Page 37 - Banking Finance November 2022

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the bank to the survivor will discharge the bank of its deposit having E or S mode of operation, in the event of
liabilities under the debtor creditor relationship arising out death of one of the joint holders, the survivor may obtain
of establishing such accounts. premature repayment of the deposit. Thus the regulators
instructions about the survivorship clause and public
However courts have been more concerned with the perception were in sync till this point of time. ( Whether the
question of determining the rights of ownership and vesting survivor is the absolute owner of the proceeds is a different
of property upon the survivor vis a vis other claimants/legal matter and not discussed here).
heirs, rather than the banking transaction rights of the
survivor(s). Whether the E or S mandate entrusts the The stance changed in 2011 when the RBI vide their circular
survivor(s) with all the rights to encash the FD as per their DBOD No. Leg BC 46 /09.07.005/2011-12 dated November
wish is a question that has not been really dealt with by the 4, 2011 conveyed to banks that “ in case joint depositors of
courts. Resolving this question is important for banks because term/fixed deposits with “Either or Survivor” or “Former or
of the value of this product amongst the portfolio of liability Survivor” mandate intend to allow premature withdrawal
products offered by banks. FDs are marketed as products of their deposits by one of the joint depositors on the death
that provide both easy liquidity and returns to their of the other, it would be open for banks to allow the same,
customers. “provided they have taken a specific joint mandate from the
depositors for the said purpose.” On 16.07.2012, while
They are easily encashable, they can be kept as security and reiterating this proviso, the RBI further clarified that “The
loans can be provided against them. The attraction towards joint deposit holders may be permitted to give the mandate
the product can get seriously impaired if the customers either at the time of placing fixed deposit or anytime
cannot make full use of all of these features. Such occasions subsequently during the term/tenure of the deposit. If such
arise time and again- - requirement of funds to meet a mandate is obtained, banks can allow premature
emergencies and social obligations, medical treatments, withdrawal of term/fixed deposits by the surviving depositor
short term mismatches in income flows and expenditures, without seeking the concurrence of the legal heirs of the
etc. are real life situations which more often than not call deceased joint deposit holder.”
for falling back on the trusted FD savings. Due to
unavailability of all the joint holders for any reason like It is apparent that the underpinnings for the revision were
incapacitation, transit in travel, outside station and such, legal opinions and judgements by various courts looking into
customers will find themselves in a hard pressed position. disputes over payment by banks of jointly held deposits. The
They would have the funds but would be unable to access law therefore became settled that the survivorship clause
the same without the presence and signatures of all the applies only at the time of maturity and premature
deposit holders. payments based on the survivorship clause are bad in law.
Consequently, the survivorship clause for premature
The change in perception came about in 2011. Till then the payments may be applied if and only if there exists an
practice of E or S as literally understood was quite prevalent. underlying mandate from all the joint deposit holders, which
In fact, the RBI, in June 2005, vide RBI/2004-05/490 DBOD.
No.Leg. BC.95 /09.07.005/2004-05 dated June 09, 2005, as
part of its drive to simplify procedures for settlement of
claims in respect of deposits of deceased persons had
advised banks to publicise their instructions, inter alia, that
(i) ...in the event of the death of the depositor, premature
termination of term deposits would be allowed;

(ii) ...in the event of the death of one of the joint account
holders, the right to the deposit proceeds does not
automatically devolve on the surviving joint deposit
account holder, unless there is a survivorship clause;

A reading of the above clearly shows that in case of a

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