2015 (7) TMI 1390 - HC - Indian Laws

Priority claimed by the DICGC over the depositors, creditors (secured and unsecured creditors), workmen and government dues, with respect to the amount paid by them to the concerned depositors paid under Regulations 1961 - Regulation 22 of the Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961 - HELD THAT - The concerned depositor/s in the present case, petitioner of Special Civil Application No.7617 of 2009 (Letters Patent Appeal No.2458 of 2009), Shri Ambaji Mata Devasthan Trust, in whose favour there is a decree passed by the competent Court is/are concerned, they can be said to be the unsecured creditors only and, even if they are permitted to proceed further with the execution proceedings to execute their respective decree/awards in their favour, in that case also, the concerned liquidator (who can be said to be a debtor and against whom the decree/award is passed) can be permitted to make the payment and satisfaction of the decree/award only after the official liquidator makes necessary provisions for the expenses in relation to the liquidation proceedings and for declaration of the dividend and thereafter makes payment to the DICGC as observed herein above and only thereafter, if any excess amount is there with the official liquidator of the concerned Bank in liquidation, the same can be directed to be paid to the concerned decree holder/in whose favour the award is passed. However, that too subject to the priority as provided under the provisions of the Gujarat Cooperative Societies Act. The sum and substance of the above shall be that the DICGC shall be entitled to the first preference over the payment/amount available with the concerned official liquidator of the concerned bank in liquidation. However, after making necessary provisions by the official liquidator, for the expenses in relation to the liquidation proceedings and for declaration of dividend. The impugned common judgment and order passed by the learned Single Judge passed in Special Civil Application No.4260 of 2009, Special Civil Application No.7617 of 2009 and Special Civil Application No.6978 of 2009 are hereby quashed and set aside - the Letters Patent Appeals are allowed to the aforesaid extent by directing the concerned official liquidator of the concerned Bank in liquidation to make the payment first to DICGC i.e. the amount which is paid by DICGC to the concerned depositor/s to the extent of ₹ 1 Lac each, however after making necessary provisions for the expenses in relation to the liquidation proceedings and for declaration of dividend. Appeal disposed off.

Summary

Issues Involved:
1. Priority of repayment to the Deposit Insurance and Credit Guarantee Corporation (DICGC).
2. Classification and priority of creditors in liquidation proceedings.
3. Applicability of insolvency and winding-up laws to cooperative societies.
4. Interpretation of Section 21 of the Deposit Insurance and Credit Guarantee Corporation Act, 1961.
5. Compliance with the Supreme Court judgment in Deposit Insurance & Credit Guarantee Corporation Vs. Raghupathi Ragavan & Ors.
6. Treatment of secured and unsecured debts.
7. Treatment of government dues and workers' claims.

Detailed Analysis:

1. Priority of Repayment to DICGC:
The primary issue was whether DICGC should be repaid first for the amounts it paid to depositors under the DICGC Act, 1961, before any payments to other creditors or depositors. The High Court examined the statutory provisions and regulations, concluding that DICGC should indeed be repaid first. This conclusion was supported by the Supreme Court's judgment in Deposit Insurance & Credit Guarantee Corporation Vs. Raghupathi Ragavan & Ors., which clarified that the official liquidator must repay DICGC before any other payments, after making provisions for liquidation expenses and dividend declarations.

2. Classification and Priority of Creditors:
The judgment emphasized the necessity for liquidators to classify creditors into secured and unsecured categories. Secured debts include those with statutory charges, such as government dues, which have priority over other secured creditors. Unsecured debts are classified into government dues and other unsecured creditors. The court highlighted that the liquidator must follow the priority rules akin to insolvency and winding-up proceedings unless specific statutory provisions dictate otherwise.

3. Applicability of Insolvency and Winding-Up Laws:
The court observed that liquidation proceedings of cooperative societies should align with insolvency and winding-up laws. Liquidators must consider these laws while classifying creditors and prioritizing debts. This approach prevents arbitrary and inconsistent decisions across different liquidation cases.

4. Interpretation of Section 21 of the DICGC Act, 1961:
Section 21 mandates that liquidators repay DICGC the amounts paid to depositors, notwithstanding any other law. The court reinforced that this repayment must occur before any other creditor payments, ensuring DICGC's claims are prioritized. The court's interpretation aligned with the Supreme Court's ruling, emphasizing the statutory obligation to repay DICGC first.

5. Compliance with Supreme Court Judgment:
The High Court acknowledged that the Supreme Court's decision in Deposit Insurance & Credit Guarantee Corporation Vs. Raghupathi Ragavan & Ors. settled the issue of DICGC's repayment priority. The Supreme Court ruled that DICGC must be repaid first, following the statutory provisions, which the High Court adopted in its judgment.

6. Treatment of Secured and Unsecured Debts:
The judgment detailed the hierarchy of debt repayment: secured debts with statutory charges (government dues) take precedence, followed by other secured debts, workers' dues, unsecured government debts, and finally, other unsecured debts. This classification ensures a structured and fair distribution of assets during liquidation.

7. Treatment of Government Dues and Workers' Claims:
The court recognized the priority of government dues and workers' claims in the liquidation process. Government dues with statutory charges are treated as secured debts, while workers' claims are prioritized alongside secured debts. Unsecured government dues also hold priority over other unsecured debts, ensuring their claims are addressed appropriately.

Conclusion:
The High Court quashed the learned Single Judge's judgment, which had denied DICGC's priority claim. The court directed liquidators to repay DICGC first, after covering liquidation expenses and declaring dividends, before addressing other creditors' claims. This decision aligns with the Supreme Court's interpretation of the DICGC Act, ensuring statutory compliance and equitable treatment of creditors in liquidation proceedings.