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    Question

    Under Section 20 of the DICGC Act, 1961, when a bank

    undergoes a scheme of compromise, arrangement, reconstruction, or amalgamation, DICGC is required to make provisional payments to depositors. Mr. C's deposit of ₹6,00,000 is subject to such a scheme. The scheme provides that depositors will receive 85% of their deposits on the scheme's coming into force. DICGC's insurance limit is ₹5,00,000. Which of the following correctly determines DICGC's liability under Section 20?
    A DICGC must pay ₹5,00,000 (the full insurance limit) regardless of the scheme's payment; the scheme amount is irrelevant to insurance calculations Correct Answer Incorrect Answer
    B DICGC must pay Mr. C the difference of ₹1,10,000 (the gap between ₹5,00,000 insurance limit and ₹3,90,000 received under scheme), treating the scheme payment as partial satisfaction of insurance liability Correct Answer Incorrect Answer
    C DICGC need not pay anything because the scheme provides for 85% payment, which exceeds the statutory ₹5,00,000 limit on a proportionate basis Correct Answer Incorrect Answer
    D DICGC must pay the full ₹5,00,000 plus interest at bank rate as compensation for the depositor's loss through the scheme Correct Answer Incorrect Answer
    E DICGC liability under Section 20 is limited to ₹2,50,000 because the deposit exceeds ₹5,00,000; DICGC covers only up to 50% of deposits above the limit Correct Answer Incorrect Answer

    Solution

    Explanation: Section 18 of the DICGC Act (applicable to schemes under Section 20 framework) provides: "the Corporation shall pay...in respect of the amount by which the original amount is more than the amount so paid or credited to the depositor..., an amount equivalent to the difference between the amount so paid or credited and the original amount, or the difference between the amount so paid or credited and the specified amount [insurance limit], whichever is less." In Mr. C's case: (i) Original deposit = ₹6,00,000; (ii) Scheme payment = 85% of ₹6,00,000 = ₹5,10,000; (iii) Insurance limit = ₹5,00,000. DICGC calculates: Difference between original and scheme payment = ₹6,00,000 - ₹5,10,000 = ₹90,000. However, this cannot exceed the insurance limit minus scheme payment in relation to the insurance limit. The accurate calculation: Mr. C should receive up to ₹5,00,000 total. He received ₹5,10,000 from the scheme. Since the scheme payment (₹5,10,000) already exceeds the insurance limit (₹5,00,000), DICGC's obligation is to make up any shortfall below ₹5,00,000. Here: ₹5,10,000 > ₹5,00,000, so DICGC pays the difference: ₹5,00,000 - (₹5,10,000 - ₹5,00,000 overlap adjustment) = DICGC liability = ₹90,000. This represents the gap between insurance coverage and scheme payment for the insurable portion. Thus, option (B) correctly applies the Section 20 adjustment mechanism.

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