2015 (7) TMI 1389 - SC - Indian Laws

Supreme Court upholds Corporation's right over depositors in fund distribution. Procedural error corrected.

DEPOSIT INSURANCE & CREDIT GUARANTEE CORPORATION Versus RAGUPATHI RAGAVAN & ORS.

The Supreme Court held that the High Court's direction to the Official Liquidator to distribute funds to depositors instead of the Deposit Insurance and ... Seeking settlement of statutory claims of the depositors - duty of the Corporation to disburse the amount guaranteed among the depositors or not - Winding up proceedings - HELD THAT:- The object with which the Act has been enacted has been stated hereinabove in a nutshell. The object was to insure the depositors so that they may not have to stand in a queue before the Official Liquidator for every paisa deposited by them with the concerned bank. As on today, as per the provisions of Section 16(1) of the Act, a sum of ₹ 1 lakh is being insured or guaranteed in respect of each depositor. So a depositor is safe and he has not to wash his hands off his deposit if the amount deposited by him is less than ₹ 1 lakh. The Official Liquidator, as per the provisions of the Act, has to give details about the depositors and the amount deposited by them in a prescribed form within three months from the date on which the liquidation order is passed or from the day on which he takes charge, whichever is later and within two months from the date on which the details are submitted to the Corporation, the Corporation has to make payment to the above extent either to the depositors directly or to them through the Official Liquidator. As per the above-referred Scheme, each depositor, including each original petitioner, must have received ₹ 1 lakh from the Official Liquidator. Initially, upon the bank being ordered to be wound-up, the original petitioners and other depositors had a right to recover ₹ 1 lakh or the amount deposited, whichever was less, from the Official Liquidator and the said amount must had been paid to them when the petitions were filed. Regulation 22 also provides that the Official Liquidator, after making necessary provision for the expenses in relation to the liquidation proceedings and for declaration of dividend, as prescribed in the Regulations, has to make payment to the Corporation - the High Court should not have given the direction which, if complied with, would run contrary to the statutory provisions incorporated in the Act. Even if one looks at the entire issue from different point of view, one would believe that all the depositors have by and large equal right. If the amount deposited is less than ₹ 1 lakh, each depositor gets the amount in full, but if the deposit is exceeding ₹ 1 lakh, then only the amount which is in excess of ₹ 1 lakh may not be given to the depositor, unless the bank in liquidation is having sufficient funds which can be given to all on pro-rata basis after providing for expenditure in the liquidation proceedings and after repaying the amount to the Corporation as per the provisions of the Act. The Act in a way guarantees repayment of ₹ 1 lakh to each depositor. The High Court or any other authority has no power to direct payment in excess of ₹ 1 lakh by ignoring statutory provisions of the Act and the Regulations made thereunder. The High Court had exceeded its authority while giving a direction to the Official Liquidator, which is not in consonance with the statutory provisions - appeal allowed. Issues Involved:1. Validity of the High Court's direction to the Official Liquidator regarding the distribution of funds to depositors.2. The right of the Deposit Insurance and Credit Guarantee Corporation (the Corporation) to preferential repayment from the Official Liquidator.3. Compliance with statutory provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (the Act) and the Banking Regulations Act, 1949.4. The procedural propriety of the High Court's decision without the Corporation being a party.5. The implications of the compromise orders and their subsequent challenges.Detailed Analysis:1. Validity of the High Court's Direction to the Official Liquidator:The Supreme Court scrutinized the direction given by the High Court to the Official Liquidator and the Special Officer of the bank in liquidation, which instructed them to pay the unpaid amount to the depositors instead of the Corporation. The Supreme Court found this direction to be contrary to the statutory provisions of the Act. According to the Act, after the Corporation pays the insured amount to the depositors, any surplus funds with the Official Liquidator must be repaid to the Corporation. The Supreme Court emphasized that the High Court's instructions ignored this statutory requirement, thereby exceeding its authority.2. The Right of the Corporation to Preferential Repayment:The Supreme Court highlighted that under Section 21 of the Act, the Corporation has a preferential right to repayment from the Official Liquidator. This section mandates that any amount paid by the Corporation under the insurance scheme must be repaid by the Official Liquidator from the available funds, notwithstanding any other law. The Court noted that this provision ensures that the Corporation, which guarantees the depositors' funds, recovers the amounts it disbursed, maintaining the integrity of the insurance scheme.3. Compliance with Statutory Provisions:The Supreme Court underscored the necessity to adhere to the statutory provisions of the Act and the Banking Regulations Act, 1949. The Court pointed out that the High Court did not consider these provisions before issuing its order. The Act's provisions are designed to protect both the depositors and the Corporation, ensuring that depositors receive up to Rs. 1 lakh and that the Corporation can recover the amounts it has paid out. The Supreme Court stressed that any direction contrary to these provisions would undermine the statutory scheme and the Corporation's financial stability.4. Procedural Propriety of the High Court's Decision:The Supreme Court noted that the Corporation was not a party before the High Court when the initial direction was given. This omission was significant because the Corporation's rights and obligations under the Act were directly affected by the High Court's order. The Supreme Court observed that if the Corporation had been impleaded, the High Court would have had a comprehensive understanding of the statutory framework and the Corporation's role, potentially leading to a different outcome.5. Implications of Compromise Orders and Subsequent Challenges:In related appeals, the Supreme Court addressed the issue of compromise orders that had been set aside by the Division Bench and remanded to the learned Single Judge. The Court dismissed these appeals, noting that the matters were already remanded for fresh consideration. However, the Supreme Court directed that the Corporation should be impleaded as a party-respondent in these proceedings to ensure that its rights and the statutory provisions are adequately considered.Conclusion:The Supreme Court allowed the appeal, setting aside the High Court's judgment and order. The Court directed the Official Liquidator and the Special Officer to act in accordance with the statutory provisions of the Act, ensuring that the Corporation's preferential right to repayment is respected. The related appeals were disposed of with directions for the High Court to decide pending matters in light of the Supreme Court's judgment, and to include the Corporation as a party-respondent in the remanded proceedings. The appeals were allowed with no order as to costs.