Imagine a scenario where Mr. Verma deposits a sizeable sum of money in a fixed deposit and makes his wife the nominee. In case Mr. Verma passes away due to some unfortunate incident/accident, the fixed amount should go to the nominee, who in this case is his wife. Everything sounds fine. However, what if a conflict occurs? What if someone from Mr. Verma’s family comes forward claiming that they are the deceased person’s legal heirs and that they are entitled to the money given to the nominee? The matter goes up in front of a judge and the judge rules that the money, assuming the claimant is indeed the depositor’s legal heir, goes to the legal heir. How can this happen? It may come as a surprise to you but a nominee, in fact, is not the same thing as a legal heir and the claim of a legal heir supersedes that of the nominee. Our Banking and Finance experts explain nominee vs legal heir rights in case of a bank account of the deceased in detail and the various regulation acts that govern the nomination clauses.
Who is a Nominee?
A nominee is only a custodian of the deposit and his/her responsibility is primarily to ensure that the legal heir of the depositor gets the money from a fixed deposit. S\he primarily becomes the operator of the account in the event of the demise of the depositor and does not actually own the money or have any legal right over the same.
Who is a Legal Heir?
A legal heir, simply put, is a person defined by a will as the person who should receive the benefits of the deceased’s estates and, in this case, the money from the fixed deposit.
The Nominee Talk
If you have been following the financial news, you would have seen the word ‘nominee’ here and there. This is happening primarily because several commercial banks have identified inoperative, frozen or inactive accounts that have funds but not a nominee. Some of these are long-term fixed deposits that have matured with the promised interests, but are yet to be claimed by the accountholders or depositors. As there are no nominees for these accounts, the deposits are in a limbo, without having received further instructions of the accountholder.
All banks are required to have a nomination clause in all account-opening forms. As per the clause, an accountholder has to nominate a third person known to him to receive the funds in the account(s) in case of the depositor’s demise.
As per the clause, the accountholder/depositor needs to have a nomination for the following accounts:
• Savings/Sole proprietorship accounts
• Deposit accounts (fixed deposits)
• Safe deposit lockers (safe custody of articles cannot have nomination)
I. Banking Regulation Act, 1949: The Act was amended by Banking Laws (Amendment) Act, 1983, by introducing new Sections 45ZA to 45ZF, which provide, inter alia, for the following matters:
• To enable a banking company to make payment to the nominee of a deceased depositor, the amount standing to the credit of the depositor.
• To enable a banking company to return the articles left by a deceased person in its safe custodyto his nominee, after making an inventory of the articles in the manner directed by Reserve Bank of India (RBI).
• To enable a banking company to release the contents of a safety locker to the nominee of the hirer of such locker, in the event of the death of the hirer, after making an inventory of the contents of the safety locker in the manner directed by RBI.
II. Banking Companies (Nomination) Rules, 1985: Since such nomination has to be made in the prescribed manner, the central government framed, in consultation with Reserve Bank of India, the Banking Companies (Nomination) Rules, 1985. These Rules, together with the provision of new Sections 45ZA to 45ZF of Banking Regulation Act, 1949, regarding nomination facilities were brought into force with effect from 1985.
The rules provides:
• nomination forms for deposit accounts, articles kept in safe custody, and contents of safety lockers,
• forms for cancellation and variation of the nominations, and
• registration of nominations and cancellation and variation of nominations.
III. Other Acts
Several acts meant for the finance sector – Companies Act, 1956, and Companies Act, 2013;
Maharashtra Co-operative Housing Societies Act, 1960; Banking Regulation Act, 1949; Provident Funds Act, 1925; Insurance Act, 1938; Government Savings Banks Act, 1873; Depositories Act, 1996; Mutual Funds Regulations, 1996, among others – have provisions pertaining to nomination. The language of the provisions varies in the Acts and is to be understood as per the situation.
RBI Circulars on Nomination
In 1983, Banking Regulation Act, 1949, was amended by introducing new Sections 45ZA to 45ZF. In 1985, the Banking Companies (Nomination) Rules were framed. Sections 45ZC to 45ZF of Banking Regulation Act, 1949, provide for nomination and release of contents of safety lockers/safe custody articles to the nominee and protection against notice of claims of other persons.
Banks should be guided by the provisions of Sections 45ZC to 45ZF of Banking Regulation Act, 1949, and Banking Companies (Nomination) Rules, 1985, and the relevant provisions of Indian Contract Act and Indian Succession Act.
Rules Governing Repayment Clauses
Bank deposit accounts are opened with the repayment/survivorship clause as under:
• Either or survivor
Under this clause, the depositor wants that the bank should invoke this clause and pay the proceeds to either of them on maturity of the deposit or on the death of the depositor. Consumers need to understand that this clause is meant only for deposits held by more than one depositor but not more than two persons. The role of ‘nominee’ arises only in the case of death of both the depositors.
• Anyone or survivor
Under this clause, the depositor instructs the bank to dispose of the proceeds to any one of the depositors individually on maturity of the deposit or to the survivor amongst the depositors on death of any one of the depositors. The role of ‘nominee’ arises only on the death of all the depositors.
• Former or survivor/latter or survivor
Under this clause, the depositor instructs the bank to pay the primary depositor on the maturity of the deposit and to the survivor on the death of the former\latter as the case may be. The role of ‘nominee’ arises only on the death of all the depositors.
Basically, RBI says that ‘in the case of a joint deposit account, the nominee’s right arises only after the death of all the depositors’. It also says, ‘…there cannot be more than one nominee in respect of a joint deposit account…’
Making Claim as a Nominee
Once the death of the depositor is known to the bank, the bank, as per accepted banking practices, flags the account by blocking any debits to that account with the remark ‘notice of death of depositor received’, but will pass any cheque that has been issued by the drawer (the accountholder) prior to his/her death. The interest accruing to the amount lying in this account will continue to be paid or credited.
Once the nominee comes to know of the death of the depositor and is in the knowledge of his/her name being shown as a ‘nominee’ in the deceased’s bank account, he/she has to provide a copy of the death certificate of the depositor and also submit a declaration (bank provides a prescribed format) staking his/her claim to the assets of the deceased. The payment made to the survivor(s)/nominee, subject to the aforementioned conditions, would constitute a full discharge of the bank’s liability.
Here it must be noted that the legal heirs’ rights are governed under Succession Act and they can proceed in court of law against the nominee(s) in the event of the bank having paid the assets of the deceased to the nominee(s).
Can Nomination Override a Will?
The subject has been much disputed. Courts and arbitrators have had differences of opinions and have resolved each case depending upon its merits and situations.
As per texts published by Hariani & Co.,
“….the compliance of the procedure of nomination is merely a myth as it does not substitute a legal will and merely appointing a nominee will not suffice. Further, it will not be out of place to point out that there appears to be a gap/disconnect between the legislature, draftsman and final interpretation by the Courts of the provisions of the various Acts. Needless to state, the interpretation of the Courts would prevail and Nominee is considered only as a Trustee and not the owner….”
“…While carrying out succession planning it is important to note that Nomination may not really serve the purpose as the Nominee will only act as a Trustee for and on behalf of the legal heirs of the Nominator. Nomination does not really serve the purpose for the Nominator. In fact it helps the organisation (i.e. Bank, Mutual Fund, Insurance, etc.) as in case a Nomination has been effected, the organisation merely confers the right on the Nominee so that does not have to hunt /search for the legal heirs of the deceased. The assets of the Nominator (irrespective of Nomination) will devolve upon the beneficiaries in case of a will and upon the legal heirs in the absence of a will as per the respective laws of succession….”
CONSUMER VOICE LEGAL HELPDESK
If you find yourself vulnerable and cheated and need legal advice related to consumer laws and pursue litigation, our Legal experts will provide step-by-step consumer law assistance.