RELIEF MERCANTILE CO OPERATIVEBANK LTD. (IN LIQUIDATION) v. DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION & Ors.

Judgment

1. By way of this petition under Article 226 of the Constitution of India, the petitioner Co- operative Bank (in liquidation) through its SCA/9186/2002 JUDGMENT liquidator has prayed for an appropriate writ, direction or order quashing and setting aside the communication dated 9th July, 2002 addressed by the Reserve Bank of India to the petitioner Bank at Annexure-R to the petition by which the request of the petitioner bank for treating 19th April, 2000 as the date of refusal of license to the petitioner bank has been turned down and consequently, the claims of the depositors of the petitioner bank for deposit insurance under the Deposit Insurance Scheme 1961 will be considered only upto 4th May, 1999. The petitioner has also further prayed to declare that 19th April, 2000 as the date of rejection of petitioner's application for license by the respondent No.2 – Reserve Bank of India under Section-22 of The Banking Regulation Act, 1949 (hereinafter referred to as the “Act of 1949” for short) and Section-13(c) of The Deposit Insurance and Credit Guarantee Corporation Act, 1961 (hereinafter referred to as the “Deposit Insurance Act” for short ). The SCA/9186/2002 JUDGMENT petitioner has also further prayed for an appropriate order directing the respondents i.e. Reserve Bank of India as well as Deposit Insurance and Credit Guarantee Corporation (hereinafter referred to as the “Corporation” for short) to consider the claims of the depositors of the petitioner Bank for deposit insurance under the Deposit Insurance Scheme, 1961 upto 19th April, 2000 under the Deposit Insurance and Credit Guarantee Corporation Act, 1961.

2. Few facts are necessary for determination of the present special civil application which are as under : Under Section-22 of the Act of 1949, save as provided, no company shall carry on banking business in India unless it holds a license issued in that behalf by the Reserve Bank and any such license may be issued subject to such conditions as the Reserve Bank may think fit to SCA/9186/2002 JUDGMENT impose. As per sub-section (2) of Section-22 of the Act every banking company in existence on the commencement of this Act, before the expiry of six months from such commencement, and every other company before commencing banking business in India, shall apply in writing to the Reserve Bank for a license under Section-22 of the Act. Accordingly, the petitioner made application for license under Section-22 of the Act of 1949 on 28th August, 1971. As per Section-22 of the Act, nothing in sub-section (1) of Section-22 shall be deemed to prohibit the company from carrying on banking business until it is granted a license in pursuance of Section-22 or is by notice in writing informed by the Reserved Bank that a license cannot be granted to it. Thus, unless and until the company is granted a license or is by notice in writing informed by the Reserve Bank of India that a license cannot be granted to it, it will be open for the said company which has submitted application for license under Section- SCA/9186/2002 JUDGMENT 22 of the Act to carry on banking business. Thus, the petitioner carried on banking business from the date of application. The Reserve Bank of India addressed a letter to the Administrator of the petitioner bank dated 6th May, 1999 which was received by the petitioner bank on 11th May, 1999 inclusive therewith the order dated 4th May, 1999 rejecting the application of the petitioner bank for a license under Section-22 of the Act of

1949. Thus, the petitioner bank came to be informed in writing on 11th May, 1999 the decision of the Reserve Bank of India rejecting the application for license under Section-22 of the Act. Thus, technically speaking on and after 11th May, 1999 it was not open for the petitioner bank to carry on the banking business i.e. on notice in writing by the Reserve Bank of India rejecting the application of the petitioner for license under Section-22 of the Act. However, the

petitioner challenged the order dated 4th May, 1999 passed by the respondent No.2 – Reserve Bank SCA/9186/2002 JUDGMENT of India received by the petitioner bank on 11th May, 1999 rejecting the application of the petitioner bank for license under Section-22 of the Act of 1949 by way of Special Civil Application NO.3761 of 1999 before this Court. The petitioner bank prayed for interim relief in terms of Para-19(B) to stay the implementation and operation of the order dated 4th May, 1999 pending hearing and final disposal of the said special civil application. The said Special Civil Application came to be filed on 15th May, 1999 and the same came up for hearing before the learned Single Judge of this Court on 18th May, 1999 and the following order came to be passed by the learned Single Judge. “Notice. Pending admission ad-interim relief in terms of para-19(B) of the petition. Notice is made returnable on 22.6.1999. D.S. is permitted.” SCA/9186/2002 JUDGMENT

3. It seems that that said special civil application came up for hearing before the another learned Single Judge on 17th April, 2000 and no one remained present for the petitioner and therefore, the learned Single Judge vacated the exparte ad-interim relief order dated 18th May, 1999 and passed the following order. “No one is present for the petitioner even in the second round and second setting. Mr.H.V.Chhatrapati respondents Nos.1 and 2. Mr.A.J.Desai, learned AGP for respondent Nos.3 and 4. No case is made out for continuing the ex-parte as interim order dated

18.5.1999. The ex-parte ad-interim order dated 18.5.1999 is hereby vacated.

17.4.2000 Sd/- M.R.Calla, J.” SCA/9186/2002 JUDGMENT

4. It appears that the petitioner preferred Civil Application No.2879 of 2000 in Special Civil Application No.3761 of 1999 for recalling the order dated 17.4.2000. However, the learned Single Judge by order dated 26.4.2000 rejected the said application and did not recall the order dated 17.4.2000 by which the exparte ad-interim order was vacated. Being aggrieved and dissatisfied with the order passed by the learned Single Judge dated 26th April, 2000 passed in Civil Application No.2879 of 2000 in Special Civil Application No.3761 of 1999 in not recalling the order dated 17th April, 2000 vacating the exparte injunction and/or stay the petitioner preferred the Letters Patent Appeal No.150 of 2000 and Division Bench of this Court by order dated 8.5.2000 dismissed the said Letters Patent Appeal. Thus, there was no stay of the further implementation and operation of the order passed by the Reserve Bank of India dated 4th May, 1999 on and after 17th April, 2000. By SCA/9186/2002 JUDGMENT order dated 22nd May, 2000 the Registrar, Co- operative Society, State Government passed the order of liquidation of the petitioner Bank and appointed the liquidator of the said Bank. The liquidator of the petitioner bank approached the Deposit Insurance and Credit Guarantee Corporation and the Reserve Bank of India and submitted claims of list of the depositors and considering the fact that the petitioner bank continued to run the bank and its banking business upto 17th April, 2000 pursuant to the ad- interim stay granted by this Court in aforesaid Special Civil Application submitted the list of depositors for settlement of their claims who have deposited their amount between 11th May, 1999 and 17th April, 2000 also and requested the Reserve Bank of India as well as Deposit Insurance Corporation to consider 17th April, 2000 as the date of rejection of their application for license under Section-22 of the Act so that all those depositors who have deposited their amount SCA/9186/2002 JUDGMENT after 11th May, 1999 their claims also can be considered by the Deposit Insurance Corporation. But by various communications the same came to be rejected and at last by impugned communication / order dated 9th July, 2002 the Reserve Bank of India rejected the request of the petitioner bank to treat 19th April, 2000 as the date of refusal of license to the petitioner bank, in other words, consequently refused to consider settlement of the claims of those depositors who have deposited their amount after 11th May, 1999. Being aggrieved and dissatisfied with the above rejection / communication dated 9th April, 2002, the petitioner bank in liquidation through liquidator has preferred the present special civil application under Article 226 of the Constitution of India for the aforesaid reliefs.

5. Shri A.K.Clerk, learned advocate appearing on behalf of the petitioner bank has vehemently submitted that the petitioner bank continued to SCA/9186/2002 JUDGMENT do banking business upto 17th April / 19th April, 2000 pursuant to the ad-interim stay granted by the learned Single Judge of this Court granted in Special Civil Application No.3761 of 1999 and therefore, the relevant date for the purpose of considering the settlement of the claims for deposit insurance is required to be considered as 19th April, 2000. Shri Clerk, learned advocate has also further submitted that the petitioner bank has carried out its banking operation from 18th May, 1999 to 19th April, 2000 as it was protected by ad-interim relief granted by this Court and during the said period, the petitioner bank has functioned normally and accepted new deposits and repaid the old deposits and continued the banking operations in routine manner. It is also further submitted that the petitioner bank has also filed monthly and quarterly reports for the said period with the Reserve Bank of India and the Reserve Bank of India has also never raised any objection to the petitioner bank for its carrying on its SCA/9186/2002 JUDGMENT banking transactions and banking business during the said period. Therefore, it is further submitted that the respondent No.2 – Reserve Bank of India is now estopped from claiming that rejection of claiming of application for license should be treated as 4th May, 1999. It is also further submitted by him that during the aforesaid period between 18th May, 1999 to 19th April, 2000 when the petitioner bank was carrying on its banking business under the protection of ad-interim order passed by this Court many small depositors have invested and/or deposited their amount with the petitioner bank and therefore, for no fault of them the said depositors cannot be made to suffer loss of protection of their deposits under the Deposit Insurance Scheme,

1961. It is also further submitted by him that in fact, if the relevant date is considered as 19th April, 2000, in that case, there will not be any loss to the Reserve Bank of India and/or even to the Insurance Corporation as in fact the insured SCA/9186/2002 JUDGMENT deposit on 11.5.1999 was Rs.176.44 crores and the liability of insured deposits as on 19th April, 2000 was reduced to 141.40 crores. Thus, the liability of insured deposits came to be reduced by Rs.35.04 Lakhs from 11.5.1999 to 19.4.2000. It is also further submitted by Shri Clerk, learned advocate for the petitioner that on

11.5.1999 the petitioner bank had outstanding insured deposit liabilities (of less than Rs.1.00 Lakh) of Rs.176.44 lakhs and out of these deposits, the Bank has repaid the insured deposits (of less than Rs.1.00 lakh) for an amount of Rs.118.96 Lakhs during the period from

11.5.1999 to 19.4.2000 ( balance Rs.57.48 lakhs) and the Bank has accepted fresh deposits (of less than Rs.1.00 lakh) of Rs.83.92 lakhs during the period from 11.5.1999 to 19.4.2000 and therefore, as on 19.4.2000, the Bank had total insured deposits (less than Rs.1.00 lakh) of Rs.141.40 lakhs (Rs.57.48 lakhs + Rs.83.92 lakhs). It is also further submitted by him that no one should SCA/9186/2002 JUDGMENT be prejudiced by the `act of court' and therefore, it is requested that when pursuant to the order of this Court and/or under the protection of the ad-interim stay granted by this Court the petitioner bank continued to carry on its banking business and/or banking operations upto 19th April, 2000 and when so many small depositors have invested / deposited their amount, the relevant date for consideration of settlement of claims of deposits insurance is required to be considered as 19th April, 2000 i.e. till the date the bank continued to carry on its banking operations and therefore, it is requested to allow the present special civil application and to grant reliefs as prayed for directing the respondents No.1 and 2 to consider the claims of the depositors of the petitioner bank for deposit insurance under the Deposit Insurance Scheme of 1961 upto 19th April, 2000 under the Deposit Insurance and Credit Guarantee Corporation Act,

1961. SCA/9186/2002 JUDGMENT

6. Shri A.K.Clerk, learned advocate appearing on behalf of the petitioner has relied upon the following decisions of the Hon'ble Supreme Court in support of his submissions. [1] M/S SHREE CHAMUNDI MOPEDS LTD V. CHURCH OF SOUTH INDIA TRUST ASSOCIATION, MADRAS, AIR 1992 SC 1439 [2] BPL LTD AND OTHERS V. R.SUDHAKAR AND OTHERS, (2004) 7 SCC 219 [3] RAVI S. NAIK V. UNION OF INDIA AND OTHERS, 1994 Supp (2) SCC 641.

7. Relying upon the judgment of the Hon'ble Supreme Court in case of M/S SHREE CHAMUNDI MOPEDS LTD V. CHURCH OF SOUTH INDIA TRUST ASSOCIATION (Supra), Shri Clerk, learned advocate for the petitioner has submitted that as held by SCA/9186/2002 JUDGMENT the Hon'ble Supreme Court while considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. Relying on the judgment of the Hon'ble Supreme Court in case of RAVI S. NAIK (Supra) Shri Clerk, learned advocate has submitted that an order, even though interim in nature, is binding till it is set aside by a competent court and it cannot be ignored on the ground that the court which passed the order had no jurisdiction to pass the same. SCA/9186/2002 JUDGMENT

8. Shri Clerk, learned advocate has heavily relied upon the recent decision of the Hon'ble Supreme Court in case of BPL LTD AND OTHERS (Supra) and has submitted that in view of the ad- interim order and/or ad-interim stay granted by this Court staying the operations of the order dated 4th May, 1999, the petitioner bank was permitted to carry on its banking business and/or banking operations and what is required to be considered is the effect of stay of the operation of the order dated 4th May, 1999 and therefore, when under the protection of the ad-interim order staying further implementation and operation of the order dated 4th May, 1999 if the petitioner bank continued its banking business and some depositors have invested the amount by way of deposits, their interest is required to be protected by way of settling their insurance scheme. It is also further submitted by him that for no fault of the depositors who have invested SCA/9186/2002 JUDGMENT their amount by way of deposits after 11th May, 1999, they should not be made to suffer and they cannot be deprived of the deposits insurance and therefore, it is requested to allow the present special civil application as prayed for.

9. Per contra, Shri S.B.Vakil, learned senior advocate appearing on behalf of the Reserve Bank of India as well as Deposit Insurance and Credit Guarantee Corporation while relying upon the affidavit-in-reply filed on behalf of the Deposit Insurance Corporation as well as the Reserve Bank of India has heavily relied upon the provisions of Section-13(c) and Section-16 of the Deposit Insurance and Credit Guarantee Corporation Act,

1961. Shri Vakil, learned senior advocate has submitted that by order dated 5th May, 1999 and communication dated 11th May, 1999 the Reserve Bank of India informed the petitioner Bank with regard to rejection of their application for license under Section-22 of the Act. It is also SCA/9186/2002 JUDGMENT further submitted by him that ad-interim relief order dated 18.5.1999 cannot be construed to revive the registration of the co-operative bank as insured bank which registration had stood cancelled when by notice in writing the Reserve Bank of India informed the bank that its application for grant of license has been rejected. He has also further submitted that passing of the stay order does not mean that the order of refusal of grant of license is wiped out and looses its existence. Any order of stay granted pending disposal of writ/suit or other proceedings comes to an end with the dismissal of the substantive proceeding and in such a case it will be the duty of the Court to put the parties in the same position they would have been but for the interim order of the Court. It is also further submitted that the petitioner cannot be allowed to claim any benefit on the basis of the ad-interim order, more particularly, when it was vacated. It is also further submitted that the SCA/9186/2002 JUDGMENT purpose of interim order is to preserve the interest of the parties in status quo and thereby to protect their interest pending the litigation and therefore, the relevant date is rightly held to be 11.5.1999. It is also further submitted that cancellation order dated 4.5.1999 passed by the Reserve Bank of India has been upheld by this Court and the effective date of cancellation has to be treated as 11.5.1999 when the order was communicated to the petitioner bank and the interim order would not have any relevance in the matter.

10. It is also submitted that the respondent Corporation is statutory corporation constituted under the provisions of the DICGC Act, 1961 and has statutory power to register a banking company including a co-operative bank as an insured bank subject to being satisfied about its eligibility for the same as per the provisions of the DICGC Act, 1961. That a co-operative bank registered in SCA/9186/2002 JUDGMENT terms of the provisions of said Act of 1961 is known as an “insured bank” and such term is defined under Section-2(i) of the Act of 1961. It is also further submitted that cancellation of registration of insured co-operative bank is governed by the provisions of Section-13-C of the Act of 1961 and accordingly, on cancellation of license of an insured co-operative bank by the Reserve Bank, registration of such insured bank, stands cancelled as a consequence thereof. It is also further submitted by Shri Vakil, learned senior advocate that cancellation of registration of the co-operative bank in terms of Section-13-C of the Act of 1961 takes place automatically by operation of law on the happening of any of the events referred to under clause (a) to clause (i) of the said Section-13-C and in terms of clause- (b) the registration of a co-operative bank as an insured bank shall stand cancelled if the bank has been informed by notice in writing by the Reserve Bank that the bank's license has been SCA/9186/2002 JUDGMENT cancelled under Section-22 of the Banking Regulation Act, 1949. It is further submitted that while registration of the Bank as an insured bank is automatic by operation of law, restoration of registration of an insured bank is not automatic. It is also further submitted that the deposits accepted by banks subsequent to cancellation of their license and consequential de-registration of such banks in terms of said Section-13-C(b) of the Act, 1961 would be considered to be without insurance cover unless the bank has obtained direction or approached the Corporation for restoration of its registration as an insured co-operative bank and the Corporation has restored the registration of the bank as an insured bank. It is also further submitted that liability of the Corporation in relation to the insured deposit, manner of payment by the Corporation in case of winding up of an insured co-operative bank, discharge of its liability by the Corporation in respect of the SCA/9186/2002 JUDGMENT payment of amount towards insured deposits of the petitioner bank etc. are all governed by the provisions of the DICGC Act of 1961 and the provisions of Regulation, 1961. The liability of the corporation in respect of the insured deposits, is to be determined in accordance with the provisions of Section 16(1) of the DICGC Act, 1961 read with sub-section (3) & (4) of the Section 17 of the Act. It is also submitted that as per Section-16 of the Act, and the proviso Section-16(1), the liability of the Corporation in respect of an insured bank referred to in Section 13(a), (b) and (c) of the Act, shall be limited to the deposits as on date of cancellation of the registration and the relevant date would be the date of intimation of the notice by the Reserve Bank to cancel the license and/or reject the license under Section-22 of the Act which is 11th May, 1999. It is therefore submitted that deposits accepted by the bank subsequent to cancellation of their license and SCA/9186/2002 JUDGMENT consequential de-registration of such bank in terms of Section 13(C)(b) of the Act, 1961, would be considered to be without insurance cover unless the bank has approached the Corporation for restoration of its registration as an `insured co-operative bank' and the Corporation has restored the same.

11. Shri Vakil, learned senior advocate has further submitted that on vacating the ad-interim order on 17th April, 2000, confirmed by the Division Bench of this Court and subsequently withdrawing of the main special civil application, would lead to only one consequence of restoring the position which was prevailing at the time of passing of the initial order of stay order which was prevailing prior to 18th May, 1999 and/or as on date on 18th May, 1999 and therefore, on vacating the ad-interim order, the order passed by the Reserve Bank dated 4th May, 1999 communicated on 11th May, 1999 rejecting the SCA/9186/2002 JUDGMENT application of the petitioner bank for license under Section-22 of the Act, 1949 will be restored and therefore, the respondent Nos.1 & 2 have rightly considered the relevant date as 11th May, 1999 for the purpose of considering the claims of the deposits insurance and as such, no illegality has been committed either by the Deposit Insurance Corporation and/or by the Reserve Bank.

12. Shri Vakil, learned senior advocate in support of his above submissions has placed reliance on the following decisions. [1] COMMISSIONER OF INCOME-TX, MADRAS AND ANOTHER V. VINOD KUMAR DIDWANIA ET., AIR 1987 SC 1260 [2] MAHANADI COALFIELDS LTD V. ORIENT PAPER AND INDUSTRIES LTD AND OTHERS, 1995 Supp (2) SCC 717. [3] GURSHARAN SINGH AND OTHERS V. NEW DELHI SCA/9186/2002 JUDGMENT MUNICIPAL COMMITTEE AND OTHERS , (1996) 2 SCC 459 [4] GURSHARAN SINGH AND OTHERS V. M.V.VYAVSAYA