{"id":196550,"date":"2010-02-23T00:00:00","date_gmt":"2010-02-22T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/deposit-vs-state-on-23-february-2010"},"modified":"2015-09-04T10:47:49","modified_gmt":"2015-09-04T05:17:49","slug":"deposit-vs-state-on-23-february-2010","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/deposit-vs-state-on-23-february-2010","title":{"rendered":"Deposit vs State on 23 February, 2010"},"content":{"rendered":"
Gujarat High Court<\/div>\n
Deposit vs State on 23 February, 2010<\/div>\n
Author: Jayant Patel,&Nbsp;<\/div>\n
   Gujarat High Court Case Information System \n\n  \n  \n    \n\n \n \n    \t      \n         \n\t    \n\t\t   Print\n\t\t\t\t          \n\n  \n\n\n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t \n\t\n\n\n \n\n\n\t \n\nSCA\/4260\/2009\t 33\/ 37\tJUDGMENT \n \n \n\n\t\n\n \n\nIN\nTHE HIGH COURT OF GUJARAT AT AHMEDABAD\n \n\n \n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 4260 of 2009\n \n\nWith\n\n\n \n\nSPECIAL\nCIVIL APPLICATION No. 6978 of 2009\n \n\n \n \nFor\nApproval and Signature:  \n \nHONOURABLE\nMR.JUSTICE JAYANT PATEL\n \n \n=========================================================\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n1\n\t\t\n\t\t \n\t\t\t \n\nWhether\n\t\t\tReporters of Local Papers may be allowed to see the judgment ?\n\t\t\n\t\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n2\n\t\t\n\t\t \n\t\t\t \n\nTo be\n\t\t\treferred to the Reporter or not ?\n\t\t\n\t\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n3\n\t\t\n\t\t \n\t\t\t \n\nWhether\n\t\t\ttheir Lordships wish to see the fair copy of the judgment ?\n\t\t\n\t\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n4\n\t\t\n\t\t \n\t\t\t \n\nWhether\n\t\t\tthis case involves a substantial question of law as to the\n\t\t\tinterpretation of the constitution of India, 1950 or any order\n\t\t\tmade thereunder ?\n\t\t\n\t\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\n5\n\t\t\n\t\t \n\t\t\t \n\nWhether\n\t\t\tit is to be circulated to the civil judge ?\n\t\t\n\t\n\n \n\n \n=========================================================\n\n \n\nDEPOSIT\nINSURANCE & CREDIT GUARANTEE CORPORATION - Petitioner(s)\n \n\nVersus\n \n\nSTATE\nOF GUJARAT, SECRETARY, AGRICULTURE & COOPERATIVE DEPT. & 6 -\nRespondent(s)\n \n\n=========================================================\n \nAppearance\n:\n \n\n \nMR SOPARKAR With\nMR\nAMAR N BHATT for\nPetitioner(s) : 1, \nMR KAMAL TRIVEDI, LD ADV. GENERAL WITH VISHEN,\nAGP for Respondent(s) : 1, (in both the matters for State\nAuthorities) \nRULE SERVED for Respondent(s) : 2, \nMR JR NANAVATI\nWITH MR DHARMESH V SHAH for Respondent(s) : 3(for Liquidator in\nboth), \nMR VK SHAH with MR HB KALMESH & MR UMANG R VYAS for\nRespondent(s) : 4, \nMR TUSHAR MEHTA WITH MR KETAN D SHAH for\nRespondent(s) : 5, \nMR BS PATEL for Respondent(s) : 6, \nMR UMANG\nH OZA for Respondent(s) : 7,\n \n\n \n=========================================================\n\n\n \n\t  \n\t \n\t  \n\t\t \n\t\t\t \n\nCORAM\n\t\t\t: \n\t\t\t\n\t\t\n\t\t \n\t\t\t \n\nHONOURABLE\n\t\t\tMR.JUSTICE JAYANT PATEL\n\t\t\n\t\n\n \n\n \n \n\n\n \n\nDate\n: 23-26\/02\/2010 \n\n \n\n \n \nCOMMON\nORAL JUDGMENT<\/pre>\n
\tAs in both the matters, common questions arise for consideration,
\n\tthey are being considered by this common judgement.\n<\/p>\n
\tThe short facts of the case appear to be that the petitioner is a
\n\tStatutory Corporation governed by the provisions of Deposit
\n\tInsurance and Credit Guarantee Corporation Act, 1961 (hereinafter
\n\treferred to as ‘DICGC Act’ for short).  The contesting respondent in
\n\tSpecial Civil Application No.4260 of 2009 is Liquidator of Visnagar
\n\tNagrik Cooperative Bank Limited and in Special Civil Application
\n\tNo.6978 of 2009 contesting respondent is Liquidator of General
\n\tCooperative Bank Limited (for the sake of convenience, hereinafter
\n\tshall be referred to as ‘the Bank concerned’).  It is an admitted
\n\tposition that both the Banks are insured Cooperative Banks governed
\n\tby the provisions of Section 115A of the Gujarat Cooperative
\n\tSocieties Act, 1961 (hereinafter referred as ‘the Act’) and both the
\n\tbanks are ordered to be liquidated under the Act and the respective
\n\tLiquidators are holding the charge of the affairs of both the Banks.\n<\/p>\n
\tIt appears that the Liquidator of the Banks, in exercise of the
\n\tpower under Sections 107 to 115 of the Act fixed up the priority by
\n\tthe respective impugned decision and in the said decision the
\n\tLiquidator has put up the claim of the petitioner Corporation in the
\n\tcategory of creditor after secured creditor and the Government dues
\n\tas well as the claim of the workers.  It is under these
\n\tcircumstances, the Corporation has approached this Court by the
\n\tpresent petitions, contending, inter alia, that it is having the
\n\tstatutory priority for the claim made by it on the basis of the
\n\tamount paid by it to the deposit holder to the extent of insured
\n\tamount.\n<\/p>\n
\tHeard Mr.S.N. Suparkar, learned Counsel appearing with Mr.Amar
\n\tBhatt, learned Counsel for the petitioners, Mr.Kamal Trivedi,
\n\tlearned Advocate General appearing with Ms.Vishen, learned AGP for
\n\tthe State and its Authorities, Mr.Nanavati, learned Counsel
\n\tappearing with Mr.Dharmesh Shah for the Liquidator in SCA No.4260 of
\n\t2009 and Mr.Mehul S. Shah, learned Counsel  for the Liquidator in
\n\tSCA No.6978 of 2009, Mr.B.S. Patel, learned Counsel for Mehsana
\n\tDistrict Cooperative Bank and Mr.Tushar Mehta, learned Additional
\n\tAdvocate General for Ahmedabad District Cooperative Bank and State
\n\tCooperative Bank.\n<\/p>\n
\tIt appears to the Court that three aspects deserve to be considered;
\n\tone is the mode and manner of exercise of power by the Liquidator
\n\twhile fixing the priority of the claim of various classes of
\n\tcreditors; the second aspect is the priority as may be available in
\n\tthe liquidation proceedings of an insured Bank; and the third is the
\n\tplacement in the priority list to the claim of the petitioner
\n\tCorporation amongst various classes of creditors.\n<\/p>\n
\tThe examination of the first aspect shows that as per the Scheme of
\n\tthe Act, the Liquidator is to be appointed by the Registrar for the
\n\taffairs of the Society, which is ordered to be liquidated.  The
\n\tpowers of the Liquidator are provided as per Section 110 of the Act.
\n\t Such powers are subject to the Rules and general supervision,
\n\tcontrol and direction of the Registrar.  Under the Gujarat
\n\tCooperative Societies Rule, 1965 (hereinafter referred to as ‘the
\n\tRules’ for short), the procedure pertaining to the liquidation is
\n\tcontemplated under Rule 46 onwards.  However, Rule 46 to 50 do not
\n\texpressly provide for controlling the power of the Liquidator under
\n\tSection 110(e) and (f) of the Act and Sub-rule (2) of Rule 48
\n\tprovides for the money to be realised from the members and past
\n\tmembers for the power to be exercised by the Liquidator under
\n\tSection 110(h) of the Act.  Section 110(e), which is relevant for
\n\tthe present petition reads as under:-\n<\/p>\n
 Sec.\n<\/p>\n
\t110\t Powers of Liquidator;-\n<\/p>\n
The
\n\tLiquidator appointed under Section 108 shall have power, subject to
\n\tthe rules and the general supervision, control and direction of the
\n\tRegistrar;-\n<\/p>\n
(a)
\n\t\txxx<\/p>\n
(b)
\n\t\txxx<\/p>\n
(c)
\n\t\txxx<\/p>\n
(d)
\n\t\txxx<\/p>\n
(e)\tto
\n\tinvestigate all claims against the Society and, subject to the
\n\tprovisions of the Act, to decide questions of priority arising out
\n\tof such claims and to pay any class or classes of creditors in full
\n\tor ratably according to the amount of such debts, the surplus being
\n\tapplied in payment of interest from the date of liquidation at a
\n\trate approved by the Registrar, but not exceeding the contract
\n\trates.\n<\/p>\n
The
\n\taforesaid provisions enables the Liquidator to decide the questions
\n\tof priority arising from the claims made before him and consequently
\n\tto pay any class or classes of creditors according to the amount of
\n\tsuch debts.  The language of Section 110(e) of the Act speaks for\n<\/p>\n
\t(i) various types of claims; (ii) any class or classes of creditors;
\n\tand (iii) various types of such creditors within same classes, if
\n\tany.  Of course, such power is subject to the Rules and the general
\n\tsupervision, control and direction of the Registrar, but in absence
\n\tof any specific order by the Registrar, it would be for the
\n\tLiquidator to exercise the power as per the provisions of Section
\n\t110(e) of the Act.\n<\/p>\n
It
\n\tcan hardly be accepted that the liquidation proceedings of any
\n\tsociety would be altogether different than that of any insolvency
\n\tproceedings either under Provisional Insolvency Court Act or
\n\tPresidential Insolvency Court Act or the Winding Up of any Company.
\n\tThe laws prevailing in the matter of insolvency proceedings or in
\n\tthe matter of winding up proceedings would be required to be taken
\n\tinto consideration by the Liquidator while classifying the creditors
\n\tand tracing the debts of such creditors.  It is only thereafter the
\n\tpriority is to be fixed by the Liquidator.  Even at the time of
\n\tfixing the priority the laws relating to the insolvency proceedings
\n\tand winding up proceedings are required to be taken into
\n\tconsideration by the Liquidator but it is only when there are valid
\n\treasons for making departure therefrom or there is any express
\n\tstatutory provisions may be by way of State Act or Central Act, the
\n\tdeparture therefrom may be permissible.  Otherwise in normal
\n\tcircumstances, it would be expected for the Liquidator to go by the
\n\tpriority as may be available to different classes of creditors for
\n\ttheir different debts in the insolvency proceedings or winding up
\n\tproceedings.  Therefore, it is not possible to hold that the
\n\tLiquidator of each Society or each Bank has power to decide the
\n\tpriority of various classes of creditors separately or classify
\n\tvarious debts separately for satisfying the claims against the
\n\tSociety.  If such power is read, it will not only create an
\n\tanomalous and ambiguous situation, but it will leave room for
\n\tarbitrary exercise of power in liquidation proceedings of each
\n\tSociety by the Liquidator.  Therefore, it will have to be held that
\n\tthe Liquidator of the Society having same nature for exercise of
\n\tpower as Liquidator in the same category of the Society, would be
\n\trequired to exercise the power for fixation of the priority, keeping
\n\tin view the laws prevailing in any insolvency proceedings or the
\n\tproceedings relating to winding up of the company.  It cannot be
\n\tsaid that the claims of any creditor as prevailing under the common
\n\tlaw or under any other law is to be ignored and the Liquidator
\n\tenjoys the power to surpass or nullify the same.  The Liquidator
\n\twhile exercising the power for priority has to be guided and
\n\tgoverned by the rights as may be available of the creditor against
\n\tthe Society for enforcement or recovery of such debts.  However, in
\n\ta case where the statute or by any Act express priority is provided,
\n\tit will be required for the Liquidator to respect the same and to
\n\tabide by the same.  But in absence of any express priority by any
\n\tstatute, for various classes of creditors, the Liquidator will be
\n\trequired to fix the priority, keeping in view the laws relating to
\n\tinsolvency proceedings and the laws relating to winding up of a
\n\tcompany.  Of course, the same as observed earlier, is subject to a
\n\tvery strong reasons for making departure therefrom in any individual
\n\tcase, provided there is a support of express provision of any State
\n\tAct or Central Act made for such purpose.\n<\/p>\n
The
\n\taforesaid takes me to examine the second aspect about the
\n\tidentification of various classes of the creditors, including their
\n\trespective debts.  The debts can broadly be classified into secured
\n\tdebts and unsecured debts.  In the same manner the creditors can be
\n\tclassified broadly into two categories; secured creditors and
\n\tunsecured creditors.  It is within those two classes  there may be
\n\tthe crown debt as the secured or the crown debt as unsecured
\n\tcreditor.  If by express provisions of statute the charge is created
\n\tover the property for any revenue or taxes or other Government dues,
\n\tit can be termed as crown debt as secured creditor and amongst
\n\tsecured creditors, the crown debt having secured by way of express
\n\tcharge provided by any statute will have priority over other (other
\n\tthan crown) secured creditors.  Same position will prevail for two
\n\tcategories within the classes of unsecured creditors namely; the
\n\tdebts of crown as unsecured creditor and the other debts (other than
\n\tthat of the crown) as unsecured creditors.  The crown debt as
\n\tunsecured creditors will have priority over other unsecured
\n\tcreditors.  It may also be recorded that the claim of any of the
\n\tsecured creditors will be to the extent of security so available and
\n\tto the extent of security interest created therein and once the
\n\tsecurity is exhausted or the interest is satisfied, the remaining
\n\tpart of the debt would be classifiable as unsecured debt.  The
\n\tLiquidator, therefore, while exercising the power of fixation of
\n\tpriority will be required to take into consideration the aforesaid
\n\tvarious classes of creditors and the assets of the society or the
\n\tbank will be required to be distributed accordingly either in full
\n\tor rateable as per the category of such debt and to the extent
\n\tavailable therefrom.\n<\/p>\n
At
\n\tthis stage reference to the decision of this Court in the case of
\n\tPatel Dayabhai Ramji v.\n<\/p>\n
\tManager, in Special Civil Application No.13181 of 2004 decided
\n\ton 12.1.2010 in the matter of insolvency proceedings for considering
\n\tthe rights of the secured creditor would be relevant.
\n\t In the said decision, this Court had observed at paragraphs 7, 8,
\n\t9, and 10 as under:-\n<\/p>\n
 7.\tThe
\n\trelevant aspect in the present case is that whenever any property of
\n\tthe person who is declared insolvent is taken over by the Receiver
\n\tor the officer of the Court appointed for such purpose, the same
\n\twould be available to the extent of the interest held by the
\n\tinsolvent in such property. If the rights of any third party exists
\n\tin the property or a
\n\tbar or a clog
\n\tis operating over
\n\tthe title of the insolvent in such property, such would be required
\n\tto be taken care of by the Court at the time when the money
\n\tis to be appropriated. As per the provisions of the Transfer of
\n\tProperties Act, once a mortgage is created by any person in favour
\n\tof the mortgagee, interest in the property to that extent is created
\n\tand the rights of the owner in the property to that extent shall
\n\tvest with the mortgagee subject to the provisions of the Transfer of
\n\tProperties Act. If such insolvent who is mortgagor has to sell the
\n\tproperty, he will have the rights to sell the property subject to
\n\tthe mortgage or the rights of the mortgagee and such rights in the
\n\tproperty to that
\n\textent would be available to the Insolvency Court for realization of
\n\tthe property of the insolvent unless the transaction
\n\tof such mortgage is declared as fraudulent or void or set aside by
\n\tthe Insolvency Court in such proceedings. It is not the case of any
\n\tparties to the proceedings that the transaction of mortgage was by
\n\tway of fraud or the transaction was fraudulent or void or otherwise.
\n\tTherefore, proceedings on the basis that there was valid mortgage in
\n\tfavour of the bank executed by the deceased pertaining to the
\n\tproperty, which has subsequently vested to the
\n\tlegal heirs of the deceased, the resultant effect would be that the
\n\tinsolvents were holding the property subject to
\n\tthe rights of the mortgagee. Under such situation, the Receiver
\n\tthough might have taken possession of the property and though might
\n\thave sold the property of the insolvents, the money available for
\n\tdistribution as per the provisions of Section 61 would be after
\n\tsatisfying the encumbrances or the rights of the mortgagee to the
\n\textent created in the property prior to the requisite period for
\n\twhich the bar operates against the insolvent and in any case on the
\n\tdate when the person is declared insolvent and his property is taken
\n\tover by the
\n\tReceiver of the Insolvency Court.\n<\/p>\n
8.\tThe
\n\taforesaid appears to be the  position
\n\tas per the Transfer of Properties Act and for the rights in the
\n\tproperty of the  insolvent. If the provisions of Section 61 is
\n\texamined in light of the  aforesaid position of law, to be
\n\tconsidered as per the  provisions of Transfer of Properties Act, it
\n\twould appear that the distribution of the  property as provided
\n\tunder Section 61 on the  basis of the  priority of the  debt is to
\n\tbe considered qua the  absolute property or qua the  rights under
\n\tthe  Transfer of Properties
\n\tAct. To say in other words, even if the property is held by the
\n\tinsolvent, but once the mortgage is proved, such property
\n\twould be available to the  extent minus the  rights of the mortgagee
\n\tin the  property as available under the Transfer of Properties Act.
\n\tFurther, the  pertinent aspect is that Section 61 of the  Provincial
\n\tInsolvency Act is not with a non-obstacle clause or the legislature
\n\tdid not intend to have the  overriding effect over any other law for
\n\tthe  time being in force which may include Transfer of Properties
\n\tAct. Therefore, in view of the aforesaid position, the  question of
\n\tpriority in payment would be required to be considered from
\n\tthe money realised of the  property of the insolvent minus the
\n\trights of the  mortgage in such property. As such, the  interest
\n\tcreated in favour of the  mortgagee by the insolvent prior to the
\n\tdeclaration as insolvent unless the  transaction is held  to be
\n\tfraudulent or void, voidable, cannot be equated with the word  debts
\n\tfully . The  mortgagee is having a secured interest in the
\n\tproperty and the  amount payable by the  insolvent to the  mortgagee
\n\tcannot be only termed as debt. But the  rights are additionally
\n\tavailable to the  mortgagee having created secured interest for
\n\twhich the
\n\tproperty as per the  provisions of the  Transfer of Properties Act.
\n\tTherefore, the  net effect of the  aforesaid is that the  amount
\n\trecoverable by such mortgagee will be above the  priority
\n\tcontemplated under Section 61 of the  Insolvency Act.\n<\/p>\n
9.\tAt
\n\tthis stage, the  reference may be made to the provisions contained
\n\tin the  Companies Act, 1956, for availability of the  rights of the
\n\tsecured creditors as per the  provisions of Section 529 and over the
\n\tpreferential payments available under Section 530. This Court in the
\n\tcase of Textile Labour Association Vs. The Official Liquidator of
\n\tRajpur Mills Ltd. (in Lqn.) in Company Application Nos.358\/08 &
\n\tallied matters, decided on 04.08.2009, the  debt of the workers in
\n\taddition to the  pari passu and if yes, to what extent, at para 7 in
\n\tthe said decision observed thus-\n<\/p>\n
 Therefore,
\n\tit appears that as per Section 529, rights of secured and unsecured
\n\tcreditors as in force for the time being under the law of insolvency
\n\twith respect to the estates of persons adjudged insolvent, are
\n\trequired to be observed.  If
\n\tthe matter is considered for the respective rights of the secured
\n\tcreditors, they would be entitled to foreclosure of the mortgage and
\n\tthe Company in liquidation would be entitled to redemption of the
\n\tmortgage by payment  of
\n\tthe full amount.  It is by now well settled that the rights of the
\n\tsecured creditor would stand above the rights of the preferential
\n\tcreditors under Section 530 as
\n\t well
\n\tas unsecured creditors.\n<\/p>\n
\t It is only
\n\tby way of statutory provision of Section 529A of the Act which
\n\tbegins with the non-obstacle clause, the workers’ dues are to be
\n\ttreated at par with the secured creditors and for such pari passu
\n\tpayment, the debts of the workers’ dues and all the secured
\n\tcreditors as per  Section 529A of the Act are given priority above
\n\tall other debts.  It is not in dispute that the debt under Section
\n\t529A of the Act are not satisfied.  Therefore, in the present group
\n\tof matters, the Court may not be required to examine the aspects of
\n\tpriority of the workers’ dues and secured creditors under Section
\n\t529A of the Act over the other debts falling in the category of
\n\tSection 530 of the Act and also of other unsecured creditors.  It
\n\tappears from the conjoint reading of Section 529 read with Section
\n\t529A of the Act that Section 529A is carving out an exception
\n\tto the rights of secured and unsecured creditors under Section 529.
\n\tTherefore, if the provisions of Section 529A of the Act is to be
\n\timplemented, Section 529 would not operate as a bar.  However,
\n\tafter the satisfaction of the debts under Section 529A of the Act,
\n\tthe effect is required to be given to the provisions of Section 529
\n\tof the Act.  As observed earlier,  Section
\n\t529 of the Act saves the rights of the secured and unsecured
\n\tcreditors as are for the time being in force.  To say in other
\n\twords, the rights of the secured creditors are above the unsecured
\n\tcreditors as they have interest in the property of the Company in
\n\tliquidation for which the security is created.  It is only between
\n\tthe rights of secured and unsecured creditors, Section 530 may have
\n\trole to play for preferential payment amongst the unsecured
\n\tcreditors.\n<\/p>\n
\t Therefore, the creditors who may fall in the
\n\tcategory of secured creditors would be to the extent of their
\n\tsecurity, above the creditors falling under Section 530 of the Act
\n\tand other unsecured creditors.  Therefore, it appears that if on
\n\taccount of
\n\tthe implementation of the provisions of Section 529A of the Act, if
\n\tthe secured creditors have not been able to realise the full money
\n\tfrom their security, after payment to the workers at pari passu, if
\n\tthe surplus\/balance amount remains, which is realised from the
\n\tsecurity of the secured creditors, the same may be claimed by the
\n\tsecured creditors in the capacity as secured creditors who otherwise
\n\tcould not recover the amount from their security in view of the
\n\tprovisions of Section 529A of the Act.  To say in other words, if
\n\tthe secured creditors have to recover the amount of Rs.100\/- for
\n\tsatisfying their outstanding dues and on account of the inclusion of
\n\tthe claim of the workers for pari passu payment under Section 529A,
\n\tthey have received lessor amount, such amount would be available to
\n\tthe secured creditors, provided there is surplus\/balance
\n\tafter compliance to the provisions of Section 529A of the Act and
\n\tsuch remaining amount is a part of the amount realised from their
\n\tsecurity.  Therefore, the first question shall stand answered
\n\taccordingly.  The aforesaid shall hold good for realisation of the
\n\tamount by the secured creditor upto the date of winding up of the
\n\tCompany in liquidation.  (emphasis
\n\tsupplied)<\/p>\n
Therefore,
\nin view of the  aforesaid observations and discussions, the
\nconclusion would be that the Bank in the  capacity as secured
\ncreditor was entitled to have the  payment of its outstanding amount
\nof
\nthe  Award of the  learned Nominee from the  money realised by sale
\nof the property and the  balance, if any, available could be
\ndistributed
\namongst other debtors which may include the  decree holder who are
\nrespondents in the  present proceedings, but the  premise on the
\nbasis of which the  learned Judge has passed the order of not at all
\nconsidering the claim of the  priority for availability of the
\npayment to the  secured creditor who is Bank in the  present case,
\ncould be said to be an error apparent on
\nthe  face of the  record committed by the  learned Civil Judge in the
\n Insolvency Proceedings. It was required for the  learned
\nJudge to consider the  aforesaid aspects and to make the  fund
\navailable for satisfaction of the  interest of the  secured creditor
\nwho is Bank in the  present case and thereafter, the  balance if any
\navailable could be distributed amongst the  other creditors, which
\nincludes the  creditor
\nholding decree who are respondents in the  present case.\n<\/p>\n
The aforesaid
\n\twould show that in the insolvency proceedings or in the proceedings
\n\tof winding up of a company, the normal priority has to be as under:-\n<\/p>\n
(1)\t\tSecured
\n\tdebts of the crown or the State may be by way of a security created
\n\tas per Transfer of Properties Act or may be by way of express charge
\n\tcreated by any statutory provisions to such Government dues, subject
\n\tto the conditions of the quantum of such debt or to the extent of
\n\tsuch security available, whichever is less.\n<\/p>\n
(2)\t\tSecured
\n\tdebt of any private person or any other Institution, subject to
\n\tconditions of the quantum of such debt or to the extent of such
\n\tsecurity available, whichever is less.\n<\/p>\n
(3)\t\tWorkers\/employees
\n\tdues.\n<\/p>\n
(4)\t\tThe
\n\taforesaid two categories of secured debts may be considered on pari
\n\tpassu  basis with the workers\/employees  dues.\n<\/p>\n
(5)\t\tCrown\/State
\n\tdues (unsecured)<\/p>\n
(6)\t\tUnsecured
\n\tdebt of other private person.\n<\/p>\n
The
\n\taforesaid may be the position in liquidation proceedings of a
\n\tCooperative Society.  However, so far as Cooperative Banks and more
\n\tparticularly insured Banks are concerned, the claim of depositors
\n\tmay stand in priority above other unsecured debts, but next to
\n\tunsecured Government\/Crown debts. The aforesaid appears to be
\n\treasonable to be incorporated, keeping in view the provisions of
\n\tSection 43A of the Banking Regulation Act, 1949 (hereinafter
\n\treferred to as  BR Act ).  It is true that Section 43A of the
\n\tAct applies to the Banking company and by virtue of Section 56 of BR
\n\tAct only certain provisions of BR Act applies to Cooperative Banks
\n\tfor its functioning. However,  if  for other banks, which includes
\n\tother banking companies, the Parliament by legislative provisions
\n\thas given priority to the deposits, after payment of preferential
\n\tcreditors under Section 530 of the Companies Act, which is
\n\tequivalent to unsecured Government debts, there is no reason for not
\n\tto apply such priority to the depositors while getting back the
\n\tmoney from such cooperative banks, when the payment is to be made to
\n\tunsecured creditors.  Therefore, the claim of depositors may stand
\n\tin priority over other unsecured debts of private persons.  The last
\n\twould be the distribution of share money amongst the shareholders of
\n\tthe Society.\n<\/p>\n
The
\n\taforesaid can be a broad parameters for the Liquidator to decide the
\n\tpriority generally for cooperative societies and specifically for
\n\tcooperative banks, which are also otherwise governed by the
\n\tprovisions of BR Act as per the observations made hereinabove.\n<\/p>\n
The
\n\taforesaid takes me to examine the question for consideration of the
\n\tpriority claimed by the petitioner Corporation. Section 21 of  DICGC
\n\tAct is heavily pressed in service by the learned Counsel for the
\n\tpetitioners read with Regulation 22 of the Deposit Insurance and
\n\tCredit Guarantee Corporation Regulation, 1961.  The same for ready
\n\treference reads as under :-\n<\/p>\n
 Section
\n\t21 Repayment of the amount to Corporation.-(1) Where any
\n\tamount has been paid under Sec. 17 or Sec. 18 or any provision
\n\ttherefor has been made under Sec. 20, the Corporation shall furnish
\n\tto the liquidator or to the insured bank or to the transferee bank,
\n\tas the case may be, information as regards the amount so paid or
\n\tprovided for.\n<\/p>\n
(2)\tOn
\n\treceipt of the information under sub-section (1), notwithstanding
\n\tanything to the contrary contained in any other law for the time
\n\tbeing in force,-\n<\/p>\n
(a)
\n\tthe liquidator shall, within such time and in such manner as may be
\n\tprescribed, repay to the Corporation out of the amount, if any,
\n\tpayable by him in respect of any deposit such sum or sums as make up
\n\tthe amount paid or provided for by the Corporation in respect of
\n\tthat deposit;\n<\/p>\n
(b)\tthe
\n\tinsured bank or, as the case may be, the transferee bank shall,
\n\twithin such time and in such manner as may be prescribed, repay to
\n\tthe Corporation out of the amount, if any, to be paid or credited in
\n\trespect of any deposit after the date of the coming into force of
\n\tthe scheme referred to in Sec. 18, such sum or sums as make up the
\n\tamount paid or provided for by the Corporation in respect of that
\n\tdeposit.\n<\/p>\n
 Regulation\n<\/p>\n
\t22.\tThe amounts repayable to
\n\tthe Corporation under sub-section (2) of section 21 of the Act shall
\n\tbe paid from time to time by,-\n<\/p>\n
\t(a)\tthe
\n\tliquidator as soon as the realisations and other amounts in his
\n\thands, after making provision for expenses payable by that time, are
\n\tsufficient to enable him to declare a dividend of not less than one
\n\tpaisa in the Rupee to each depositor.\n<\/p>\n
\t(b)\tthe
\n\tinsured bank or the transferee bank, as the case may be, as soon as
\n\tthe realisations and other amounts in his hands, after making
\n\tprovision for expenses payable by that time in respect of such
\n\trealisations or other amount in its hands are sufficient to enable
\n\tit after the date of coming into force of the scheme referred to in
\n\tsection 18 of the Act, to pay or credit in respect of each depositor
\n\ta sum not less than one paisa in the Rupee.\n<\/p>\n
At
\n\tthis stage, reference may also be made to Section 115A(5) of the
\n\tAct, which read as under:-\n<\/p>\n
 115A
\n\tOrder for winding up, reconstruction, supersession of committee,
\n\tetc., of insured co-operative bank not to be made without sanction
\n\tor regulation of Reserve Bank of India;-\n<\/p>\n
\tNotwithstanding
\n\tanything contained in this Act, in the case of an insured
\n\tco-operative bank-\n<\/p>\n
\t1.\txxx<\/p>\n
\t2.\txxx<\/p>\n
\t2A\txxx<\/p>\n
\t3.\txxx<\/p>\n
\t4.\txxx<\/p>\n
5.\tthe
\n\tliquidator or such bank or the transferee bank, as the case may be,
\n\tshall be under an obligation to pay the Deposit Insurance
\n\tCorporation established under the Deposit Insurance Corporation Act,
\n\t1961 (47 of 1961), in the circumstances, to the extend and in the
\n\tmanner referred to in section 21 of the Act.\n<\/p>\n
Explanation:-\n<\/p>\n
\tIn this section:-\n<\/p>\n
a)\tthe
\n\texpression ‘insured co-operative bank’ means a society which is an
\n\tinsured bank under the provisions of the Deposit Insurance
\n\tCorporation Act, 1961 (47  of 1961)<\/p>\n
b)\tthe
\n\texpression ‘transferee bank’ in relation to an insured co-operative
\n\tbank means a co-operative bank –\n<\/p>\n
(i)\twith
\n\twhich such insured co-operative bank is amalgamated, or <\/p>\n
(ii)\tto
\n\twhich the assets and liabilities of such insured co-operative bank
\n\tare transferred, or<\/p>\n
(iii)
\n\tinto which such insured co-operative bank is divided or converted,
\n\tunder sub-section (1) of section 17]<\/p>\n
\tThe
\n\taforesaid provisions of Sub-section (5) of Section 115A of the Act
\n\tcreates an obligation upon the Liquidator of an insured Cooperative
\n\tBank to pay the petitioner Corporation the amount in the
\n\tcircumstances and to the extent and in the manner referred to in the
\n\taforesaid Section of 21 of DICGC Act.  If provisions of Section 21
\n\tof the Act are considered, it creates the right in favour of the
\n\tpetitioner Corporation to have the repayment of the amount paid by
\n\tit to the depositors of the insured Bank.  It is with an intention
\n\tof creating the right of repayment, the Parliament has used the
\n\tlanguage under Sub-section (e)(2) of Section 21  Notwithstanding
\n\tanything to the contrary contained in any other law for the time
\n\tbeing in force .  Therefore, by virtue of the said language right
\n\tof repayment of the amount paid by the Corporation is created.
\n\tClause-A of Sub-section (2) of Section 21 obliges the Liquidator to
\n\trepay such amount to the Corporation within such time and in such
\n\tmanner, as may be prescribed.  The time for making payment and the
\n\tmanner of making payment has been prescribed by Regulation 22.
\n\tRegulation 22 (Clause-A) provides that after making provision of
\n\texpenses payable by the Liquidator, when the money is sufficient to
\n\tenable him to declare dividend of not less than 1 paisa in the rupee
\n\tto each depositor, such repayment is required to be made by the
\n\tLiquidator.  Therefore, the liability on the part of the Liquidator
\n\tto pay such amount to the Corporation would accrue; (1) after making
\n\tprovision for expense payable by that time and (2) when fund is
\n\tsufficient to enable him to declare a dividend of not less than 1
\n\tpaisa in the rupee to each depositor.  Both the aforesaid conditions
\n\tas prescribed by the Regulation are required to be satisfied and it
\n\tcannot be segregated as sought to be contended by the learned
\n\tCounsel for the petitioner.\n<\/p>\n
\tThe
\n\tcontention of the learned Counsel for the petitioner was that after
\n\tmaking provisions for expenses payable by that time, the Liquidator
\n\thas to discharge the liability to declare the dividend to each of
\n\tthe depositor and, therefore, the payment will be required to be
\n\tmade immediately after making provision for expenses, to the
\n\trespondent Corporation.\n<\/p>\n
\tThe
\n\tnet effect of the argument is that such repayment to be made to the
\n\tCorporation would stand in priority over all the claims of all the
\n\tcreditors irrespective of the fact that whether they are secured or
\n\tunsecured.  Such contention is ill-founded inasmuch as the
\n\tlegislature has not used either under the Act or under the
\n\tRegulation the language or words ‘priority over any other debt’.
\n\tFurther, the liability to pay would accrue only when the dividend is
\n\tto be declared to each depositor.  Therefore, at a stage when the
\n\tLiquidator reaches for making payment to the depositors of the Bank,
\n\tthe Corporation would be required to be paid first, since the
\n\tminimum amount of such dividend is mentioned as not less than a
\n\tpaisa in the rupee.  To say in other words, if the dividend is to be
\n\tdeclared of even one per cent to the depositors of the Bank, the
\n\tliability for repayment would be required to be discharged by the
\n\tLiquidator to the Corporation.  Hence, it is only at a stage when
\n\tthe dividend is to be declared to the depositor, the liability would
\n\taccrue upon the Liquidator to make payment and consequently the
\n\tright would accrue for getting repayment of the amount by the
\n\tCorporation from the Liquidator in the liquidator proceedings.\n<\/p>\n
\tThe
\n\tlearned Counsel for the petitioner contended that if the priority is
\n\tnot considered of the Corporation above all the debts, the
\n\tCorporation will have no fund to spare for discharge its obligation
\n\tunder the Act to the other deposit holders of other insured Bank.
\n\tHe also contended that when the Parliament has used the non-obstacle
\n\tclause, provisions of the Act and Regulation be interpreted in a
\n\tmanner, which serves the purpose of the Act and there will be a
\n\tpurposive interpretation of the Court.  In the submission of the
\n\tlearned Counsel for the petitioner, the purpose would be achieved
\n\tonly if the priority is read over all other debts of the Bank.\n<\/p>\n
\tThe
\n\texamination of the aforesaid contention shows that the attempt on
\n\tthe part of the learned Counsel for the petitioner is to add the
\n\tword of ‘priority’, which is not expressly inserted or provided by
\n\tthe Parliament.  If the Parliament wanted to give priority to the
\n\tdebt of the Corporation over all other creditors, the language of
\n\tSection 21 or Regulation would have been by the use of word
\n\t‘priority’, which is lacking.  The reference may be made to the
\n\tprovisions of Section 529 and Section 529A of the Companies Act,
\n\twherein the Parliament has expressly used the word ‘priority’, which
\n\tis lacking in DICGC Act.  Therefore, if such contention of the
\n\tlearned Counsel for the petitioner is accepted, it would result into
\n\tre-writing Section 21 of DICGC Act or adding the word into the
\n\tprovisions of Section of DICGC Act, which is not permissible,
\n\ttherefore, the said contention cannot be accepted.  The purpose of
\n\tthe Act as sought to be canvassed by the learned Counsel for the
\n\tpetitioner is not for making the fund available to the Corporation
\n\tfor discharge its obligation under the Act, but the Scheme of the
\n\tAct is to provide insurance to the deposits in any Bank up to a
\n\tparticular limit and to indemnify the same.  After the
\n\tindemnification of the liability, the Corporation may at the most
\n\twould be entitled to get dues by transposition in place of the
\n\tdepositor or alternatively it would be entitled to claim the amount
\n\tas unsecured creditor from the bank in liquidation proceedings.  In
\n\tcase of transposition, in place of the depositor, Corporation would
\n\tbe entitled to get the amount proportionately with the other
\n\tremaining amount of the depositor and as unsecured creditor it would
\n\tbe entitled to claim the amount after all payments are made to the
\n\tdepositors.  As against the same, by virtue of the provisions of
\n\tSection 21 of DICGC Act read with the Regulation 22, the claim of
\n\tthe Corporation would be above the depositors if the fund is
\n\tavailable for dividend of 1 paisa in the rupee.  It is only by
\n\tvirtue of the said provisions of Section 21 read with Regulation 22,
\n\tamongst the depositors, the claim of the Corporation by way of
\n\trepayment of the amount, which is already paid to the depositors
\n\twould be required to be satisfied first and with that purpose, the
\n\tParliament has used the language of non-obstacle clause over any
\n\tother liability for time being in force.  Such non-obstacle clause
\n\tis used, because in normal circumstances in any insolvency
\n\tproceedings or in liquidation proceedings or winding up proceedings,
\n\tthe claim of the Corporation may rank for proportionate payments
\n\twith the other depositors or may rank as unsecured creditor.  With
\n\tan intention to over-ride such provisions of liquidation
\n\tproceedings, the Parliament has used the non-obstacle clause.
\n\tTherefore, it is not possible to agree with the contention of the
\n\tlearned Counsel for the petitioner that if the priority over all old
\n\tdebts is not read, the purpose would be frustrated or that the
\n\tpurpose would not be achieved.\n<\/p>\n
\tThe
\n\tlearned Counsel for the petitioner alternatively next contended that
\n\tthe Corporation’s claim is required to be considered in priority
\n\tover the secured creditors.  I am afraid such contention can be
\n\taccepted in absence of any language used by the Parliament for
\n\tcreating charge over any property by the Bank at the time of
\n\tclaiming repayment.  Therefore, it is not possible to accept the
\n\tcontention of the learned Counsel for the petitioner that the claim
\n\tof the petitioner Corporation should be treated as in priority over
\n\tthe claim of secured creditors (other than crown\/State as secured
\n\tcreditor) i.e. other private or institutional secured debits.\n<\/p>\n
\tIt
\n\twas also alternatively next contended by the learned Counsel for the
\n\tpetitioner that amongst the unsecured creditors, the claim of the
\n\tCorporation should be treated as in priority i.e. next to the
\n\tsecured debts.  In view of the aforesaid interpretation of Section
\n\t21 read with Regulation 22 read with provisions of Section 115A(5),
\n\tthis Court has already held that the depositors amongst the
\n\tunsecured creditor will have priority over other unsecured debts of
\n\tprivate person or institution and amongst depositors, as observed
\n\tearlier, the claim for repayment of the petitioner Corporation is
\n\trequired to be satisfied first and thereafter only the claim of the
\n\tdepositors for declaration of the dividends to the depositors is to
\n\tbe considered.  Of course, so far as the claim of workers’ dues\/dues
\n\tof the employees are concerned, it is already observed earlier that
\n\tthey shall be considered for pari passu payment with the secured
\n\tdebts.\n<\/p>\n
\t Hence, no further observations deserve to be made in this regard.\n<\/p>\n
\tIt
\n\twas also contended by the learned Counsel appearing for the
\n\tpetitioner that certain applicants, who have claimed the status as
\n\tthat of the secured creditor are not the secured creditor, since the
\n\tcharge has not been created after obtaining permissions of the
\n\tReserve Bank of India as per the mandatory requirement of Section
\n\t14A of the BR Act, which is applicable to the Corporative Bank.
\n\tThere is considerable force in the submission of the learned Counsel
\n\tfor the petitioner.  However, it appears that whether permission of
\n\tReserve Bank of India was taken or not is the question of fact,
\n\twhich is not required to be gone into by this Court in the present
\n\tproceedings.  Further, whether the other Banks who have claimed the
\n\tstatus as that of the secured creditors or not will have to be
\n\tdecided by the Liquidator on the basis of the record available as to
\n\twhether the permission of RBI was taken under Section 14 of BR Act
\n\tor not and as to whether any competent forum has declared such Banks
\n\tor other financial institutions as secured creditors or not.
\n\tTherefore, no concluding observations deserve to be made on the said
\n\taspect, except observing that it is only when the status as that of
\n\tthe secured creditor is proved or found proved, the claim may be
\n\tconsidered, failing which such claim would fall in the category of
\n\tunsecured creditor.  Of course, even if the status of secured
\n\tcreditor is found proved, then also it will be to the extent of debt
\n\tor the security available, whichever is less.  For the remaining
\n\tamount after exhausting security, the claim would stand as unsecured
\n\tdebt.\n<\/p>\n
\tIf
\n\tthe facts of the present case are examined in light of the
\n\tobservations made hereinabove, it appears that the Liquidator, while
\n\tfixing  the priority has not at all taken into consideration the
\n\taforesaid aspects and he has been guided by the Government Circular,
\n\twhich was quashed by this Court in the earlier proceedings.  Even if
\n\tit is considered that the Liquidator had exercised the power
\n\tindependently, then also the same cannot be sustained in view of the
\n\treasons recorded hereinabove on the aspects of priority as required
\n\tto be taken into consideration by the Liquidator.\n<\/p>\n
\tIn
\n\tview of the aforesaid, the impugned decision of the Liquidator is
\n\tquashed and set aside in the respective petitions for fixation of
\n\tthe priority and the Liquidator is directed to decide the question
\n\tof priority in light of the observations made by this Court in the
\n\tpresent judgement and to take further steps for disbursement of the
\n\tpayment in accordance with law, preferably within a period of four
\n\tweeks from the date of receipt of the order of this Court.\n<\/p>\n
\tThe
\n\tpetitions are partly allowed to the aforesaid extent.  Rule made
\n\tabsolute accordingly.  No order as to costs.\n<\/p>\n
26.2.2010\t\t\t\t\t(Jayant\nPatel, J.)\n \n\n\n vinod\n\n    \n\n \n\t   \n      \n      \n\t    \n\t\t   \u00a0\u00a0\u00a0\n\t   \n      \n\t  \t    \n\t\t   Top\n\t   \n      \n\n\n<\/pre>\n","protected":false},"excerpt":{"rendered":"
Gujarat High Court Deposit vs State on 23 February, 2010 Author: Jayant Patel,&Nbsp; 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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[16,8],"tags":[],"class_list":["post-196550","post","type-post","status-publish","format-standard","hentry","category-gujarat-high-court","category-high-court"],"yoast_head":"\nDeposit vs State on 23 February, 2010 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/deposit-vs-state-on-23-february-2010\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Deposit vs State on 23 February, 2010 - 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