DICGC recovery priority challenge fails

The Karnataka High Court, Principal Bench at Bengaluru, dismissed Writ Appeal No. 1805 of 2025 in a judgment delivered by the Chief Justice Vibhu Bakhru and Justice C.M. Poonacha on 28 April 2026.

The appeal arose from a challenge to Sections 18A(5) and 21(3) and (4) of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, as introduced by the 2021 amendment. The appellant, representing a co-operative bank’s depositor body, argued that these provisions were unconstitutional to the extent they allowed the Corporation to recover insurance amounts paid to depositors in priority over other dues. The challenge was framed under Articles 14, 19, 21, 38, 43-B and 300-A of the Constitution.

The core grievance was that the Corporation, after paying insured depositors, could not claim a higher recovery priority than the depositors themselves. The appellant relied on the principle of subrogation and contended that the statutory scheme unfairly elevated the Corporation’s claim.

The Court rejected that submission. It held that the argument that Parliament was bound by the principle of subrogation had no basis. The judgment records that Parliament is not confined to legislation that must embody the principle of insurance, and that the legislative power is not so limited as to prevent the statutory scheme adopted in the DICGC Act.

The Court also dealt with the appellant’s attack on the premium collected by the Corporation. The appellant had argued that the premium was excessive and unnecessary, given the Corporation’s strong balance sheet. The Court declined to entertain that challenge. It held that the question of the appropriate premium is a matter for the Corporation and the rule-making authorities, and that the Court would not judicially review the quantum of insurance premium or determine the optimum reserves to be maintained.

On that reasoning, the Court found no merit in the appeal and dismissed it.

For co-operative banks and deposit insurance disputes, the ruling confirms that statutory recovery priority under the DICGC framework will not be displaced by a general subrogation argument, and premium fixation remains a matter of policy and rule-making, not judicial review.