SRI.G.K.GURURAJRAO vs UNION OF INDIA

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WA No. 1805 of 2025


IN THE HIGH COURT OF KARNATAKA AT BENGALURU

TH
DATED THIS THE 28 DAY OF APRIL, 2026


PRESENT

THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE

AND

THE HON'BLE MR. JUSTICE C.M. POONACHA

WRIT APPEAL NO. 1805 OF 2025 (GM-RES)

BETWEEN:

1. SRI G.K. GURURAJRAO
AGED 68 YEARS, SECRETARY
SRI GURU RAGHAVENDRA SAHAKARA BANK
THEVANIDARARA SANGHA
(REGD. UNDER COOPERATIVE SOCIETIES ACT)
ST
87, R.K. SWAMJI ROAD, 1 BLOCK
THYAGARAJANAGAR
BENGALURU - 560 028
…APPELLANT








(BY SRI S.P. SHANKAR, SENIOR ADVOCATE FOR
SRI MANJUNATH NAYAK, ADVOCATE)

AND:

1. UNION OF INDIA
REP. BY ITS SECRETARY
FINANCE DEPARTMENT
FOURTH LEVEL, A-WING
DELHI SECRETARIAT
I.P. ESTATE, DELHI - 110 002

2. RESERVE BANK OF INDIA
REPRESENTED BY
THE REGIONAL DIRECTOR
PB No.5467, NRUPATUNGA ROAD
BENGALURU - 560 001


Digitally
signed by K
P SWETHA
Location:
High Court
of
Karnataka

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WA No. 1805 of 2025


3.
DEPOSIT INSURANCE CREDIT
GUARANTEE CORPORATION
REP. BY ITS GENERAL MANAGER
ND
2 FLOOR, OPP. MUMBAI CENTRAL
RAILWAY STATION BYCULLA
MUMBAI - 400 008

4.
SRI GURU RAGHAVENDRA
SAHAKARA BANK NIYAMITHA
NETKALLAPPA CIRCLE
BASAVANAGUDI
BENGALURU - 560 004
REP. BY ITS ADMINISTRATOR

5. STATE OF KARNATAKA
REP. BY REGISTRAR OF
CO-OPERATIVE SOCIETIES
ALI ASKER ROAD
BANGALORE
…RESPONDENTS
(BY SMT. NAYANA TARA B.G., CGC FOR R-1;
SRI MANIK B.T., ADVOCATE FOR R-2;
SRI DHYAN CHINNAPPA, SENIOR ADVOCATE FOR
SRI PRADEEP S. SAWKAR, ADVOCATE FOR R-3 &
SRI K.S. HARISH, GOVERNMENT ADVOCATE FOR R-5)

THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE
KARNATAKA HIGH COURT ACT PRAYING TO CALL FOR RECORDS
IN W.P.NO.2991/2023 ON THE FILE OF THIS HON'BLE COURT AND
SET ASIDE THE ORDER DATED 01/09/2025 PASSED THEREIN AND
BE FURTHER PLEASE TO ALLOW THE WRIT PETITION AS PRAYED
FOR QUASHING THE ORDER THROUGH LETTER DATED 03/01/2022
ISSUED BY DICGC SEEKING REFUND OF THE AMOUNT OF
INSURANCE PAID TO 40568 ACCOUNT HOLDERS FROM 8000
ACCOUNT HOLDERS ONLY AND TO HOLD THAT SECTIONS 18A(5),
21(3)(4) AND SECTION 21 OF DICGC ACT 1961, ARE VOID AND
UNCONSTITUTIONAL AND TO GRANT SUCH OTHER RELIEF
INCLUDING COSTS OF THE WRIT AND WRIT APPEAL
PROCEEDINGS.

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THIS WRIT APPEAL HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT, COMING ON FOR PRONOUNCEMENT THIS DAY,
JUDGMENT WAS PRONOUNCED AS UNDER:

CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MR. JUSTICE C.M. POONACHA

C.A.V. JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)

INTRODUCTION
1. The appellant has filed the present appeal impugning the
order dated 01.09.2025 (hereinafter ‘ the impugned order ’) passed
by the learned Single Judge of this Court rejecting Writ Petition
No.2991 of 2023 (GM-RES), captioned G.K. Gururaja Rao v. Union
of India and Others . The appellant had filed the said writ petition
under Article 226 of the Constitution of India, inter alia impugning
Section 18A(5) and Section 21(3) and (4) of the Deposit Insurance
and Credit Guarantee Corporation Act, 1961 (hereinafter referred to
as ‘ the Act ’), to the extent that those provisions entitle the
respondent No.3. (hereinafter referred to as ‘ the Corporation ’ for
short) to the reimbursement of the amount in aid paid to depositors,
as being violative of Articles 14, 19, 21, 38, 43-B and 300-A of the
Constitution of India.

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2. The appellant is aggrieved by the Corporation securing
reimbursement of the amount paid by it to the depositors of
respondent No. 4, Sri Guru Raghavendra Sahakara Bank Niyamitha
(hereinafter referred to as ‘ the Bank ’ in short ), in priority to the
other amounts due to the depositors. The appellant contends that
on the principle of subrogation the Corporation cannot be accorded
a higher priority to recover the amounts paid to the depositors than
the priority of payment of the said dues to the said depositors.
3. The appellant is the Secretary of Sri Guru Raghavendra
Sahakara Bank (Ni) Tevanidarara Sangha (hereinafter referred to as
‘ the Sangha ’ or ‘ the appellant ’), a society registered under the
Karnataka Societies Registration Act, 1960, on 21.07.2020. The
Sangha claims to have been formed to protect the interests of its
members, who are depositors, shareholders, and account holders of
the Bank.
4. It is relevant to note that prior to the filing of the writ petition
from which the present appeal arises, the appellant had preferred a
public interest litigation ( PIL ), Writ Petition No.25989 of 2022 (CS-
RES), in this Court, seeking to quash the communication dated
03.01.2022 issued by the Corporation to the Bank demanding
repayment of the insurance amounts disbursed by it. By an order

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dated 03.01.2023, the Division Bench permitted the appellant to
withdraw the said writ petition, reserving liberty to file a fresh petition
only to the extent of challenging the constitutional validity of Section
21 of the Act. The Division Bench, however, made it clear that such
liberty shall not be treated as permission to challenge the
notification dated 03.01.2022 afresh.
5. The present appeal concerns a dispute arising from the
demand made by the Corporation for repayment of insurance
amounts paid to the depositors of the Bank (hereinafter the
Depositors ). The Bank is a co-operative bank, and the Reserve
Bank of India ( RBI ) has frozen its banking activities under Section
35A read with Section 56 of the Banking Regulation Act, 1949, with
effect from 10.01.2020, consequent upon the detection of serious
financial irregularities. The appellant impugns Sections 18A(5),
21(3), and 21(4) of the Act as introduced by the Deposit Insurance
and Credit Guarantee Corporation (Amendment) Act, 2021
(Hereinafter the Amendment Act ), which enable the Corporation to
reimburse the insurance amounts paid to the Depositors prior to the
Bank’s liquidation.
6. Before considering the reliefs sought by the appellant in the
writ petition and the challenge raised in the present appeal, it is

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relevant to set out the factual context in which the controversy
involved in the present appeal arises.
PREFATORY FACTS
7. The State of Karnataka enacted the Karnataka Co-operative
Societies Act, 1959 (hereinafter referred to as ‘ the KCS Act ’),
consolidating and codifying the law relating to co-operative
societies. Sections 72A and 72B of the KCS Act, were introduced by
Act 39 of 1975. In terms of Section 72A, the Registrar is required to
pass an order winding up a co-operative bank, if so required by the
RBI in circumstances as set out under Section 13D of the Act,
co-operative banks in the State of Karnataka were brought within
the ambit of the Act. Section 72B of the KCS Act provides that in
case of winding up or dissolution of a co-operative bank, the
liquidator would reimburse the Corporation, to the extent and in the
manner provided in Section 21 of the Act.
8. The Bank, Sri Guru Raghavendra Sahakara Bank Niyamitha,
was established in the year 1998 as a co-operative society under
the KCS Act. The RBI granted a licence to the Bank under the
Banking Regulation Act, 1949, to carry on banking business. The
Bank commenced accepting public deposits and, over the years,

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built a substantial deposit base. The term and savings deposit
accounts of the Depositors with the Bank were insured with the
Corporation. It is stated that most of the Depositors are senior
citizens, retired officers and employees of various government and
non-government organizations, who were drawn to the Bank due to
the higher interest rates offered on savings accounts and fixed
deposits.
9. Between the years 2008 and 2019, the RBI conducted
statutory inspections of the Bank under Section 35 of the Banking
Regulation Act, 1949, with reference to the financial position of the
Bank as on the end of the financial years 2009, 2011, 2013, 2015
and 2017, respectively. It is stated that the said inspection reports,
including that of the year 2019, did not disclose any fraud.
10. In particular, the inspection report with reference to the Bank’s
financial position as on 31.03.2015 recorded, inter alia, the
following:
(i) paid-up share capital had increased from
Rs.1017.18 lakhs as on 31.03.2013 to
Rs.1628.47 lakhs as on 31.03.2015;
(ii) Capital to Risk-weighted Assets Ratio
(CRAR) was 10.31% as on 31.03.2013 and had
increased to 13.4% as on 31.03.2015;

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(iii) there were no defaults in the
maintenance of Cash Reserve Ratio (CRR) and
Statutory Liquidity Ratio (SLR) during the
period of review;
(iv) Gross NPAs stood at 0.7% of gross loans
and advances and Net NPAs stood at 0.2% of
net advances; and
(v) there were no cases of fraud,
misappropriation of funds, embezzlement or
defalcation of funds detected or reported during
the period covered by the inspection, i.e., up to
31.03.2015.

11. On 01.02.2016, a complaint was filed by a whistle blower
before the RBI, alleging that the Bank was involved in certain
unethical practices. Since this was not supported by any evidence
or documents, it was rejected by the RBI without conducting any
independent inquiry.
12. The inspection report with reference to the Bank’s financial
position as on 31.03.2017 inter alia recorded that:
(i) there was no incidence of fraud reported
or detected in the Bank during the period under
review;
(ii) the inspection did not come across any
instance of the Bank misleading the public
through advertisements; and
(iii) there was no misappropriation of funds,
embezzlement or defalcation of funds detected
or reported during the reference period.

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Subsequently, in the year 2017, after the inspection, the RBI issued
licences to the Bank to open seven additional branches. During this
period, the Bank claimed to its credit several awards, including the
FCBA 2016 Award for Best NPA Management by NAFCUB, New
Delhi, and the FCBA 2017 Special Jury Award for overall
performance by NCBS, Jaipur.
13. It is relevant to note that the Bank published, in its Annual
Report for each year from 2013-14 to 2018-19, that its Gross NPA
ratio was: 0.76% for 2013-14; 0.73% for 2014-15; 0.53% for 2015-
16; 0.59% for 2016-17; 0.45% for 2017-18; and 0.50% for 2018-19.
The audited balance sheet of the Bank as on 31.03.2019 declared a
net profit of ` 35.73 crores, with the Bank declaring a dividend of
16% after paying income tax of ` 19.10 crores. The Bank claimed a
CRAR of 15.22% as on 31.03.2019, well above the RBI-mandated
minimum of 9%.
14. On 31.10.2019, the former Chief Executive Officer of the
Bank, one Sri M. Vasudeva Maiya, addressed a letter to the
inspecting officials of the RBI, disclosing that since the years 2012-
2013, NPA adjustments had been carried out by creating fresh
loans in the names of certain parties, some with existing security,

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some with new security, and in some cases, new accounts were
created in one party’s name and the amounts were transferred to
others. The said letter further disclosed that advance against
deposit accounts had been created without securities in order to
adjust NPA accounts. The letter also disclosed that the entire
process was known only to the President and Vice-President of the
`
Bank. The details of 435 accounts amounting to 846.30 crores
( ` 443.30 crores principal and ` 402.99 crores interest) were also
enclosed with the said letter. It is stated that the said Bank CEO, Sri
M. Vasudeva Maiya committed suicide soon after the Administrator
was appointed in May 2020.
15. On 04.11.2019, the then President of the Bank, Dr. K.
Ramakrishna, submitted a letter to the inspecting staff of the RBI,
admitting that the Bank did not have records, files or documents in
respect of loans of an aggregate amount of ` 1544.43 crores spread
across 2835 accounts (comprising 424 overdraft loan accounts
amounting to ` 327.99 crores, 843 mortgage loan accounts
amounting to ` 546.90 crores, 1514 advance-against-deposit
accounts amounting to ` 652.80 crores, and 54 housing loan
accounts amounting to ` 16.74 crores). The said letter further stated
that the matter was known only to the President, Vice-President and

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the former CEO, and that no other members of the Board of
Directors were aware of these transactions.
16. On 09.01.2020, the RBI convened a meeting of all members
of the Board of Directors of the Bank. It is stated in the record that at
the said meeting, the then President, K. Ramakrishna, and the Chief
Advisor, the late M. Vasudeva Maiya, reiterated that they alone
were responsible for the entirety of the fraudulent and unethical
activities of the Bank, and that no other Director had any role in the
acts leading to the failure of the Bank. It is pertinent to note that the
RBI, in its report dated 06.01.2020, also recorded observations to
the same effect.
17. Consequent upon these disclosures, the RBI conducted a
further inspection and noticed that the aforesaid irregularities
extended not merely to ` 846.30 crores as initially disclosed, but to
`
1544 crores. It is stated that on 06.01.2020, the RBI formed the
opinion that the Bank did not have records for 1602 accounts and
that the Bank's projected growth was based on fictitious accounts.
The inspection of the Bank revealed serious irregularities including
creation of artificial deposits and dummy accounts/entries, diversion
of funds to certain beneficiaries, and ever greening of accounts in
violation of Income Recognition and Asset Classification (IRAC)

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norms. The consequential additional provisioning requirements and
losses resulted in a negative Capital to Risk-weighted Assets Ratio
(CRAR) and negative net worth.
18. On 02.01.2020, the RBI issued a directive in exercise of its
powers under sub-section (1) of Section 35A of the Banking
Regulation Act, 1949 read with Section 56 thereof – All Inclusive
Directions (AID) – effective from the close of business on
10.01.2020. The said directions, inter alia, provided that:
"(a) the Bank shall not, without prior approval of
RBI in writing, grant or renew any loans and
advances, make any investment, incur any
liability including borrowal of funds and
acceptance of fresh deposits, disburse or agree
to disburse any payment whether in discharge
of its liabilities and obligations or otherwise,
enter into any compromise or arrangement, and
sell, transfer or otherwise dispose of any of its
properties or assets;
(b) a sum not exceeding Rs.35,000/- (Rupees
Thirty Five Thousand only) of the total balance
in every savings bank or current account or any
other deposit account may be allowed to be
withdrawn; and
(c) the directions shall remain in force for a
period of six months from the close of business
on 10.01.2020 and are subject to review.”

19. The aforesaid directions (AID) were extended from time to
time. On 24.04.2020, the RBI, by a confidential communication

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bearing No.DOR.AID/RSB-7/12.23.283/2019-20 dated 24.04.2020,
addressed to the Registrar of Co-operative Societies, State of
Karnataka, sought the supersession of the Board of Directors of the
Bank and the appointment of an Administrator therefor, under
Section 30(6) of the KCS Act, 1959, stating that the RBI was
satisfied that the same was necessary to prevent the affairs of the
Bank being conducted in a manner detrimental to the interest of
Depositors and for securing proper management of the Bank.
20. On 18.05.2020, in pursuance of the aforesaid communication,
the Board of Directors of the Bank was suspended by the State
Government, and an Administrator, one Sri K. Diwakar, was
appointed to be in charge of the affairs of the Bank for a period of
six months. Upon the expiry of his term, the Registrar of Co-
operative Societies appointed the present Administrator. It is
relevant to note that during the period following the imposition of
AID, the RBI cancelled the licences of the seven branches opened
in 2017.
21. The financial status of the Bank as disclosed indicates that as
on 10.01.2020 (the date of imposition of AID), the Bank’s deposits
stood at ` 2403.21 crores, loans and advances (including secured
and unsecured) at ` 1567.5 crores, and cash on hand, bank

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balances including investments (SLR and CRR) and fixed assets
(including building) at ` 806.39 crores. As on 17.05.2020 (when the
earlier Administrator took charge), deposits had reduced to
` 2377.06 crores, loans and advances to ` 1431.43 crores, and cash
and bank balances to ` 786.66 crores. Loan recoveries from
`
10.01.2020 to 17.05.2020 were stated to be 136.86 crores, and
`
from 18.05.2020 to 23.09.2020, 13.31 crores.
22. Two PILs, namely, Writ Petition Nos.7350 of 2020 (GM-RES)
and 8674 of 2020 (GM-RES) were filed after the appointment of the
Administrator. This court passed interim orders, in those petitions,
for monitoring investigations, both civil and criminal. Those writ
petitions do not form part of the present proceedings.
23. In the meanwhile, the appellant was registered on 21.07.2020
under the Karnataka Societies Registration Act, 1960, bearing
Registration No.DRB2/SOR/39/2020-21, with the stated object of
promoting and protecting the interests of shareholders, depositors
and account holders of the Bank.
24. The statement of objections filed on behalf of the Bank
(respondent No.4) disclosed that the Director of Audit of
Cooperative Societies, had by letter dated 30.07.2020, directed a

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re-audit of the Bank for the years 2014-15 to 2018-19. The re-audit
reports disclosed the following losses: ` 873.03 crores for 2014-15;
` 526.27 crores for 2015-16; and ` 423.28 crores for 2016-17,
aggregating to ` 1822.58 crores for three years alone. Further, it was
found during the statutory audit of 2019-2020 and 2020-2021 that
`
cash was stolen to the extent of 58,26,68,300/- (Rupees Fifty-Eight
Crores Twenty-Six Lakhs Sixty-Eight Thousand Three Hundred
`
only), which included 1,72,00,000/- stolen between 09.04.2020 and
13.07.2020, i.e., after the imposition of Section 35A restrictions.
25. The Union of India introduced the Deposit Insurance and
Credit Guarantee Corporation (Amendment) Bill, 2021 in the Rajya
Sabha on 30.07.2021. The Bill received the President's assent and
was published in the Gazette of India as Act 30 of 2021. By
notification S.O.3507(E) dated 27.08.2021, issued by the Ministry of
Finance, the Central Government appointed the 1st day of
September, 2021, as the date on which the provisions of the said
Amendment Act shall come into force.

26. By virtue of Act 30 of 2021 Section 18A was introduced in the
Act, which provides for the liability of the Corporation to make
interim payments to depositors of an insured bank.

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27. Section 21 of the Act, which provides for repayment to the
Corporation of amounts paid by it, was also amended by the
introduction of sub-sections (3) and (4). Sub-section (3), inter alia ,
provides for prohibition of specified other classes of liabilities from
being discharged by the insured bank till such time as repayment is
made to the Corporation.
28. Post the amendment, with effect from 04.02.2020, the deposit
`
insurance cover under the Act was increased from 1,00,000/-
(Rupees One Lakh only) to ` 5,00,000/- (Rupees Five Lakhs only)
per depositor per bank.
29. The AID under Section 35A were already in force in respect of
the Bank as on the date of commencement of the Amendment Act.
Thus, in terms of Section 18A(6) of [Deposit Insurance and Credit
Guarantee Corporation (Amendment) Act, 2021 (Act 30 of 2021)],
the Corporation became liable to pay to the Depositors of the Bank.
It is stated in the petition that there were approximately 40,568
deposit accounts with the Bank which were entitled to coverage of
insurance from the Corporation.
30. The Corporation ascertained the willingness of each
Depositor to receive the amount due through a consent/willingness

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form. Accordingly, the Corporation disbursed the insured amounts to
the Depositors. As per the Corporation’s letter dated 03.01.2022, an
amount of ` 677.82 cores was paid in respect of 20,805 claims
submitted by the Bank. It is relevant to note that according to the
statement of objections filed by the Bank (respondent No.4), the
Corporation made further payments of ` 35.97 crores against
additional 1,429 [22,234 (total) − 20,805 (initial)] claims, taking the
total amount disbursed to ` 712,35,02,607/- (Rupees Seven
Hundred Twelve Crores Thirty-Five Lakhs Two Thousand Six
Hundred and Seven only) in respect of 22,234 claims. It is stated
that approximately 32,500 accounts were closed upon payment of
the insured amount of ` 5,00,000/- each, and approximately 8,000
accounts of Depositors holding deposits in excess of ` 5,00,000/-
remained in the books of the Bank.
1
31. On 03.01.2022, the Corporation issued a communication
addressed to the CEO/Administrator of the Bank, demanding
repayment of the claim amount of ` 677.82 crores paid by the
Corporation, in terms of Section 21 of the Act. The said letter
directed that the repayments be made in five equal annual
installments commencing from 31.12.2022 and further stated that

1
bearing Ref.CO.DICGC.RMC.No./173394/05.03.997/2021-22

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the repayment period may be reviewed by the Corporation based on
the financial position of the Bank or any regulatory action that may
be taken by the RBI. The Corporation also noted that Section 21(3)
of the Act prohibits discharge of other classes of liabilities by the
insured bank until repayment in full is made to the Corporation.
32. On 23.02.2022, the appellant Sangha addressed a
communication to the Corporation, inviting reference to the
aforesaid demand letter and stating that the members of the
Sangha, being beneficiaries under the insurance scheme, would be
affected if the funds of the Bank are depleted, particularly in view of
the efforts underway to revive the Bank. The appellant contended
that the demand was premature and contrary to the object and
purpose of insurance. It was also not in Conformity with the
provisions of Section 21 of the Act read with Regulation 22, of the
Deposit Insurance Credit Guarantee Corporation Regulations, 1961
(Hereinafter the Regulations ) which contemplate reimbursement
on liquidation and distribution of proceeds to depositors. The
appellant requested the Corporation not to precipitate the matter
and to allow things to develop in the direction of revival of the Bank.

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33. On 23.12.2022, the Bank, through its Administrator, issued a
2
letter addressed to the appellant, acknowledging receipt of the
appellant’s letter dated 19.12.2022 and informing the appellant that
the Bank had received a demand from the Corporation (letter dated
03.01.2022) advising the Bank to repay, in terms of Section 21 of
the Act, the insured amount paid by the Corporation to the
Depositors of the Bank. The said letter stated that the repayment
was to be made in five equal annual installments commencing from
31.12.2022. The total insured amount paid to the depositors of the
`
Bank till that date was 712,35,02,607/- (Rupees Seven Hundred
Twelve Crores Thirty-Five Lakhs Two Thousand Six Hundred and
Seven only).
34. The appellant alleges that the aforesaid demand was kept
secret by the Bank until 23.12.2022. The Bank, in its statement of
objections, has denied this allegation, asserting that the matter was
brought to the notice of members during the Annual General Body
Meetings held on 01.05.2022 and 19.11.2022.
35. In the aforesaid circumstances, the appellant filed Writ
Petition (PIL) No.25989 of 2022 on 26.12.2022 before this Court.

2
bearing No.SGR/PK/2204/2022-23

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In those proceedings, on 03.01.2023, the appellant had filed a
memo seeking leave to withdraw the writ petition with liberty to file a
comprehensive writ petition challenging the validity of Section 21
and other provisions of the Act. On the said date, 03.01.2023, this
Court passed the following order:
“1. The petitioner is permitted to withdraw the
writ petition, keeping liberty open to file fresh
petition only insofar as challenge to the validity
of Section 21 of the Act is concerned.
2. We further make it clear that by permitting
the petitioner to withdraw the present writ
petition, the same shall not be treated as liberty
is granted to the petitioner to challenge
Annexure A afresh in the fresh Petition, which
is to be filed by the Petitioner.”

36. Availing the liberty so granted the appellant filed Writ Petition
No.2991 of 2023 on 02.02.2023, under Article 226 of the
Constitution of India, impugning the constitutional validity of
Sections 18A(5), 21(3) and 21(4) of the Act.
37. On 14.02.2023, the learned Single Judge ordered that the
status quo be maintained. The said interim order of status quo was
continued and extended from time to time throughout the pendency
of the writ petition.

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38. In the meanwhile, several proposals for revival of the Bank
were examined by the RBI. The record discloses the following
communications:
(a) By a letter bearing No.DOR.MON.
S6391/12-23.283/2022-23 ated 24.01.2023, the
RBI informed the Dhanvarsha Group that its
proposal for revival of the Bank was not found
to be adequate, keeping in mind the level of
negative net worth and accumulated losses of
the Bank. The RBI further noted that the
proposal was not feasible as direct/indirect
foreign investment is not permissible in co-
operative banks.
(b) By a letter bearing No.DOR.MON.
S7674/12-23.283/2022-23 dated 02.03.2023,
the RBI informed the Administrator of the Bank
that the proposal for revival submitted by Razor
pay Software Private Limited (RSPL) was found
not to be feasible, inter alia, for the following
reasons:
(i) the commitment to bring in only Rs.100
crores initially without specific proposals and
willingness to bring in additional amounts was
not considered substantive considering the
accumulated losses of the Bank which were
Rs.2669.21 crores as on 31-03-2021;
(ii) the financial strength of RSPL did not inspire
confidence; and
(iii) the regulatory forbearances sought from
RBI and DICGC were not reasonable.
(c) By a letter bearing No.DOR.MON.
S7507/12-23.283/2023-24 dated 21.03.2024,
addressed to the General Secretary of the
appellant Sangha, the RBI noted the precarious
financial parameters of the Bank as on

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31.03.2022, which included: negative net worth
at (-) Rs.2584.65 crores; CRAR at (-)
4277.74%; accumulated losses of Rs.2761.81
crores; and Gross NPA of 100%. The RBI
concluded that the reliability of the facts
provided and the probability of projected
recovery did not present an adequate financial
position capable of revival of the Bank in near
term.

39. It is also relevant to refer to the statement of assets and
liabilities of the Bank as on 31.03.2025 as set out in the
memorandum of writ appeal. The same is reproduced as follows:

40. On the basis of the aforesaid statement, the appellant
contends that if the Corporation enforces its demand for repayment

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of ` 677.82 crores in priority over the unpaid depositors, the Bank’s
entire assets of ` 576.16 crores would have to be liquidated and paid
to the Corporation, resulting in nil payment to unpaid Depositors.
41. In the aforesaid context, we may now note the reliefs sought
by the appellant in the writ petition. The appellant, in Writ Petition
No.2991 of 2023, sought the following reliefs:
“(a) quash or strike down Section 18-A(5) and
Section 21(3) and (4) of the Deposit Insurance
and Credit Guarantee Corporation Act, 1961, to
the extent the said Sections enable the
Corporation (respondent No.3) to seek and
obtain reimbursement of the amounts paid to
depositors of the Bank (respondent No.4), as
being contrary and derogatory to Sub-Sections
(1) and (2) of Section 21 of the DICGC Act,
1961 and Regulation 22 of the DICGC
Regulations, and being violative of Articles 14,
19, 21, 38, 43-B and 300-A of the Constitution
of India, and/or to read down the said
provisions to bring them in conformity with the
law of insurance, the Main Purpose Rule and
the legislative intent of Act 47 of 1961;
(b) direct an enquiry as to whether the
payments by the Corporation through the Bank
were made only to eligible depositors;
(c) direct an enquiry against the
Administrator of the Bank as to what happened
to the funds of Rs.136.86 crores stated to have
been recovered from borrowers by the earlier
Administrator, and to constitute a Board of
Administrators to recover the dues of the Bank
under various loans and mortgages;”

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IMPUGNED ORDER
42. The learned Single Judge, by the impugned order dated
01.09.2025, rejected the writ petition. The learned Single Judge
noticed the legislative history of the Act, including the original
enactment of 1961 and the amendment introduced by the
Amendment Act. The learned Single Judge referred to the decision
of the Hon’ble Supreme Court in Deposit Insurance and Credit
3
Guarantee Corporation v. Ragupathi Ragavan and Others ,
wherein the Supreme Court had considered the provisions of
Sections 19 and 21 of the Act and upheld the right of the
Corporation to recover the amounts paid to depositors, recognizing
its preferential right. The learned Single Judge also referred to the
decision of the Division Bench of the High Court of Bombay in
Karad Merchant Sahakari Credit Sanstha Maryadit v. Reserve
4
Bank of India , which repelled the challenge to the constitutional
validity of the provisions of the Act. The learned Single Judge held
that the provisions of the Act so challenged cannot be declared ultra
vires the Constitution, in the light of the aforesaid decisions of the
Supreme Court and the Division Bench of the High Court of

3
(2015) 9 SCC 629
4
2014 SCC OnLine Bom 266

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WA No. 1805 of 2025


Bombay, recognizing the right of recovery of the Corporation and
the constitutional validity being challenged only qua recovery.
43. The learned Single Judge rejected the submission that the
right of the Corporation to recover would arise only after the
proceedings for liquidation of Bank commences. And, held that the
Corporation has a right to recover the amounts paid to depositors
without waiting till the Bank or the insurers are liquidated.
44. The learned Single Judge rejected the contention that the
insurer’s right is only to salvage the situation and nothing more.
The court noted the reason for the establishment of the Corporation
and the manner in which it functions. The learned Single Judge
observed that the Corporation is sui generis; its financial measures
cannot be construed only as an insurance. The Corporation
provides a statutory guarantee for small depositors, and it is for this
reason that Section 43 of the Act is given overriding effect.
45. The learned Single Judge further noted the communications
of the RBI rejecting various revival proposals for the Bank and noted
that, as late as on 21.03.2024, the RBI had found that the projected
recovery does not indicate revival of the Bank.
46. The learned Single Judge concluded by holding that:

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WA No. 1805 of 2025


(a) the provisions of the Act so challenged
cannot be declared ultra vires the Constitution;
(b) the Corporation has a right to recover and
need not wait till the Bank in the insurer gets
liquidated;
(c) the impugned provisions cannot be held to
be unreasonable or in conflict with the Act;
(d) if the Bank is being restored to its position, it
is open to the RBI and the Corporation to
decide on the amount to be recovered; and
(e) the right of recovery does not preclude the
Corporation from considering the present
situation and answering representations of the
Bank with regard to immediate recovery or
deferment of recovery.

REASONS & CONCLUSION
47. As noted at the outset, the appellant seeks to challenge the
constitutional validity of Section 18A Subsections (3) and (4) and
Section 21 of the Act (Deposit Insurance and Credit Guarantee
Corporation Act, 1961).
48. We may briefly note the contentions advanced on behalf of
the appellant in support of its challenge.
49. First, the learned counsel for the appellant contended that the
Amendment Act was beyond the legislative competence of the
parliament. He contended that Act was enacted in exercise of

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WA No. 1805 of 2025


powers under Article 246 of the Constitution of India read with Entry
47 of List-I of the Seventh Schedule. However, the impugned
provisions of the Act as introduced by the Amendment Act establish
that they constitute a colorable legislation, as they exceed the scope
of ‘insurance’ and thus, the Entry 47 of List-I of the seventh
Schedules of the Constitution of India. Therefore the Act must be
struck down. The learned counsel for the appellant submitted that
the provisions of the Act do not work as an insurance inasmuch as
an insurer’s rights are confined to the right of salvage/subrogation
and under the principles of insurance, an insurer is not entitled to
any rights higher than those of the insured. He contended that by
virtue of Sections 18A and 21 of the Act as amended by the
Amendment Act, the Corporation claims priority over the dues of
other depositors in regard to its debt. He submits that this places
the Corporation in a preferential position as compared to the insured
depositors.
50. Second, he submitted that in banking law certain percentages
are prescribed as Statutory Liquidity Ratios (‘ SLR ’) and Cash
Reserve Ratios ( ‘CRR’ ) which the banks have to maintain. He
submits that presently, SLR and CRR as prescribed by the RBI are
18% and 3%. He submitted that, since it is necessary to maintain

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WA No. 1805 of 2025


these reserves under the statute, the bank can only lend the
remaining balance, which would be about 79% of its resources.
Thus, the risk of failure of the bank is to the maximum extent of 79%
of its resources. However, the premium is collected on the entire
value, which includes the sums that cannot be lent.
51. Third, he submits that the impugned provisions enable the
Corporation to unjustly enrich itself inasmuch as it collects premiums
on the entire deposits. However, its liability to pay the depositors is
`
confined to a maximum of 5,00,000/-. He submits that the
Corporation earns over 58% to 59% of its yearly premium on
`
deposits exceeding 5,00,000/-, and the collection of this premium is
manifestl y arbitrary.
52. Lastly, he submitted that the Corporation is a monopoly and
its action amounts to abuse of dominance.
53. The appellant’s principal grievance is in regard to the priority
accorded to the Corporation in recovering the amounts paid by it to
all depositors pursuant to its obligations under the Act. Thus, the
first question to be addressed is whether the preference in
repayment accorded to the Corporation is manifestly arbitrary and
violative of Article 14 of the Constitution of India.

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54. We may note that the Act was enacted to provide for the
establishment of the Corporation for the insurance of deposits,
guaranteeing of credit facilities, and other matters connected with it.
The primary object of enacting the Act is to protect small depositors
from bank failures and to foster financial stability. The Corporation
was incorporated as a subsidiary of RBI. Bank failures over the
period had underscored the urgent need to protect depositors. In
1960, the failure of Laxmi Bank and Palai Central Bank catalyzed
the introduction of deposit insurance in India. The Deposit
Insurance Corporation Bill was introduced in Parliament in 1961 and
enacted into an Act on 07.12.1961. The principal object of the same
was to ensure measures to protect small depositors from the risk of
losing their savings due to bank failures and to provide greater
stability in the banking system. As observed by the Supreme Court
in Deposit Insurance & Credit Guarantee Corporation v.
5
Ragupathi Ragavan & Ors. , the Act was enacted with this
“laudable object”.
55. The mechanism for providing protection was to ensure that
every depositor recovers an amount, up to a maximum of

5
(2015) 9 SCC 629

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WA No. 1805 of 2025


` 1,00,000/-. This amount was subsequently enhanced to
` 5,00,000/-.
56. To cover the risks involved, the banks are required to pay a
premium on the value of the deposits. We are unable to accept the
contention that the amount collected by the concerned bank from a
particular depositor and paid as a premium to the Corporation must
be proportionate to the payout in the event of the bank’s failure. The
maximum risk covered by the bank for repayment of the sums is
capped at ` 5,00,000/-. The premium is collected by the Corporation
to fund coverage of the risk in the event of bank failures. The fact
that the premium is collected on the value of the deposits and is not
proportionate with the risk covered in case of a particular deposit,
cannot be considered as manifestly arbitrary. The premiums are
charged ad valorem on deposits; therefore, depositors who place
large deposits are required to pay a larger premium. Considering
that the scheme of the Act is to provide a guarantee to small
depositors and to strengthen the banking system, the imposition of a
fee/premium on an ad valorem basis cannot be considered arbitrary
or unreasonable. Undisputedly a legislation can be challenged on
the ground of manifest arbitrariness. In Shayara Bano v. Union of

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WA No. 1805 of 2025


6
India , the Supreme Court explained the test of manifest
Arbitrariness as under:
“101. It will be noticed that a Constitution Bench
of this Court in Indian Express Newspapers
(Bombay) (P) Ltd. v. Union of India [Indian
Express Newspapers (Bombay) (P) Ltd. v. Union
of India, (1985) 1 SCC 641 : (1986) 159 ITR
856] stated that it was settled law that
subordinate legislation can be challenged on
any of the grounds available for challenge
against plenary legislation. This being the case,
there is no rational distinction between the two
types of legislation when it comes to this ground
of challenge under Article 14. The test of
manifest arbitrariness, therefore, as laid down in
the aforesaid judgments would apply to
invalidate legislation as well as subordinate
legislation under Article 14. Manifest
arbitrariness, therefore, must be something done
by the legislature capriciously, irrationally and/or
without adequate determining principle. Also,
when something is done which is excessive and
disproportionate, such legislation would be
manifestly arbitrary. We are, therefore, of the
view that arbitrariness in the sense of manifest
arbitrariness as pointed out by us above would
apply to negate legislation as well under Article
14.”

Undisputedly, the amount paid to cover the risk is a small fraction of
income from interest on deposits. It is also important to bear in mind
that income by way of interest is also in proportion to the quantum of

6 (2017) 9 SCC 1

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WA No. 1805 of 2025


deposit. In the aforesaid view we are unable to accept that the
impugned provisions are capricious, irrational or bereft of any basis.
The imposition of fee/ premium is a statutory exaction and not a
voluntary payment for entering a contract of insurance. Thus, the
assumption that the levy must be commensurate with the payout in
the event of bank defaults is erroneous.
57. As noted above, the appellant’s principal grievance relates to
the amendments to the Act introduced by Act 30 of 2021. Sections
18A, and 21 of the Act as amended are set out below:
18A. Liability of Corporation to make interim
payment to depositors of insured bank .—(1)
Where, in respect of an insured bank, —

(i) any direction is issued or any prohibition or
order or scheme is made under any of the
provisions of the Banking Regulation Act, 1949
(10 of 1949); and

(ii) such direction, prohibition, order or scheme
provides for restrictions on depositors of such
bank from accessing their deposits,

then, without prejudice to the provisions of
sections 16 to 18, the Corporation shall, on the
date on which such direction, prohibition, order
or scheme takes effect, become liable to pay to
every such depositor an amount equivalent to
the amount payable by the Corporation to the
depositor under section 16.

(2) A list showing the outstanding deposits of
each depositor of the insured bank, as on the

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WA No. 1805 of 2025


date on which the direction, prohibition, order or
scheme referred to in sub-section (1) takes
effect, shall be furnished by such insured bank
within forty-five days of such date of effect, in
such form and manner as may be specified by
the Corporation and certified to be correct by the
chief executive officer of the insured bank.

(3) The Corporation shall, within thirty days of
the date of receipt of the list under sub-section
(2), verify, through an online platform, to the
extent possible, or in accordance with such
procedure, as may be prescribed, the
genuineness and authenticity of the claims
made therein, and ascertain the willingness of
each depositor to receive the amount due to him
out of his deposit in the insured bank.

(4) Subject to the provisions of sub-section (7),
the Corporation shall, before the expiry of fifteen
days from the date of completion of the
verification under sub-section (3), pay to the
depositors who have affirmed their willingness
thereunder, the amount payable under sub-
section (1) either directly, or get it credited in the
account of the depositors through the insured
bank:

Provided that the total period of time between
the date when the Corporation becomes liable to
pay to the depositor and the date of payment to
the depositor shall not, subject to the provisions
of sub-section (7), exceed ninety days:

Provided further that any amount paid by the
insured bank to the depositor during the period
between the date on which the direction,
prohibition, order or scheme referred to in sub-
section (1) takes effect and the date of payment
to the depositor, shall be appropriately reckoned
by the insured bank before crediting such
amount in depositor's account.

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WA No. 1805 of 2025



(5) Any amount paid by the Corporation under
sub-section (4) in respect of a deposit shall, to
the extent of the amount so paid, discharge the
insured bank from its liability to the depositor in
respect of that deposit, but the insured bank
shall become liable to the Corporation in respect
of the amount paid by the Corporation.

(6) Where, in respect of an insured bank, —

(i) any direction, prohibition, order or scheme
under any of the provisions of the Banking
Regulation Act, 1949 (10 of 1949) providing for
suspension of business of the insured bank is
already in force as on the date of
commencement of the Deposit Insurance and
Credit Guarantee Corporation (Amendment) Act,
2021; and

(ii) such direction, prohibition, order or scheme
provides for restrictions on the amounts to be
paid by the insured bank to each of its
depositors,

then, notwithstanding anything contained in any
other law for the time being in force, the
Corporation shall, on and from the date of
commencement of the Deposit Insurance and
Credit Guarantee Corporation (Amendment) Act,
2021, become liable to pay to each depositor of
such insured bank, an amount equivalent to the
amount payable by the Corporation to the
depositor under sub-section (1) of section 16,
and the time limit specified in sub-sections (2) to
(4) herein for such payment shall be computed
from that date.

(7) Notwithstanding anything contained in sub-
sections (1) to (6), in cases where, —

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WA No. 1805 of 2025


(a) the Reserve Bank finds it expedient in the
interest of finalising a scheme of amalgamation
of the insured bank with other banking institution
or a scheme of compromise or arrangement or
of reconstruction in respect of such insured
bank, and communicates to the Corporation
accordingly, the date on which the Corporation
shall become liable to pay every depositor of
such insured bank may further be extended by a
period not exceeding ninety days;

(b) the restrictions on payment to depositors are
removed by the Reserve Bank at any time
before payment to depositors by the Corporation
under sub-section (4), and the insured bank or
the transferee bank is in a position to make
payments to its depositors on demand without
any restrictions, the Corporation shall not be
liable to make payment to the depositors of such
insured bank.




21. (1) Where any amount has been paid under
section 17 or section 18 or Section 18A or any
provision therefor has been made under section
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

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WA No. 1805 of 2025


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 section 18
or the direction, prohibition, order or scheme
referred to in section 18A, such sum or sums
as make up the amount paid or provided for
by the Corporation in respect of that deposit.

(3) The Corporation may defer or vary the time
limit for receipt of repayments due to it from the
insured bank or the transferee bank, as the case
may be, for such period and upon such terms,
as may be decided by the Board in accordance
with the regulations made in this behalf:
Provided that such regulations shall also provide
for prudential principles to assess the capability
of the bank to make repayment to the
Corporation and for prohibition of specified other
classes of liabilities from being discharged by
the insured bank or the transferee bank till such
time as repayment is made to the Corporation.

(4) In case of any delay in repayment to the
Corporation beyond the time period prescribed
under sub-section (2) or extended under sub-
section (3), the Corporation may charge penal
interest at a maximum rate of two per cent
above the repo rate per annum for the amount to
be repaid to the Corporation and such penal
interest shall rank equally for priority with the
amount to be repaid under sub-section (2).

58. The Amendment Act came into effect from 01.09.2021. The
Statement of Objects and Reasons of the Deposit Insurance and

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WA No. 1805 of 2025


Credit Guarantee Corporation (Amendment) Bill 2021 inter alia
records as under:
(a) there had been numerous recent cases of
banks, especially co-operative banks, being
unable to fulfil their obligations towards their
depositors because of imposition of moratorium
by the RBI;
(b) genuine depositors continued to face
serious difficulties in accessing their deposits
despite insurance being in place; and
(c) it was proposed to amend the DICGC Act to
enable easy and time-bound access by
depositors to their own money, even when
there are restrictions on banks.

59. Section 18A of the Act provides for the liability of the
Corporation to make interim payments to depositors of an insured
bank. Sub-section (1) of Section 18A provides that where, in respect
of an insured bank, any direction or prohibition or order or scheme is
made under the Banking Regulation Act, 1949 providing for
restrictions on depositors from accessing their deposits, the
Corporation shall, on the date on which such direction takes effect,
become liable to pay to every such depositor an amount equivalent
to the amount payable by the Corporation under Section 16 of the
Act. Sub-section (4) provides that the Corporation may pay the
depositors who have affirmed their willingness within a stipulated

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WA No. 1805 of 2025


timeline not exceeding ninety days. Sub-section (5) of Section 18A
— one of the provisions impugned in the writ petition — provides
that any amount paid by the Corporation under sub-section (4) in
respect of a deposit shall, to the extent of the amount so paid,
discharge the insured bank from its liability to the depositor in
respect of that deposit, but the insured bank shall become liable to
the Corporation in respect of the amount paid by the Corporation.
Sub-section (6) provides a transitional provision making the
Corporation liable, on and from the date of commencement of the
Amendment Act, to pay depositors of banks already under
restrictions.
60. Section 21 of the Act, which provides for repayment to the
Corporation of amounts paid by it, was also amended by the
introduction of sub-sections (3) and (4). Sub-section (3), inter alia,
provides for the prohibition of specified other classes of liabilities
from being discharged by the insured bank till such time as
repayment is made to the Corporation. It empowers the Corporation
to defer or vary the time limit for receipt of repayments due to it from
the insured bank or the transferee bank, for such period and upon
such terms as may be decided by the Board of Directors of the
Corporation, subject to prudential principles to assess the capability

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WA No. 1805 of 2025


of the bank to make repayment. It also provides for the prohibition of
specified other classes of liabilities from being discharged by the
insured bank till such time as repayment is made to the Corporation.
Sub-section (4) provides that in case of delay in repayment beyond
the prescribed or extended period, the Corporation may charge
penal interest at a maximum rate of two per cent above the repo
rate per annum.
61. The provision for repayment to the Corporation in priority over
other deposits does place the Corporation in a better position in
terms of priority, than it would have been, if it were accorded the
same status as the depositors to whom payments have been made
by it. However, in our view, this does not render the statutory
provisions vulnerable to challenge on the ground of manifest
arbitrariness. As explained by the Supreme Court in Indian Express
7
Newspaper (Bombay) (p) Ltd v. Union of India a legislation can
also be challenged on “ the ground that it is unreasonable, not in the
sense of not being reasonable, but in the sense that it is manifestly
arbitrary”. The priority in repayment accorded to the co-operation is
also not violative of Article 300A of the Constitution of India, as
argued by the appellant, as the said provision cannot be construed

7
(1985) 1 SCC 641

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WA No. 1805 of 2025


as depriving the remaining depositors of their property without the
authority of law.
62. It is necessary to bear in mind that the object of the Act is to
provide for insurance. Irrespective of the amounts that may be finally
recovered, the Corporation is bound to repay the depositors the
minimum amount due to them, subject to a maximum of ` 5,00,000/-
. It merely ensures that all depositors, irrespective of the amounts
they may have deposited, will at least recover their deposits up to
the minimum amount insured. Even the depositors who have
deposited amounts exceeding ` 5,00,000/- are assured of the
minimum amount of ` 5,00,000/-. This amount is required to be paid
by the Corporation from its resources. The Parliament, in its
wisdom, considered it necessary to ensure that failing banks or
banks that have defaulted, pay back the amount paid by the
Corporation to the depositors in priority. It is apparent that this is to
ensure that the funds are replenished for the Corporation to its
obligations to banking industry and other small depositors, which
are admittedly in the public interest.
63. When we consider that the resources of the Corporation are
required for public purposes, the impugned provisions, which accord
a higher priority for repayment to the Corporation over other

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WA No. 1805 of 2025


liabilities, cannot be considered as manifestly arbitrary. It is
necessary to bear in mind that the appellant’s challenge is to the
constitutional validity of a statutory enactment. A challenge on the
grounds of manifest arbitrariness would require the appellant to
establish that the impugned provision has no nexus or relation with
the object of the legislation. We do not find that the challenge to
Section 18A or 21 of the Act can be sustained on this ground. This is
because the priority accorded for repayments to the Corporation is
clearly in line with the object of ensuring its resources are used to
the benefit of a maximum number of depositors and to provide
stability to the banking industry. It would be erroneous to state that
the priority accorded to the Corporation to recover its dues must be
confined to that which would be available to the depositors to whom
the amounts have been paid, and to the said extent. This argument
overlooks that the amount payable to the Corporation is payable by
virtue of a statutory prescription, and not solely on the principle of
subrogation.
64. Additionally, the appellant also seeks to challenge Section
18A and Section 21 of the Act on the ground that it is contrary to
Regulation 22 of the Regulations (Deposit Insurance Credit
Guarantee Corporation Regulations, 1961). It is important to note

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WA No. 1805 of 2025


that the Regulations were also amended and Regulations 21A and
22A were inserted. Regulations 21, 21A, 22 and 22A of the
Regulations are set out below:
“Regulation 21. Waiver of interest due to the
Corporation-

The Corporation may at any time waive any
payment due to it by way of interest on such
conditions and for such period or periods as it
may deem fit.

21A. (1) The insured bank, while furnishing the
list and the certification under sub-section (2) of
section 18A, shall submit in such form as
specified by the Corporation, the name and
account details of depositors who have affirmed
their willingness to receive the insured amount in
respect of their deposit in the insured bank, and
that form shall also contain a declaration signed
by the chief executive officer/the person in
charge as to the correctness of the contents
thereof along with a confirmation as to
availability of the declarations signed and
submitted by the depositors, and an undertaking
to preserve and submit the said declarations to
the Corporation, within such time and in such
manner as specified by the Corporation.

(2) The insured bank shall obtain willingness of
the depositors in such form as may be specified
by the Corporation, which shall necessarily
include an express declaration of willingness
signed by the depositor to receive the insured
amount along with a certification by the chief
executive officer/the person in charge as to the
correctness of the contents thereof, and the
forms so obtained shall be submitted to the

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WA No. 1805 of 2025


Corporation within such time and in such
manner specified by the Corporation.

(3) Where the insured bank receives willingness
of a depositor after submission of the Form
under sub-regulation (1) but within the period
specified in the first proviso to sub-section (4) of
section 18A, it shall submit the details thereof in
the same format specified under sub-regulation
(1) within such time and in such manner
specified by the Corporation in the same format
specified under sub-regulation (1).

(4) The claim settlement procedure adopted by
the Corporation with the approval of the Board,
for verifying the genuineness and authenticity of
the claim made by the liquidator under section
17 and the transferee/insured bank under
section 18 shall mutatis mutandis be applied for
verification of the genuineness and authenticity
of the -

(a) claim made in the list furnished by the
insured bank under sub-section (2) of section
18A; and

(b) the forms and declarations referred to in
sub-regulations (1), (2) and (3), for ascertaining
the willingness of the depositor."

Regulation 22. Repayments to the Corporation-

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.

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WA No. 1805 of 2025



(b) the insured bank or the transferee bank, as
the case may be, as soon as the realisations
and other amounts in its hands, after making
provision for expenses payable by that time in
respect of such realisations or other amounts in
its hands are sufficient to enable 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.

22A. (1) Notwithstanding anything contained in
Regulation 22, where the Corporation is satisfied
about the financial position of the insured bank
or the transferee bank, as the case may be, and
keeping in view the expected time period that
would be sufficient to generate cash flows,
capital infusion, liquidity, business profits, sale of
assets, restructuring of the insured bank, to pay
the stakeholders including uninsured depositors
and other creditors, makes an assessment that
the bank is not capable of making repayment to
the Corporation, then it may defer or vary the
time limit for receipt of repayments due to it for
such period and upon such terms as the Board
may specifically decide.

(2) The decision of the Board referred in sub-
regulation (1) shall be binding on the bank and
till such time as repayment is made to the
Corporation, the insured bank or the transferee
bank, as the case may be, shall be prohibited
from discharging the classes of liabilities, other
than those specified in terms of the decision of
the Board.

(3) The Corporation may, for the purpose of
assessment of the financial position and the
capability of the bank to make repayment, call
upon the bank, from time to time or periodically,
to submit such records or statements and

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WA No. 1805 of 2025


furnish such information as the Corporation
considers it necessary and expedient and the
bank shall comply with the same.”

65. It is apparent that Regulation 21A of the Regulations is in
conformity with Section 18A of the Act. Further, by virtue of the non-
obstante clause in Regulation 22A, the amounts paid by the
Corporation to the depositors are required to be repaid on priority,
and the provisions of Regulation 22 are overridden to the extent that
they are not consistent with regulation 22A of the Regulations
stipulated.
66. The appellant also questions the legislative competence of
the Parliament to enact the Act. According to him the enactment far
exceeds the subject of insurance. This contention is also flawed. It is
well settled that the Parliament and the State Legislature derive their
power to enact laws under Article 246 of the Constitution of India,
and the entries in the List I, II and III are only indicative. The
question whether the Parliament, or the State, or both have the
power to legislate has to be ascertained with reference to the pith
and substance of the legislation. The assumption that a law which in
pith and substance may be relatable to insurance must necessarily
confine itself to the principle of subrogation and Parliament is
precluded from departing from the same, is without any basis. The

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Parliament’s power to legislate is not confined to legislation that
must embody the principle of insurance. The Parliament also has
the power to legislate on subjects not listed in any of the three lists
of the Seventh Schedule of the Constitution of India.
67. The next aspect to be examined is the appellant’s challenge
to the premium collected. It is the appellant’s claim that the premium
collected is excessive. As noted above, the appellant’s claim that
the quantum of the premium collected amounts to an abuse of
dominance. This conclusion is also premised on the basis that the
Corporation has a strong balance sheet, and, according to the
appellant, it is not necessary for the Corporation to now raise
additional funds to guarantee credit facilities or insure deposits. We
may note at this stage that there is no allegation that the
Corporation has utilized its funds for a purpose other than its
objects. The question as to what is the appropriate premium to be
collected is a matter for the Corporation and the rule-making
authorities. We do not think it apposite for this Court to judicially
review the quantum of insurance premium collected by the
Corporation. The fact that the Corporation’s balance sheet is strong
only indicates that the Corporation is in a position to discharge the
obligations that it has undertaken and may be in a position to

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expand its reach. This Court cannot examine as to what should be
the optimum reserves to be maintained by the Corporation. That
decision would be outside the scope of judicial review.
68. We find no merit in the present appeal and the same is
accordingly dismissed.


Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE


Sd/-
(C.M. POONACHA)
JUDGE







KPS/AHB..