Again it must be noted that there is difference between a general insurance scheme and the statutory insurance scheme designed under the said Act. The insurance premia under the deposit insurance scheme is determined by statute and the same is quite meagre as compared to any premia which may have been charged under a general insurance scheme should such scheme be designed upon general commercial principles. Under the deposit insurance scheme, DICGC is not under any realistic liberty to decline insurance cover to banks registered with it under the provisions of the said Act. Thus, the entire purpose of the deposit insurance scheme is to afford some cover to small depositors by providing them with a safety net so that the entirety of their deposits are not wiped out, when the banks in which they are held, go into liquidation. The provisions of the said Act therefore, have to be construed, not in the context of any particular bank or particular fact situation, but rather from the context of protection afforded to numerous small depositors and the entire banking system in the country. Thus

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viewed and construed, there is no merit in the charge of violation of Article 14 of the Constitution of India.

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25] The principle underlying the guarantee of Article 14 of the Constitution of India is not that the same rules of law should be applicable to all persons irrespective of the differences or the circumstances. The principle, only means that all persons similarly circumstanced should be treated alike. By resort to classification, the State has the undoubted power to determine which group should be regarded as a class for the purposes of classification. In order to pass the test of valid classification, two conditions have to be fulfilled. The first is that the classification must be founded on an intelligible differentia which distinguishes those that are grouped together from the others that are left out. Secondly, the differentia must have a rational nexus with the object which the legislation seeks to achieve. In our opinion, both the conditions stand fulfilled in the present case.

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26] Again, it must be noted that it is for the legislature to determine the policy in the matter of classification. The economic criteria is accepted as the basis for classification. It is for the legislature to determine the manner and extent of classification. For

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this purpose some cut off point has to be settled and unless the cut off point is ex facie absurd or arbitrary, there is no warrant for any judicial interference with such legislative measures. Every legislation, particularly in economic matters is essentially empiric and is to a great extent based upon experimentation or what one may call the trial and error method. There may be crudities and inequities in competent experimentation of legislations. But on that account alone, such legislations cannot be struck down as arbitrary and invalid. The Constitutional Courts are expected to adjudge the validity of such legislations by the generality of its provisions and not by its crudities or inequities or possibility of abuse of any of its provisions.

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27] There is absolutely no merit in the challenge to the provisions contained in Sections 19 and 21 of the said Act and sub Section 10 of Section 43A of the B.R. Act. The provisions merely grant a priority to the DICGC in the matter of recovery of the amounts which it may have paid by way of insurance indemnity to the depositors, from out of any recoveries which the Liquidator may make by liquidating the

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assets of the insured bank. This is not a case of the legislature taking away with one hand what it may have given with the other. In fact it should not be lightly assumed that the Parliament takes away

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with one hand what it gives with the other. The provisions must be read as parts of an integral whole and as being inter dependent. An attempt should always be made at harmonious construction. In the present case, it needs to be noted that the DICGC is concerned with the entire banking system in the country. In the circumstances, it is not expected that the DICGC offers insurance indemnity to a few insured banks and thereafter is unable to recover the insurance indemnity amount from the said banks in a preferential manner. This would result in virtual collapse in the functioning of the DICGC. This would possibly have a deleterious effect upon the banking system in the country. This cannot have been the intention of the Parliament. In the circumstances there is absolutely nothing arbitrary, illegal, or unconstitutional in the provisions contained in Sections 19 and 21 of the said Act or sub Section 10 of Section 43A of the B.R. Act.

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28] The issue of constitutional validity of the provisions of this Act came up for consideration before this Court in the case of N. Arun Swamy (supra). The constitutionality of the provisions was upheld. It is settled position in law that once the constitutionality of the provisions of the Act have been upheld, it is impermissible to approach the very Court with the same challenge, but by urging some different grounds. This is an additional consideration for not

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entertaining the present Petitions.

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29] For all the aforesaid reasons, we see no merit in the Petitions.