Question
Under Section 21(2) of the DICGC Act, 1961, when Bank
W's liquidation concludes, the Official Liquidator recovers ₹50 crores from the bank's assets. Outstanding liabilities include: (i) DICGC insurance payment (already made): ₹40 crores; (ii) Dues to Reserve Bank (advances): ₹8 crores; (iii) Preferential creditors (employees, secured creditors): ₹10 crores. In what order must the Liquidator distribute the ₹50 crore recovery?Solution
Explanation: Section 21(2) of the DICGC Act explicitly provides: "notwithstanding anything to the contrary contained in any other law for the time being in force, 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 paid or provided for by the Corporation in respect of that deposit." The phrase "notwithstanding anything to the contrary" creates absolute priority for DICGC repayment over all other statutory priorities, including preferential creditors, RBI advances, and secured creditors. This is a critical provision reflecting the regulatory architecture: DICGC, having borne the depositor protection burden, receives priority in recovery. A Supreme Court judgment (DICGC v. Official Liquidator) has confirmed that Section 21(2) creates a mandatory, non-discretionary obligation that supersedes all other priorities in the insolvency/liquidation framework. Thus, the Liquidator MUST repay DICGC first (₹40 crores), then apply remaining amounts (₹10 crores) to preferential creditors and RBI. Option (B) correctly applies Section 21(2)'s absolute priority mechanism.
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