diff --git a/x/gov/abci.go b/x/gov/abci.go
index e8cce5f5a99f..8f73b9d67e94 100644
--- a/x/gov/abci.go
+++ b/x/gov/abci.go
@@ -46,8 +46,8 @@ func EndBlocker(ctx sdk.Context, keeper *keeper.Keeper) error {
 			return false, err
 		}
 
-		// TODO HV2: https://polygon.atlassian.net/browse/POS-2755
-		err = keeper.RefundAndDeleteDeposits(ctx, proposal.Id) // refund deposit if proposal got removed without getting 100% of the proposal
+		// Distribute the deposits if the proposal got removed without getting 100% of the proposal
+		err = keeper.DistributeAndDeleteDeposits(ctx, proposal.Id)
 		if err != nil {
 			return false, err
 		}
@@ -135,10 +135,17 @@ func EndBlocker(ctx sdk.Context, keeper *keeper.Keeper) error {
 			return false, err
 		}
 
-		// HV2: heimdall refunds and deletes deposits in all cases of proposal failures, without caring about burnDeposits
-		err = keeper.RefundAndDeleteDeposits(ctx, proposal.Id)
-		if err != nil {
-			return false, err
+		// HV2: heimdall distributes and deletes deposits in all cases of proposal failures, without caring about burnDeposits
+		if passes {
+			err = keeper.RefundAndDeleteDeposits(ctx, proposal.Id)
+			if err != nil {
+				return false, err
+			}
+		} else {
+			err = keeper.DistributeAndDeleteDeposits(ctx, proposal.Id)
+			if err != nil {
+				return false, err
+			}
 		}
 
 		// If an expedited proposal fails, we do not want to update
@@ -315,7 +322,7 @@ func failUnsupportedProposal(
 		return err
 	}
 
-	if err := keeper.RefundAndDeleteDeposits(ctx, proposal.Id); err != nil {
+	if err := keeper.DistributeAndDeleteDeposits(ctx, proposal.Id); err != nil {
 		return err
 	}
 
diff --git a/x/gov/keeper/deposit.go b/x/gov/keeper/deposit.go
index c3cd71405167..64a040a80a51 100644
--- a/x/gov/keeper/deposit.go
+++ b/x/gov/keeper/deposit.go
@@ -9,6 +9,7 @@ import (
 	"cosmossdk.io/errors"
 	sdkmath "cosmossdk.io/math"
 
+	stakeTypes "github.com/0xPolygon/heimdall-v2/x/stake/types"
 	sdk "github.com/cosmos/cosmos-sdk/types"
 	sdkerrors "github.com/cosmos/cosmos-sdk/types/errors"
 	disttypes "github.com/cosmos/cosmos-sdk/x/distribution/types"
@@ -285,6 +286,81 @@ func (keeper Keeper) RefundAndDeleteDeposits(ctx context.Context, proposalID uin
 	})
 }
 
+// DistributeAndDeleteDeposits distributes the deposits evenly among all the active validators and deletes the deposits on a specific proposal.
+func (keeper Keeper) DistributeAndDeleteDeposits(ctx context.Context, proposalID uint64) error {
+	var validatorAddresses []sdk.AccAddress
+
+	err := keeper.sk.IterateCurrentValidatorsAndApplyFn(ctx, func(validator stakeTypes.Validator) bool {
+		validatorAddr, err := sdk.AccAddressFromHex(validator.Signer)
+		if err != nil {
+			return true
+		}
+		validatorAddresses = append(validatorAddresses, validatorAddr)
+		return false
+	})
+	if err != nil {
+		return err
+	}
+
+	numValidators := len(validatorAddresses)
+	if numValidators == 0 {
+		return fmt.Errorf("no current validators available")
+	}
+
+	deposits, err := keeper.GetDeposits(ctx, proposalID)
+	if err != nil {
+		return err
+	}
+
+	var totalDeposits sdk.Coins
+	var amountPerValidator sdk.Coins
+
+	for _, deposit := range deposits {
+		depositerAddress, err := keeper.authKeeper.AddressCodec().StringToBytes(deposit.Depositor)
+		if err != nil {
+			return err
+		}
+
+		totalDeposits = totalDeposits.Add(deposit.Amount...)
+
+		for _, coin := range deposit.Amount {
+			amountPerValidatorPerCoin := sdkmath.LegacyNewDecFromInt(coin.Amount).QuoInt64(int64(numValidators)).TruncateInt()
+			amountPerValidator = amountPerValidator.Add(
+				sdk.NewCoin(
+					coin.Denom,
+					amountPerValidatorPerCoin,
+				),
+			)
+		}
+
+		err = keeper.Deposits.Remove(ctx, collections.Join(deposit.ProposalId, sdk.AccAddress(depositerAddress)))
+		if err != nil {
+			return err
+		}
+	}
+
+	for _, validator := range validatorAddresses {
+		err = keeper.bankKeeper.SendCoinsFromModuleToAccount(ctx, types.ModuleName, validator, amountPerValidator)
+		if err != nil {
+			return err
+		}
+	}
+
+	// Calculate any remaining amount due to truncating issues
+	usedAmount := amountPerValidator.MulInt(sdkmath.NewInt(int64(numValidators)))
+	remainingAmount, _ := totalDeposits.SafeSub(usedAmount...)
+
+	if !remainingAmount.IsZero() {
+		// Send remaining amount to the first validator
+		err = keeper.bankKeeper.SendCoinsFromModuleToAccount(ctx, types.ModuleName, validatorAddresses[0], remainingAmount)
+		if err != nil {
+			return err
+		}
+	}
+
+	return err
+}
+
 // validateInitialDeposit validates if initial deposit is greater than or equal to the minimum
 // required at the time of proposal submission. This threshold amount is determined by
 // the deposit parameters. Returns nil on success, error otherwise.