Joint Account, Nominee, Set-Off and Tax Attachment
Mr. and Mrs. Deshmukh hold a joint savings account with a bank under the 'either or survivor' mandate. Mr. Deshmukh dies in a road accident. The account balance is ₹8,50,000. Their son from Mr. Deshmukh's first marriage is the registered nominee. He submits a claim for the entire balance, relying on the nomination. Meanwhile, the bank receives a notice from the Income Tax Department attaching ₹1,20,000 out of Mr. Deshmukh's dues, and the bank also holds a personal overdraft account of Mr. Deshmukh with an outstanding of ₹3,00,000, which is in default. Mrs. Deshmukh asks the branch to pay her the entire balance and close the account. The branch manager must decide how to deal with the three claims without litigation.
1. Who is entitled to the balance? Explain the position of the nominee, the surviving joint holder, and the bank.
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The account mandate is 'either or survivor'. On the death of Mr. Deshmukh, the right to the balance vests in Mrs. Deshmukh as the surviving joint holder. A nominee under Section 45ZA of the Banking Regulation Act is entitled to receive the deposit on the depositor's death, but the nominee holds the amount as a trustee for the legal heirs; nomination does not override the survivorship clause or create ownership. The son's claim as nominee cannot defeat Mrs. Deshmukh's right as survivor. The bank should therefore allow Mrs. Deshmukh to operate or close the account after completing death intimation and KYC, and should not pay the son merely on nomination. However, the bank should note the son's claim and the tax notice before releasing the balance, to avoid paying twice.
2. Can the bank adjust Mr. Deshmukh's personal overdraft dues against the joint account balance? Explain the right of set-off.
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No. A banker's right of set-off requires mutuality of debts: the bank's debt to the customer and the customer's debt to the bank must be between the same parties. The joint account belongs to Mr. and Mrs. Deshmukh, while the overdraft is Mr. Deshmukh's personal debt. The bank cannot use a joint account balance to discharge an individual partner's debt unless the joint holders are jointly and severally liable for that debt or have given a specific guarantee or authority. The 'either or survivor' mandate is an operation instruction, not a consent to set off the deceased's personal borrowings. Adjusting the account would expose the bank to a claim from Mrs. Deshmukh. The bank should pursue the overdraft separately against the deceased's estate and legal heirs.
3. How should the bank respond to the Income Tax attachment notice?
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The notice is a garnishee notice requiring the bank to pay amounts due to the deceased assessee. The bank should:
- Acknowledge the notice and mention the joint account and the survivorship mandate.
- Not freeze the entire balance or pay the whole amount to the tax department without determining the deceased's interest.
- Take legal advice and, if required, seek clarification from the tax authority.
- Comply only to the extent of any amount that is legally due to the deceased; in an 'either or survivor' account, the survivor's interest is not automatically attached.
- Inform Mrs. Deshmukh and record the notice in the account.
- Release the balance to Mrs. Deshmukh subject to the notice, or retain the disputed ₹1,20,000 in a separate suspense account if the bank is genuinely uncertain, and seek an order from the tax authority.
The bank must avoid both over-compliance and ignoring the statutory notice.