Writ Petition No. 2082 of 2010 with 6579 of 2011. Case: Karad Merchant Sahakari Credit Sanstha Maryadit, Karad Vs Reserve Bank of India, Mumbai. High Court of Bombay (India)
| Case Number | Writ Petition No. 2082 of 2010 with 6579 of 2011 |
| Counsel | For Petitioner: Tejas D. Deshmukh with Samrat Shinde, C. G. Gavnekar, Advs. and For Respondents: Parag Sharma i/b Udwadia and Udeshi, Mihir Mody and Bhomin Badani i/b K. Ashar and Co., V. S. Gokhale, AGP, S. R. Ganbavale, H. G. Misal, Advs. |
| Judges | Abhay S. Oka , J. and M. S. Sonak, J. |
| Issue | Banking Regulation Act (10 of 1949) - Section 43A(10); Deposit Insurance and Credit Guarantee Corporation Act (47 of 1961) - Section 16(1); Constitution of India - Article 14 |
| Citation | AIR 2014 BOM 59 |
| Judgement Date | February 24, 2014 |
| Court | High Court of Bombay (India) |
Judgment:
M. S. Sonak, J.
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Rule. With the consent of the learned counsel appearing for the parties. Rule is made returnable forthwith.
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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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The Petitioners in these Petitions question the interpretation adopted by the Deposit Insurance and Credit Guarantee 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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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 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.
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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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:-
(A) The DICGC, has incorrectly interpreted the provisions of 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 up to 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.
(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.
(C) The second proviso to Section 16(1) of the said Act brings about a classification between depositors having deposits of less 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 up to 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.
(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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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. 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, Rules 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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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:
On the request of learned counsel for the Petitioner, Petition allowed to be withdrawn with liberty.
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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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In our opinion, since there is no...
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