Joint Account, Nomination and the Gold Loan Set-Off
A savings account (No. 3102) at a branch in Berhampur stands in the names of Ramesh Patra and his daughter Sasmita Patra with the mandate 'former or survivor'. In 2019 Ramesh registered a nomination in favour of his son Debasis Patra. In November 2023 Ramesh pledged his gold and took a gold loan of ₹1,20,000 in his sole name; ₹68,000 is still outstanding. Ramesh dies in December 2024. The joint account carries ₹4,15,000 and nobody has reported any dispute to the branch. On 20 December Sasmita submits a written request, the death certificate and her KYC papers, and asks for the entire balance to be transferred to her own account. Two days later Debasis writes claiming the same amount as nominee and threatens to complain to the Banking Ombudsman. Ramesh also held a fixed deposit of ₹2,00,000 in his sole name, with Debasis as nominee, which is maturing this month.
1. Who is entitled to receive the ₹4,15,000 balance in account 3102, and in what capacity? Explain how the survivorship mandate and the nomination interact.
Read the worked answer
Sasmita is entitled to the balance, as survivor and sole operator.
Reasoning:
- The mandate 'former or survivor' is a contract between the depositors and the bank. On Ramesh's death the account vests in Sasmita, who can operate it as her own; the bank's debt now runs to her alone.
- The nomination of Debasis does not override survivorship. Under section 45ZA of the Banking Regulation Act, 1949, a nominee receives the deposit money as trustee for the legal heirs; the nomination is a facility for discharge of the bank, not a will and not a substitute for succession.
- Therefore, in a joint account with a survivor clause, the nominee's claim lapses for that account. Debasis's threat of an Ombudsman complaint is not a reason to freeze the account.
Action: obtain a claim form, the original death certificate, Sasmita's KYC, and a declaration of the surviving holder; verify that no garnishee or court attachment is on record; settle without demanding succession certificate or surety, and record the closure/transfer in the system with the section 45ZA position noted. A mere claim by a third party does not make the bank a stakeholder.
2. Can the branch adjust the ₹68,000 gold loan against the joint account balance? Discuss set-off and its limits.
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No - the branch cannot set off the gold loan against the joint account, but it can proceed against the sole fixed deposit.
Reasoning:
- Set-off requires mutuality: the debt and the deposit must belong to the same person in the same right. The gold loan is Ramesh's sole debt; the joint account is a joint asset and, after his death, Sasmita's asset. The bank cannot use one to satisfy the other.
- After the death of a joint holder, the survivor's right to the balance is independent of the deceased's liabilities, so the mutuality is even weaker.
- The ₹2,00,000 fixed deposit, however, is Ramesh's sole deposit. The bank's right of set-off survives death and prevails over the nominee's claim, because the nominee takes only what the depositor could have taken. Adjust ₹68,000 plus accrued interest, pay the net amount to Debasis as nominee, and issue a written statement of the adjustment to him and to the legal heirs.
- Prefer realising the gold first (it is the primary security); use set-off only for the shortfall, and inform the nominee before adjusting so that the transaction is defensible.
Documentation: loan ledger extract, notice/acknowledgement of adjustment, and a clear note that the joint account was not touched.
3. What precautions must the branch take before paying the nominee on the sole fixed deposit if the gold loan had been fully repaid?
Read the worked answer
The nominee is entitled to receive the maturity proceeds, but only as a trustee for the legal heirs. The branch should:
- Obtain the original death certificate, a claim form in the prescribed format, and KYC of Debasis.
- Verify the nomination entry in the bank's records (the 2019 registration) and confirm that no other claim, court order or lien exists.
- Confirm the deposit is not standing as security for any loan, and that no tax deduction or adjustment is pending; deduct TDS if applicable.
- Record in writing that payment to the nominee discharges the bank under section 45ZA but does not decide the heirs' rights among themselves, and give a copy of the adjustment/payment memo to the nominee.
- If a second claimant surfaces with a succession certificate or court order, stop payment and act on the court's direction.
- Do not insist on a succession certificate or indemnity from a nominee where the bank's own rules do not require it; doing so invites a valid Ombudsman complaint for delay.
Keep the whole file - death certificate, KYC, claim form, sanction note - for audit, since nominee payments are a common inspection finding.