Either or survivor accounts are generally considered to be joint savings or fixed deposit accounts that are operated by two individuals. Such account holders mandate the bank that either of them may operate the account independently during their lifetimes. They also provide that on the death of one of the account holders, the surviving account holder may operate the account. The bank is discharged of its obligations by allowing the complete withdrawal of funds by the surviving account holder.

However, the question then arises as to whether the legal heirs of the deceased account holder have no rights whatsoever to the amount in the account. If this is so, the further question is whether the entire right to the amount after the death of one of the account holders belongs to the surviving account holder. The answer is that the legal heirs of the deceased account holder do have the same rights and interests in, and title to, the amount as did the deceased account holder. The surviving account holder is liable to account for the money in the account to the legal heirs of the deceased account holder.

Bank liability and heirs’ rights

The parallel question that must be considered is the liability of the bank towards the legal heirs. In an account operated as one that is either or survivor, the bank bears no responsibility towards the legal heirs of the deceased account holder unless such heirs obtain a court order restraining the bank from releasing the amount to the surviving account holder. The surviving account holder then holds the money as trustee for the legal heirs of the deceased account holder.

When the bank holds monies in fixed deposits, the signatures of both depositors need not be obtained for payment of the amount of the deposit on maturity. However, both depositors must sign and take responsibility in the event that the deposit is paid before maturity. In the situation where one depositor dies before the maturity of the fixed deposit, no payment of the fixed deposit before the term’s expiry may take place without the concurrence of the legal heirs of the deceased account holder.

Joint account liens, rights clarified

One account holder cannot create a lien or third-party interest over the account. The consent of both parties is necessary.

The Reserve Bank of India circulars on these rights and liabilities are clear and direct. In particular, the 2015 Master Circular on Customer Service in Banks sets out the position in law and the procedures that may be followed.

In the case of Prabha Kaul (Deceased) through Legal Representative v Chandra Kaul Muthoo and Ors, Delhi High Court held that the holder of the joint account may be authorised to withdraw the amount and that they may be permitted to transfer that amount to the heirs or legal representatives of the deceased joint holder. The court further held that although the bank may be discharged by payment to the survivor, the survivor will be accountable to the heir, the joint account holder. In Anumati v Punjab National Bank, the Supreme Court held that a bank cannot use the amount in a fixed deposit account to pay a pledge of that deposit as collateral by one account holder without the authority, knowledge or concurrence of the other account holder.

In the recent case of Shabeena Ibrahim and Anor v Mir Usman Dissooki, the Jammu and Kashmir High Court followed Prabha Kaul in holding that payment made by the bank to the surviving holder of an either or survivor account containing fixed deposits constitutes a valid discharge of the liabilities of the bank. Any continuing dispute is between the deceased’s legal heirs and the survivor. The case arose out of criminal proceedings initiated by heirs against the holder of a power of attorney for the survivor and the bank. The court made it clear that such disputes are civil matters and that using the criminal law is an abuse of process.

Bank liability in joint deposit accounts

With regard to an either or survivor account, a bank’s liabilities cease on payment to the survivor on the death of the other account holder. It has no obligation to the deceased’s legal heirs. Where one holder of a fixed deposit account dies, the bank will be discharged by payment to the survivor upon the maturity of the fixed deposit. The deposit cannot be withdrawn by the survivor before maturity without the heirs’ consent. The fixed deposit cannot be pledged by only one of the account holders.

Sanjay Gupta is the Managing Partner of the contentious practice group at SNG & Partners.