Joint FD accountholders need to beware of ‘either or survivor’ clause – The Economic Times

Clipped from: https://economictimes.indiatimes.com/wealth/legal/will/joint-fd-accountholders-need-to-beware-of-either-or-survivor-clause/articleshow/96472486.cms

Synopsis

Despite RBI mandate, FD account holders face problems in premature withdrawal on death of joint holder.

Rajat Dutta

Rajat Dutta

The author is Founder & initiator, Inheritance Needs Services

Bhopal-based Surajmal Tewari used to take care of his aged father, while his brothers lived in nearby towns. He had invested his own money in bank FDs jointly with his father, and his accountant was the nominee. When his father died intestate, Tewari tried to prematurely withdraw money under the ‘either or survivor’ clause. However, he found that his siblings had served a legal notice, followed by a stay from a district court, registering their stake to the father’s FDs and restraining withdrawals.

Since the documents listed his father as a joint holder, the bank was bound by the court order. This is a problem being faced by many FD joint holders. Fixed deposit forms across banks have standard operating instructions, including ‘either or survivor’, and some banks also have ‘former or survivor’ and ‘later or survivor’ clauses. Depositors are nudged by bank staffers to opt for the ‘either or survivor’ clause, the understanding being that if a joint holder dies, the survivor will get the proceeds. This, however, is misleading. As per the RBI circular dated 9 June 2005, claimants/ legal heir(s) of FD joint account holders can follow a process to recover the amount even if there is no nomination.

Besides, RBI campaigns specify that ‘in case of a joint deposit account, the nominees’ right arises only after the death of all account holders’. In case of ‘either or survivor’, ‘former or survivor’ and ‘later or survivor’, one of the joint holder(s) has to pass away to attract the operation instructions. In ‘former or survivor’, the first joint holder becomes the sole owner if the second joint holder dies, and in case of ‘later or survivor’, the second joint holder becomes the sole owner on the demise of the first joint holder. The problem arises when the FD holder(s) wants to withdraw prematurely and one of the joint holders is incapacitated or passes away. This is because for premature withdrawals, signatures of all joint holders are required.

As per the RBI, if the account was opened with the survivorship clause, the payment of the balance to survivor/nominee of the deceased deposit account holder represents a valid discharge of bank’s liability. However, banks are not processing claims of surviving joint holders. The RBI, in a preamble to its notification dated 14 November 2011, clarified that if any of the joint holders died and there was a need for premature withdrawal, the concurrence of legal heirs of the deceased joint holder was required. This, however, comes with a caveat that banks can allow premature withdrawals provided they have taken a specific joint mandate from the depositors for the said purpose.

As per its 16 August 2012 circular, the central bank aligned the terms on premature withdrawals, as stated in its 4 November 2011 notification, to be incorporated in its circular dated 9 June 2005, and asked the banks to include specific joint mandate from the depositors for the purpose. However, the FD forms of major private and public sector banks have not incorporated the required clause and no bank has taken adequate measures to make customers aware of the requirement.

If the surviving joint holder waits till maturity, he can claim the proceeds only by submitting the death certificate of the deceased joint holder. If, on the date of maturity, the surviving joint holder is also deceased, the nominee becomes the claimant. Legally, nothing changes after the demise of a joint holder and the surviving holder receives the money on maturity. So, what is the rationale for banks to seek consensus from heirs of the deceased joint holder only in case of premature withdrawals?

(THE AUTHOR IS FOUNDER & INITIATOR, INHERITANCE NEEDS SERVICES.)

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