Gujarat High Court
Deposit vs State on 23 February, 2010
Author: Jayant Patel
Bench: Jayant Patel
Gujarat High Court Case Information System
Print
SCA/4260/2009 33/ 37 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 4260 of 2009
With
SPECIAL
CIVIL APPLICATION No. 6978 of 2009
For
Approval and Signature:
HONOURABLE
MR.JUSTICE JAYANT PATEL
=========================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To be
referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
=========================================================
DEPOSIT
INSURANCE & CREDIT GUARANTEE CORPORATION - Petitioner(s)
Versus
STATE
OF GUJARAT, SECRETARY, AGRICULTURE & COOPERATIVE DEPT. & 6 -
Respondent(s)
=========================================================
Appearance
:
MR SOPARKAR With
MR
AMAR N BHATT for
Petitioner(s) : 1,
MR KAMAL TRIVEDI, LD ADV. GENERAL WITH VISHEN,
AGP for Respondent(s) : 1, (in both the matters for State
Authorities)
RULE SERVED for Respondent(s) : 2,
MR JR NANAVATI
WITH MR DHARMESH V SHAH for Respondent(s) : 3(for Liquidator in
both),
MR VK SHAH with MR HB KALMESH & MR UMANG R VYAS for
Respondent(s) : 4,
MR TUSHAR MEHTA WITH MR KETAN D SHAH for
Respondent(s) : 5,
MR BS PATEL for Respondent(s) : 6,
MR UMANG
H OZA for Respondent(s) : 7,
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE JAYANT PATEL
Date
: 23-26/02/2010
COMMON
ORAL JUDGMENT
As in both the matters, common questions arise for consideration, they are being considered by this common judgement.
The short facts of the case appear to be that the petitioner is a Statutory Corporation governed by the provisions of Deposit Insurance and Credit Guarantee Corporation Act, 1961 (hereinafter referred to as 'DICGC Act' for short). The contesting respondent in Special Civil Application No.4260 of 2009 is Liquidator of Visnagar Nagrik Cooperative Bank Limited and in Special Civil Application No.6978 of 2009 contesting respondent is Liquidator of General Cooperative Bank Limited (for the sake of convenience, hereinafter shall be referred to as 'the Bank concerned'). It is an admitted position that both the Banks are insured Cooperative Banks governed by the provisions of Section 115A of the Gujarat Cooperative Societies Act, 1961 (hereinafter referred as 'the Act') and both the banks are ordered to be liquidated under the Act and the respective Liquidators are holding the charge of the affairs of both the Banks.
It appears that the Liquidator of the Banks, in exercise of the power under Sections 107 to 115 of the Act fixed up the priority by the respective impugned decision and in the said decision the Liquidator has put up the claim of the petitioner Corporation in the category of creditor after secured creditor and the Government dues as well as the claim of the workers. It is under these circumstances, the Corporation has approached this Court by the present petitions, contending, inter alia, that it is having the statutory priority for the claim made by it on the basis of the amount paid by it to the deposit holder to the extent of insured amount.
Heard Mr.S.N. Suparkar, learned Counsel appearing with Mr.Amar Bhatt, learned Counsel for the petitioners, Mr.Kamal Trivedi, learned Advocate General appearing with Ms.Vishen, learned AGP for the State and its Authorities, Mr.Nanavati, learned Counsel appearing with Mr.Dharmesh Shah for the Liquidator in SCA No.4260 of 2009 and Mr.Mehul S. Shah, learned Counsel for the Liquidator in SCA No.6978 of 2009, Mr.B.S. Patel, learned Counsel for Mehsana District Cooperative Bank and Mr.Tushar Mehta, learned Additional Advocate General for Ahmedabad District Cooperative Bank and State Cooperative Bank.
It appears to the Court that three aspects deserve to be considered; one is the mode and manner of exercise of power by the Liquidator while fixing the priority of the claim of various classes of creditors; the second aspect is the priority as may be available in the liquidation proceedings of an insured Bank; and the third is the placement in the priority list to the claim of the petitioner Corporation amongst various classes of creditors.
The examination of the first aspect shows that as per the Scheme of the Act, the Liquidator is to be appointed by the Registrar for the affairs of the Society, which is ordered to be liquidated. The powers of the Liquidator are provided as per Section 110 of the Act. Such powers are subject to the Rules and general supervision, control and direction of the Registrar. Under the Gujarat Cooperative Societies Rule, 1965 (hereinafter referred to as 'the Rules' for short), the procedure pertaining to the liquidation is contemplated under Rule 46 onwards. However, Rule 46 to 50 do not expressly provide for controlling the power of the Liquidator under Section 110(e) and (f) of the Act and Sub-rule (2) of Rule 48 provides for the money to be realised from the members and past members for the power to be exercised by the Liquidator under Section 110(h) of the Act. Section 110(e), which is relevant for the present petition reads as under:-
Sec.
110 Powers of Liquidator;-
The Liquidator appointed under Section 108 shall have power, subject to the rules and the general supervision, control and direction of the Registrar;-
(a) xxx
(b) xxx
(c) xxx
(d) xxx
(e) to investigate all claims against the Society and, subject to the provisions of the Act, to decide questions of priority arising out of such claims and to pay any class or classes of creditors in full or ratably according to the amount of such debts, the surplus being applied in payment of interest from the date of liquidation at a rate approved by the Registrar, but not exceeding the contract rates.
The aforesaid provisions enables the Liquidator to decide the questions of priority arising from the claims made before him and consequently to pay any class or classes of creditors according to the amount of such debts. The language of Section 110(e) of the Act speaks for
(i) various types of claims; (ii) any class or classes of creditors; and (iii) various types of such creditors within same classes, if any. Of course, such power is subject to the Rules and the general supervision, control and direction of the Registrar, but in absence of any specific order by the Registrar, it would be for the Liquidator to exercise the power as per the provisions of Section 110(e) of the Act.
It can hardly be accepted that the liquidation proceedings of any society would be altogether different than that of any insolvency proceedings either under Provisional Insolvency Court Act or Presidential Insolvency Court Act or the Winding Up of any Company. The laws prevailing in the matter of insolvency proceedings or in the matter of winding up proceedings would be required to be taken into consideration by the Liquidator while classifying the creditors and tracing the debts of such creditors. It is only thereafter the priority is to be fixed by the Liquidator. Even at the time of fixing the priority the laws relating to the insolvency proceedings and winding up proceedings are required to be taken into consideration by the Liquidator but it is only when there are valid reasons for making departure therefrom or there is any express statutory provisions may be by way of State Act or Central Act, the departure therefrom may be permissible. Otherwise in normal circumstances, it would be expected for the Liquidator to go by the priority as may be available to different classes of creditors for their different debts in the insolvency proceedings or winding up proceedings. Therefore, it is not possible to hold that the Liquidator of each Society or each Bank has power to decide the priority of various classes of creditors separately or classify various debts separately for satisfying the claims against the Society. If such power is read, it will not only create an anomalous and ambiguous situation, but it will leave room for arbitrary exercise of power in liquidation proceedings of each Society by the Liquidator. Therefore, it will have to be held that the Liquidator of the Society having same nature for exercise of power as Liquidator in the same category of the Society, would be required to exercise the power for fixation of the priority, keeping in view the laws prevailing in any insolvency proceedings or the proceedings relating to winding up of the company. It cannot be said that the claims of any creditor as prevailing under the common law or under any other law is to be ignored and the Liquidator enjoys the power to surpass or nullify the same. The Liquidator while exercising the power for priority has to be guided and governed by the rights as may be available of the creditor against the Society for enforcement or recovery of such debts. However, in a case where the statute or by any Act express priority is provided, it will be required for the Liquidator to respect the same and to abide by the same. But in absence of any express priority by any statute, for various classes of creditors, the Liquidator will be required to fix the priority, keeping in view the laws relating to insolvency proceedings and the laws relating to winding up of a company. Of course, the same as observed earlier, is subject to a very strong reasons for making departure therefrom in any individual case, provided there is a support of express provision of any State Act or Central Act made for such purpose.
The aforesaid takes me to examine the second aspect about the identification of various classes of the creditors, including their respective debts. The debts can broadly be classified into secured debts and unsecured debts. In the same manner the creditors can be classified broadly into two categories; secured creditors and unsecured creditors. It is within those two classes there may be the crown debt as the secured or the crown debt as unsecured creditor. If by express provisions of statute the charge is created over the property for any revenue or taxes or other Government dues, it can be termed as crown debt as secured creditor and amongst secured creditors, the crown debt having secured by way of express charge provided by any statute will have priority over other (other than crown) secured creditors. Same position will prevail for two categories within the classes of unsecured creditors namely; the debts of crown as unsecured creditor and the other debts (other than that of the crown) as unsecured creditors. The crown debt as unsecured creditors will have priority over other unsecured creditors. It may also be recorded that the claim of any of the secured creditors will be to the extent of security so available and to the extent of security interest created therein and once the security is exhausted or the interest is satisfied, the remaining part of the debt would be classifiable as unsecured debt. The Liquidator, therefore, while exercising the power of fixation of priority will be required to take into consideration the aforesaid various classes of creditors and the assets of the society or the bank will be required to be distributed accordingly either in full or rateable as per the category of such debt and to the extent available therefrom.
At this stage reference to the decision of this Court in the case of Patel Dayabhai Ramji v.
Manager, in Special Civil Application No.13181 of 2004 decided on 12.1.2010 in the matter of insolvency proceedings for considering the rights of the secured creditor would be relevant. In the said decision, this Court had observed at paragraphs 7, 8, 9, and 10 as under:-
7. The relevant aspect in the present case is that whenever any property of the person who is declared insolvent is taken over by the Receiver or the officer of the Court appointed for such purpose, the same would be available to the extent of the interest held by the insolvent in such property. If the rights of any third party exists in the property or a bar or a clog is operating over the title of the insolvent in such property, such would be required to be taken care of by the Court at the time when the money is to be appropriated. As per the provisions of the Transfer of Properties Act, once a mortgage is created by any person in favour of the mortgagee, interest in the property to that extent is created and the rights of the owner in the property to that extent shall vest with the mortgagee subject to the provisions of the Transfer of Properties Act. If such insolvent who is mortgagor has to sell the property, he will have the rights to sell the property subject to the mortgage or the rights of the mortgagee and such rights in the property to that extent would be available to the Insolvency Court for realization of the property of the insolvent unless the transaction of such mortgage is declared as fraudulent or void or set aside by the Insolvency Court in such proceedings. It is not the case of any parties to the proceedings that the transaction of mortgage was by way of fraud or the transaction was fraudulent or void or otherwise.
Therefore, proceedings on the basis that there was valid mortgage in favour of the bank executed by the deceased pertaining to the property, which has subsequently vested to the legal heirs of the deceased, the resultant effect would be that the insolvents were holding the property subject to the rights of the mortgagee. Under such situation, the Receiver though might have taken possession of the property and though might have sold the property of the insolvents, the money available for distribution as per the provisions of Section 61 would be after satisfying the encumbrances or the rights of the mortgagee to the extent created in the property prior to the requisite period for which the bar operates against the insolvent and in any case on the date when the person is declared insolvent and his property is taken over by the Receiver of the Insolvency Court.
8. The aforesaid appears to be the position as per the Transfer of Properties Act and for the rights in the property of the insolvent. If the provisions of Section 61 is examined in light of the aforesaid position of law, to be considered as per the provisions of Transfer of Properties Act, it would appear that the distribution of the property as provided under Section 61 on the basis of the priority of the debt is to be considered qua the absolute property or qua the rights under the Transfer of Properties Act. To say in other words, even if the property is held by the insolvent, but once the mortgage is proved, such property would be available to the extent minus the rights of the mortgagee in the property as available under the Transfer of Properties Act. Further, the pertinent aspect is that Section 61 of the Provincial Insolvency Act is not with a non-obstacle clause or the legislature did not intend to have the overriding effect over any other law for the time being in force which may include Transfer of Properties Act. Therefore, in view of the aforesaid position, the question of priority in payment would be required to be considered from the money realised of the property of the insolvent minus the rights of the mortgage in such property. As such, the interest created in favour of the mortgagee by the insolvent prior to the declaration as insolvent unless the transaction is held to be fraudulent or void, voidable, cannot be equated with the word debts fully . The mortgagee is having a secured interest in the property and the amount payable by the insolvent to the mortgagee cannot be only termed as debt. But the rights are additionally available to the mortgagee having created secured interest for which the property as per the provisions of the Transfer of Properties Act. Therefore, the net effect of the aforesaid is that the amount recoverable by such mortgagee will be above the priority contemplated under Section 61 of the Insolvency Act.
9. At this stage, the reference may be made to the provisions contained in the Companies Act, 1956, for availability of the rights of the secured creditors as per the provisions of Section 529 and over the preferential payments available under Section 530. This Court in the case of Textile Labour Association Vs. The Official Liquidator of Rajpur Mills Ltd. (in Lqn.) in Company Application Nos.358/08 & allied matters, decided on 04.08.2009, the debt of the workers in addition to the pari passu and if yes, to what extent, at para 7 in the said decision observed thus-
Therefore, it appears that as per Section 529, rights of secured and unsecured creditors as in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent, are required to be observed. If the matter is considered for the respective rights of the secured creditors, they would be entitled to foreclosure of the mortgage and the Company in liquidation would be entitled to redemption of the mortgage by payment of the full amount. It is by now well settled that the rights of the secured creditor would stand above the rights of the preferential creditors under Section 530 as well as unsecured creditors.
It is only by way of statutory provision of Section 529A of the Act which begins with the non-obstacle clause, the workers' dues are to be treated at par with the secured creditors and for such pari passu payment, the debts of the workers' dues and all the secured creditors as per Section 529A of the Act are given priority above all other debts. It is not in dispute that the debt under Section 529A of the Act are not satisfied. Therefore, in the present group of matters, the Court may not be required to examine the aspects of priority of the workers' dues and secured creditors under Section 529A of the Act over the other debts falling in the category of Section 530 of the Act and also of other unsecured creditors. It appears from the conjoint reading of Section 529 read with Section 529A of the Act that Section 529A is carving out an exception to the rights of secured and unsecured creditors under Section 529. Therefore, if the provisions of Section 529A of the Act is to be implemented, Section 529 would not operate as a bar. However, after the satisfaction of the debts under Section 529A of the Act, the effect is required to be given to the provisions of Section 529 of the Act. As observed earlier, Section 529 of the Act saves the rights of the secured and unsecured creditors as are for the time being in force. To say in other words, the rights of the secured creditors are above the unsecured creditors as they have interest in the property of the Company in liquidation for which the security is created. It is only between the rights of secured and unsecured creditors, Section 530 may have role to play for preferential payment amongst the unsecured creditors.
Therefore, the creditors who may fall in the category of secured creditors would be to the extent of their security, above the creditors falling under Section 530 of the Act and other unsecured creditors. Therefore, it appears that if on account of the implementation of the provisions of Section 529A of the Act, if the secured creditors have not been able to realise the full money from their security, after payment to the workers at pari passu, if the surplus/balance amount remains, which is realised from the security of the secured creditors, the same may be claimed by the secured creditors in the capacity as secured creditors who otherwise could not recover the amount from their security in view of the provisions of Section 529A of the Act. To say in other words, if the secured creditors have to recover the amount of Rs.100/- for satisfying their outstanding dues and on account of the inclusion of the claim of the workers for pari passu payment under Section 529A, they have received lessor amount, such amount would be available to the secured creditors, provided there is surplus/balance after compliance to the provisions of Section 529A of the Act and such remaining amount is a part of the amount realised from their security. Therefore, the first question shall stand answered accordingly. The aforesaid shall hold good for realisation of the amount by the secured creditor upto the date of winding up of the Company in liquidation. (emphasis supplied) Therefore, in view of the aforesaid observations and discussions, the conclusion would be that the Bank in the capacity as secured creditor was entitled to have the payment of its outstanding amount of the Award of the learned Nominee from the money realised by sale of the property and the balance, if any, available could be distributed amongst other debtors which may include the decree holder who are respondents in the present proceedings, but the premise on the basis of which the learned Judge has passed the order of not at all considering the claim of the priority for availability of the payment to the secured creditor who is Bank in the present case, could be said to be an error apparent on the face of the record committed by the learned Civil Judge in the Insolvency Proceedings. It was required for the learned Judge to consider the aforesaid aspects and to make the fund available for satisfaction of the interest of the secured creditor who is Bank in the present case and thereafter, the balance if any available could be distributed amongst the other creditors, which includes the creditor holding decree who are respondents in the present case.
The aforesaid would show that in the insolvency proceedings or in the proceedings of winding up of a company, the normal priority has to be as under:-
(1) Secured debts of the crown or the State may be by way of a security created as per Transfer of Properties Act or may be by way of express charge created by any statutory provisions to such Government dues, subject to the conditions of the quantum of such debt or to the extent of such security available, whichever is less.
(2) Secured debt of any private person or any other Institution, subject to conditions of the quantum of such debt or to the extent of such security available, whichever is less.
(3) Workers/employees dues.
(4) The aforesaid two categories of secured debts may be considered on pari passu basis with the workers/employees dues.
(5) Crown/State dues (unsecured) (6) Unsecured debt of other private person.
The aforesaid may be the position in liquidation proceedings of a Cooperative Society. However, so far as Cooperative Banks and more particularly insured Banks are concerned, the claim of depositors may stand in priority above other unsecured debts, but next to unsecured Government/Crown debts. The aforesaid appears to be reasonable to be incorporated, keeping in view the provisions of Section 43A of the Banking Regulation Act, 1949 (hereinafter referred to as BR Act ). It is true that Section 43A of the Act applies to the Banking company and by virtue of Section 56 of BR Act only certain provisions of BR Act applies to Cooperative Banks for its functioning. However, if for other banks, which includes other banking companies, the Parliament by legislative provisions has given priority to the deposits, after payment of preferential creditors under Section 530 of the Companies Act, which is equivalent to unsecured Government debts, there is no reason for not to apply such priority to the depositors while getting back the money from such cooperative banks, when the payment is to be made to unsecured creditors. Therefore, the claim of depositors may stand in priority over other unsecured debts of private persons. The last would be the distribution of share money amongst the shareholders of the Society.
The aforesaid can be a broad parameters for the Liquidator to decide the priority generally for cooperative societies and specifically for cooperative banks, which are also otherwise governed by the provisions of BR Act as per the observations made hereinabove.
The aforesaid takes me to examine the question for consideration of the priority claimed by the petitioner Corporation. Section 21 of DICGC Act is heavily pressed in service by the learned Counsel for the petitioners read with Regulation 22 of the Deposit Insurance and Credit Guarantee Corporation Regulation, 1961. The same for ready reference reads as under :-
Section 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.
Regulation
22. The amounts repayable to the Corporation under sub-section (2) of section 21 of the Act shall be paid from time to time by,-
(a) the liquidator as soon as the realisations and other amounts in his hands, after making provision for expenses payable by that time, are sufficient to enable him to declare a dividend of not less than one paisa in the Rupee to each depositor.
(b) the insured bank or the transferee bank, as the case may be, as soon as the realisations and other amounts in his hands, after making provision for expenses payable by that time in respect of such realisations or other amount in its hands are sufficient to enable it after the date of coming into force of the scheme referred to in section 18 of the Act, to pay or credit in respect of each depositor a sum not less than one paisa in the Rupee.
At this stage, reference may also be made to Section 115A(5) of the Act, which read as under:-
115A Order for winding up, reconstruction, supersession of committee, etc., of insured co-operative bank not to be made without sanction or regulation of Reserve Bank of India;-
Notwithstanding anything contained in this Act, in the case of an insured co-operative bank-
1. xxx
2. xxx 2A xxx
3. xxx
4. xxx
5. the liquidator or such bank or the transferee bank, as the case may be, shall be under an obligation to pay the Deposit Insurance Corporation established under the Deposit Insurance Corporation Act, 1961 (47 of 1961), in the circumstances, to the extend and in the manner referred to in section 21 of the Act.
Explanation:-
In this section:-
a) the expression 'insured co-operative bank' means a society which is an insured bank under the provisions of the Deposit Insurance Corporation Act, 1961 (47 of 1961)
b) the expression 'transferee bank' in relation to an insured co-operative bank means a co-operative bank -
(i) with which such insured co-operative bank is amalgamated, or
(ii) to which the assets and liabilities of such insured co-operative bank are transferred, or
(iii) into which such insured co-operative bank is divided or converted, under sub-section (1) of section 17] The aforesaid provisions of Sub-section (5) of Section 115A of the Act creates an obligation upon the Liquidator of an insured Cooperative Bank to pay the petitioner Corporation the amount in the circumstances and to the extent and in the manner referred to in the aforesaid Section of 21 of DICGC Act. If provisions of Section 21 of the Act are considered, it creates the right in favour of the petitioner Corporation to have the repayment of the amount paid by it to the depositors of the insured Bank. It is with an intention of creating the right of repayment, the Parliament has used the language under Sub-section (e)(2) of Section 21 Notwithstanding anything to the contrary contained in any other law for the time being in force . Therefore, by virtue of the said language right of repayment of the amount paid by the Corporation is created.
Clause-A of Sub-section (2) of Section 21 obliges the Liquidator to repay such amount to the Corporation within such time and in such manner, as may be prescribed. The time for making payment and the manner of making payment has been prescribed by Regulation 22. Regulation 22 (Clause-A) provides that after making provision of expenses payable by the Liquidator, when the money is sufficient to enable him to declare dividend of not less than 1 paisa in the rupee to each depositor, such repayment is required to be made by the Liquidator. Therefore, the liability on the part of the Liquidator to pay such amount to the Corporation would accrue; (1) after making provision for expense payable by that time and (2) when fund is sufficient to enable him to declare a dividend of not less than 1 paisa in the rupee to each depositor. Both the aforesaid conditions as prescribed by the Regulation are required to be satisfied and it cannot be segregated as sought to be contended by the learned Counsel for the petitioner.
The contention of the learned Counsel for the petitioner was that after making provisions for expenses payable by that time, the Liquidator has to discharge the liability to declare the dividend to each of the depositor and, therefore, the payment will be required to be made immediately after making provision for expenses, to the respondent Corporation.
The net effect of the argument is that such repayment to be made to the Corporation would stand in priority over all the claims of all the creditors irrespective of the fact that whether they are secured or unsecured. Such contention is ill-founded inasmuch as the legislature has not used either under the Act or under the Regulation the language or words 'priority over any other debt'. Further, the liability to pay would accrue only when the dividend is to be declared to each depositor. Therefore, at a stage when the Liquidator reaches for making payment to the depositors of the Bank, the Corporation would be required to be paid first, since the minimum amount of such dividend is mentioned as not less than a paisa in the rupee. To say in other words, if the dividend is to be declared of even one per cent to the depositors of the Bank, the liability for repayment would be required to be discharged by the Liquidator to the Corporation. Hence, it is only at a stage when the dividend is to be declared to the depositor, the liability would accrue upon the Liquidator to make payment and consequently the right would accrue for getting repayment of the amount by the Corporation from the Liquidator in the liquidator proceedings.
The learned Counsel for the petitioner contended that if the priority is not considered of the Corporation above all the debts, the Corporation will have no fund to spare for discharge its obligation under the Act to the other deposit holders of other insured Bank. He also contended that when the Parliament has used the non-obstacle clause, provisions of the Act and Regulation be interpreted in a manner, which serves the purpose of the Act and there will be a purposive interpretation of the Court. In the submission of the learned Counsel for the petitioner, the purpose would be achieved only if the priority is read over all other debts of the Bank.
The examination of the aforesaid contention shows that the attempt on the part of the learned Counsel for the petitioner is to add the word of 'priority', which is not expressly inserted or provided by the Parliament. If the Parliament wanted to give priority to the debt of the Corporation over all other creditors, the language of Section 21 or Regulation would have been by the use of word 'priority', which is lacking. The reference may be made to the provisions of Section 529 and Section 529A of the Companies Act, wherein the Parliament has expressly used the word 'priority', which is lacking in DICGC Act. Therefore, if such contention of the learned Counsel for the petitioner is accepted, it would result into re-writing Section 21 of DICGC Act or adding the word into the provisions of Section of DICGC Act, which is not permissible, therefore, the said contention cannot be accepted. The purpose of the Act as sought to be canvassed by the learned Counsel for the petitioner is not for making the fund available to the Corporation for discharge its obligation under the Act, but the Scheme of the Act is to provide insurance to the deposits in any Bank up to a particular limit and to indemnify the same. After the indemnification of the liability, the Corporation may at the most would be entitled to get dues by transposition in place of the depositor or alternatively it would be entitled to claim the amount as unsecured creditor from the bank in liquidation proceedings. In case of transposition, in place of the depositor, Corporation would be entitled to get the amount proportionately with the other remaining amount of the depositor and as unsecured creditor it would be entitled to claim the amount after all payments are made to the depositors. As against the same, by virtue of the provisions of Section 21 of DICGC Act read with the Regulation 22, the claim of the Corporation would be above the depositors if the fund is available for dividend of 1 paisa in the rupee. It is only by virtue of the said provisions of Section 21 read with Regulation 22, amongst the depositors, the claim of the Corporation by way of repayment of the amount, which is already paid to the depositors would be required to be satisfied first and with that purpose, the Parliament has used the language of non-obstacle clause over any other liability for time being in force. Such non-obstacle clause is used, because in normal circumstances in any insolvency proceedings or in liquidation proceedings or winding up proceedings, the claim of the Corporation may rank for proportionate payments with the other depositors or may rank as unsecured creditor. With an intention to over-ride such provisions of liquidation proceedings, the Parliament has used the non-obstacle clause. Therefore, it is not possible to agree with the contention of the learned Counsel for the petitioner that if the priority over all old debts is not read, the purpose would be frustrated or that the purpose would not be achieved.
The learned Counsel for the petitioner alternatively next contended that the Corporation's claim is required to be considered in priority over the secured creditors. I am afraid such contention can be accepted in absence of any language used by the Parliament for creating charge over any property by the Bank at the time of claiming repayment. Therefore, it is not possible to accept the contention of the learned Counsel for the petitioner that the claim of the petitioner Corporation should be treated as in priority over the claim of secured creditors (other than crown/State as secured creditor) i.e. other private or institutional secured debits.
It was also alternatively next contended by the learned Counsel for the petitioner that amongst the unsecured creditors, the claim of the Corporation should be treated as in priority i.e. next to the secured debts. In view of the aforesaid interpretation of Section 21 read with Regulation 22 read with provisions of Section 115A(5), this Court has already held that the depositors amongst the unsecured creditor will have priority over other unsecured debts of private person or institution and amongst depositors, as observed earlier, the claim for repayment of the petitioner Corporation is required to be satisfied first and thereafter only the claim of the depositors for declaration of the dividends to the depositors is to be considered. Of course, so far as the claim of workers' dues/dues of the employees are concerned, it is already observed earlier that they shall be considered for pari passu payment with the secured debts.
Hence, no further observations deserve to be made in this regard.
It was also contended by the learned Counsel appearing for the petitioner that certain applicants, who have claimed the status as that of the secured creditor are not the secured creditor, since the charge has not been created after obtaining permissions of the Reserve Bank of India as per the mandatory requirement of Section 14A of the BR Act, which is applicable to the Corporative Bank. There is considerable force in the submission of the learned Counsel for the petitioner. However, it appears that whether permission of Reserve Bank of India was taken or not is the question of fact, which is not required to be gone into by this Court in the present proceedings. Further, whether the other Banks who have claimed the status as that of the secured creditors or not will have to be decided by the Liquidator on the basis of the record available as to whether the permission of RBI was taken under Section 14 of BR Act or not and as to whether any competent forum has declared such Banks or other financial institutions as secured creditors or not. Therefore, no concluding observations deserve to be made on the said aspect, except observing that it is only when the status as that of the secured creditor is proved or found proved, the claim may be considered, failing which such claim would fall in the category of unsecured creditor. Of course, even if the status of secured creditor is found proved, then also it will be to the extent of debt or the security available, whichever is less. For the remaining amount after exhausting security, the claim would stand as unsecured debt.
If the facts of the present case are examined in light of the observations made hereinabove, it appears that the Liquidator, while fixing the priority has not at all taken into consideration the aforesaid aspects and he has been guided by the Government Circular, which was quashed by this Court in the earlier proceedings. Even if it is considered that the Liquidator had exercised the power independently, then also the same cannot be sustained in view of the reasons recorded hereinabove on the aspects of priority as required to be taken into consideration by the Liquidator.
In view of the aforesaid, the impugned decision of the Liquidator is quashed and set aside in the respective petitions for fixation of the priority and the Liquidator is directed to decide the question of priority in light of the observations made by this Court in the present judgement and to take further steps for disbursement of the payment in accordance with law, preferably within a period of four weeks from the date of receipt of the order of this Court.
The petitions are partly allowed to the aforesaid extent. Rule made absolute accordingly. No order as to costs.
26.2.2010 (Jayant Patel, J.) vinod Top