Statutory Priority for Deposit Insurance Reimbursement Prevails Over Common Law Principles of Subrogation and Subordinate Regulations

The Appellant is the Secretary of a Sangha representing depositors of Sri Guru Raghavendra Sahakara Bank Niyamitha (the Bank).

Following a detection of financial irregularities amounting to over ₹1,500 crores, the RBI imposed "All Inclusive Directions" on 10.01.2020, freezing the bank's activities.

Under the Deposit Insurance and Credit Guarantee Corporation (Amendment) Act, 2021, the Corporation (DICGC) became liable to make interim payments to depositors up to ₹5,00,000.

The DICGC disbursed approximately ₹712 crores to over 22,234 claimants and subsequently issued a demand on 03.01.2022 requiring the Bank to repay this amount in five annual installments.

The Appellant challenged the constitutionality of Sections 18A(5), 21(3), and 21(4) of the DICGC Act, arguing that granting the Corporation priority in recovery over the remaining dues of depositors is arbitrary and violates Articles 14 and 300-A.

A Single Judge dismissed the Writ Petition on 01.09.2025, leading to this appeal.

1. Whether Sections 18A(5), 21(3), and 21(4) of the DICGC Act, 1961, as amended, are constitutionally valid or if they are "manifestly arbitrary" under Article 14 for granting the Corporation priority in recovery.

2. Whether the Amendment Act was beyond the legislative competence of Parliament under Entry 47 of List-I of the Seventh Schedule.

Deposit Insurance and Credit Guarantee Corporation Act, 1961 (as amended by Act 30 of 2021), specifically Section 18A regarding interim payments and Section 21 regarding the statutory obligation of banks to repay the Corporation.

The principle of "manifest arbitrariness" as defined in Shayara Bano v. Union of India, which invalidates legislation done capriciously or without adequate determining principles.

The principle recognized in DICGC v. Ragupathi Ragavan, which recognized the "laudable object" of the Act to protect small depositors.

The grounds for challenging plenary legislation under Article 14 as established in Indian Express Newspapers (Bombay) (P) Ltd. v. Union of India.

The Court rejected the Appellant's argument that the DICGC's right to recovery must be confined to the common law principle of subrogation.

It reasoned that the priority accorded to the Corporation is a statutory prescription designed to replenish public funds so the Corporation can continue to fulfill its obligations to the broader banking industry and other small depositors.

The Court found no "manifest arbitrariness" because the priority has a clear nexus with the legislative object of fostering financial stability and protecting the maximum number of depositors.

Regarding legislative competence, the Court held that Parliament's power under Article 246 is not strictly limited by the narrow definitions of "insurance" as a contract but extends to statutory protections for depositors in the public interest.

The claim that ad valorem premiums on deposits exceeding ₹5 Lakhs were arbitrary was dismissed, as statutory exactions need not be perfectly commensurate with specific payouts, and such matters of policy and reserve-maintenance are outside the scope of judicial review.

It held that the priority of discovery granted to the DICGC is not arbitrary but is a necessary mechanism for public interest and banking stability.

The Court found the legislation to be within the pith and substance of Parliament's powers.

The Writ Appeal was dismissed, affirming the Single Judge's order and denying any relief to the Appellant.