Supreme Court declines to disturb PMC Bank amalgamation scheme

What the Record Shows

The Supreme Court declined to interfere with the Bombay High Court's decision upholding the scheme that merged the Punjab and Maharashtra Co-operative (PMC) Bank into Unity Small Finance Bank. A bench of Justices Pamidighantam Sri Narasimha and Alok Aradhe dismissed the special leave petitions on 13 July 2026, recording that it was "not inclined to interfere with the impugned order(s) in exercise of our jurisdiction under Article 136 of the Constitution of India," while keeping the question of law raised by the petitioners open for consideration in an appropriate case.

That left standing the judgment of the Bombay High Court dated 9 March 2026 in Bhalchandra Dinkar Gondekar v. Reserve Bank of India (Writ Petition No. 8534 of 2022), decided by a division bench of Justices Bharati Dangre and Manjusha Deshpande. The court upheld the Punjab and Maharashtra Co-operative Bank Ltd. (Amalgamation with Unity Small Finance Bank Limited) Scheme, 2022, which was sanctioned on 25 January 2022, holding that it had been framed in accordance with the statute and in the larger public interest.

The matter is an administrative and civil one about the resolution scheme itself, not a criminal proceeding, and neither the scheme nor the judgments upholding it name an individual. The court declined to substitute its own view for that of the regulator on the design of the rescue, observing that "the function of the Court is not to advise in matters relating to financial and economic policies for which bodies like Reserve Bank are fully competent."

How It Worked

The scheme was the endpoint of a collapse that began in September 2019. Per the judgment, an inspection by the Reserve Bank of India found that the bank's true exposure to a single real-estate group had been concealed through manipulation of its loan accounts and records, leaving it with a large negative net worth and a non-performing asset ratio far beyond any prospect of ordinary recovery. The RBI placed the bank under directions, froze withdrawals, and set the resolution process in motion.

When no ordinary revival was possible, the resolution took the form of an amalgamation. Under the 2022 scheme, PMC Bank's business was transferred to Unity Small Finance Bank, a newly licensed entity, and its branches began operating as Unity branches from 25 January 2022. The design protected the largest number of depositors first: amounts covered by deposit insurance, up to Rs 5 lakh per depositor under the DICGC, were made available at the outset, which per the judgment covered the entire balances of over 84 per cent of the bank's small depositors.

Balances above the insured limit were treated in stages. Per the scheme, retail depositors' remaining money was scheduled for release in tranches over ten years, with no interest for the first five years and simple interest at 2.75 per cent thereafter. Institutional depositors bore a heavier adjustment: 80 per cent of their uninsured deposits was converted into perpetual non-cumulative preference shares carrying a 1 per cent dividend, with the balance treated as equity warrants.

The procedural history ran from the scheme's sanction in January 2022 to the writ petitions that followed, through the Bombay High Court's judgment of 9 March 2026, and finally to the Supreme Court's dismissal of the special leave petitions on 13 July 2026. The petitioners had challenged the staged repayment schedule, the interest terms, and the different treatment of retail and institutional depositors, arguing these breached Articles 14, 19(1)(g) and 300A of the Constitution. The High Court rejected those challenges, holding the phased schedule was framed to protect the maximum number of depositors first and was not arbitrary.

Who Lost Money

The people whose money was frozen were the bank's depositors, recorded in the judgment at around 9.25 lakh, holding deposits of roughly Rs 10,535 crore. From September 2019 their accounts were locked, and for depositors with modest balances the wait was measured in months before deposit insurance released their money.

The outcome was very different across the depositor base. Because deposit insurance covers up to Rs 5 lakh per depositor, the great majority of ordinary savers were made whole relatively early: per the judgment, 99.45 per cent of insured depositors had withdrawn their entitlement by 31 December 2025. Those with balances above the insured limit, and particularly institutional depositors, took the real loss, waiting years for staged repayment or accepting perpetual preference shares in place of cash.

The scheme therefore did not make every depositor whole. It prioritised small savers through deposit insurance and spread the pain of the shortfall onto larger and institutional deposits over a long horizon. Readers can see how deposit insurance caps interact with a balance using Oquilia's fixed-deposit calculator.

Where It Stands Now

As of the Supreme Court's order dated 13 July 2026, the amalgamation scheme stands upheld and operative. The special leave petitions were dismissed, the court declined to interfere under Article 136, and the only qualification it recorded was to keep the underlying question of law open for a future appropriate case rather than to reopen this scheme.

In practical terms, that means the staged repayment framework continues to run its course, with retail balances being released in tranches over the ten-year window and insured depositors already substantially paid out. The scheme is the current legal position; it is not under any surviving challenge that disturbs its operation.

This report deals only with the resolution scheme and the judgments upholding it. Separate proceedings arising from the underlying collapse involve their own record and are not covered here. More regulatory and enforcement matters are collected in the Oquilia enforcement archive, alongside recent IRDAI penalties on banks distributing insurance.

What It Means

The case is a clear illustration of what deposit insurance actually does and does not do. The Rs 5 lakh DICGC cover was the real backstop for ordinary savers, and it is why the overwhelming majority of small depositors recovered their money while the resolution ground on. Above that cap, recovery depended on the terms of the scheme and on time, which is the structural reality of any bank failure resolved by amalgamation rather than payout.

The judgments also show the limits of challenging a regulator's resolution design in court. The Bombay High Court and the Supreme Court both declined to second-guess the RBI's economic judgement on how to stage repayments, treating that as a matter for the regulator rather than the bench. The concrete takeaway for a depositor is to know the DICGC cover: it insures up to Rs 5 lakh per depositor per bank, including principal and interest, across all accounts held in the same capacity. Spreading large balances across banks, or keeping within the insured limit where safety is the priority, is the single most reliable protection against exactly this kind of freeze.

FAQ

What did the Supreme Court actually decide?

On 13 July 2026, a bench of Justices P.S. Narasimha and Alok Aradhe dismissed the special leave petitions and declined to interfere with the Bombay High Court judgment upholding the PMC Bank amalgamation scheme. It recorded that it was not inclined to interfere under Article 136, while keeping the petitioners' question of law open for an appropriate future case.

What was the PMC Bank scheme?

The Punjab and Maharashtra Co-operative Bank Ltd. (Amalgamation with Unity Small Finance Bank Limited) Scheme, 2022 was sanctioned on 25 January 2022. It transferred PMC Bank's business to Unity Small Finance Bank, paid deposit-insured amounts up to Rs 5 lakh first, and staged the release of larger balances over ten years, with institutional deposits partly converted into preference shares.

Have depositors got their money back?

Most small depositors have. Per the judgment, deposit insurance covered the entire balances of over 84 per cent of small depositors, and 99.45 per cent of insured depositors had withdrawn their entitlement by 31 December 2025. Depositors above the Rs 5 lakh insured limit, especially institutional ones, are being repaid in stages over ten years or hold preference shares.

Why did the courts not order faster or fuller repayment?

The Bombay High Court held the phased schedule was framed to protect the maximum number of depositors first and was not arbitrary, and that the design of a financial rescue is a matter for the Reserve Bank rather than the court. The Supreme Court declined to interfere with that view.

How much deposit insurance protects my bank balance?

The DICGC insures deposits up to Rs 5 lakh per depositor per bank, covering principal and interest together, across all accounts held in the same right and capacity. Balances above that limit are not guaranteed, which is why spreading large sums across banks reduces the risk of a freeze in the event of a bank failure.

This report is based on the Supreme Court order dated 13 July 2026 declining to interfere with the Bombay High Court judgment dated 9 March 2026 in Writ Petition No. 8534 of 2022, reviewed on 30 July 2026.