NOMINATION FACILITY IN BANK ACCOUNTS

Nomination is the right conferred upon the holder of a bank account to appoint one or more persons who will be entitled to receive monies upon the death of the account holder. In the event of death of an account or locker holder, the bank can release the account proceeds or contents to the nominee without insisting upon a succession certificate, letter of administration or court order.

Nomination Facility: The Banking Regulation Act, 1949 was amended by Banking Laws (Amendment) Act, 1983 by introducing new Sections 45ZA to 45ZF, which provide, inter alia, for the following matters:

  1. To enable a banking company to make payment to the nominee of a deceased depositor, the amount standing to the credit of the depositor.
  2. To enable a banking company to return the articles left by a deceased person in its safe custody to his nominee, after making an inventory of the articles in the manner directed by the Reserve Bank.
  3. To enable a banking company to release the contents of a safety locker to the nominee of the hired of such locker, in the event of the death of the hired, after making an inventory of the contents of the safety locker in the manner directed by the Reserve Bank.

Benefit of nomination: The benefit of nomination is that in the event of death of an account holder(s) or locker holder(s), the Bank can release the account proceeds or contents of the locker to the nominee(s) without insisting upon a Succession Certificate, Letter of Administration or Court Order. The nominee holds the monies in the capacity of a Trustee on behalf of the legal heirs of the deceased account holder(s) or locker holder(s) and the Bank's liability is duly discharged on payment to the Nominee.

Who can nominate?

  1. Bank account holders having deposit accounts in their individual names or in joint names of two or more individuals can appoint a nominee to their accounts.
  2. A sole proprietor can appoint a nominee to the sole proprietorship account with the bank.
  3. In the case of a deposit account in the name of a minor, nomination shall be made by a person lawfully entitled to act on behalf of the minor in respect of a deposit account.
  4. Safe deposit locker holder(s) can appoint nominee(s) on their safe deposit locker(s).
  5. A nomination can be made only in respect of a deposit account which is held in the individual capacity of the depositor, and not in any representative capacity such as the holder of an office like Director of a Company, Secretary of an Association, Partner of a firm, or Karta of an HUF.

The Banking Companies (Nomination) Rules, 1985: Since such nomination has to be made in the prescribed manner, the Central Government framed, in consultation with the Reserve Bank of India, the Banking Companies (Nomination) Rules, 1985. These Rules, together with the provision of new Sections 45ZA to 45ZF of the Banking Regulation Act, 1949 regarding nomination facilities were brought into force with effect from 1985.

The Banking Companies (Nomination) Rules, 1985 which are self-explanatory, provide for:-

  1. Nomination Forms for deposit accounts, articles kept in safe custody and contents of safety lockers.
  2. Forms for cancellation and variation of the nominations.
  3. Registration of Nominations and cancellation and variation of nominations, and matters related to the above.

NOMINATION IS MENTION IN FOLLOWING SECTION OF BANKING REGULATION ACT 1949

Particulars Acceptance of Nomination Pay/Deliver only to Nominees
Deposits Section 45  ZA Section  45  ZB
Safe Custody Section  45  ZC Section  45  ZD
Safe  Deposit Lockers Section  45  ZE Section  45  ZF

Nomination facilities in respect of safe deposit locker / safe custody articles: Sections 45ZC to 45ZF of the Banking Regulation Act, 1949 provide for nomination and release of contents of safety lockers / safe custody article to the nominee and protection against notice of claims of other persons.

Nomination Facility – Sole Proprietary Concern: Banks may extend the nomination facility also in respect of deposits held in the name of a sole proprietary concern.

Nomination Facility in Single Deposit Accounts: Banks should give wide publicity and provide guidance to deposit account holders on the benefits of nomination facility and the survivor clause. Despite the best efforts in this regard, banks might still be opening single deposit accounts without nomination.

In a case which came up before the Allahabad High Court, the Honourable Court has observed that "it will be most appropriate that the Reserve Bank of India issues guidelines to the effect that no Savings Account or Fixed Deposit in single name be accepted unless name of the nominee is given by the depositors. It will go a long way to serve the purpose of the innocent widows and children, who are dragged on long drawn proceedings in the Court for claiming the amount, which lawfully belongs to them".

Keeping in view the above, banks should generally insist that the person opening a deposit account makes a nomination. In case the person opening an account declines to fill in nomination, the bank should explain the advantages of nomination facility. If the person opening the account still does not want to nominate, the bank should ask him to give a specific letter to the effect that he does not want to make a nomination. In case the person opening the account declines to give such a letter, the bank should record the fact on the account opening form and proceed with opening of the account if otherwise found eligible. Under no circumstances, a bank should refuse to open an account solely on the ground that the person opening the account refused to nominate.

VARIOUS NOMINATION FORMS

Account Registration Cancellation Variation
DEPOSITS DA 1 DA 2 DA 3
SAFE CUSTODY SC 1 SC 2 SC 3
SAFE DEPOSIT LOCKER SL 1 or SL 1A  (JOINT A/C) SL 2 SL 3 or SL 3A

Acknowledgement of Nomination: Banks should strictly comply with the provisions of Banking Regulation Act, 1949 and Banking Companies (Nomination) Rules, 1985 and devise a proper system of acknowledging the receipt of the duly completed form of nomination, cancellation and / or variation of the nomination. Such acknowledgement should be given to all the customers irrespective of whether the same is demanded by the customers.

Registering the nomination: In terms of Rules 2 (10), 3 (9) and 4 (10) of the Banking Companies (Nomination) Rules, 1985 banks are required to register in its books the nomination, cancellation and / or variation of the nomination. The banks should accordingly take action to register nominations or changes therein, if any, made by their depositor(s) / hirers.

Incorporation of the legend “Nomination Registered” in pass book, deposit receipt etc. and indicating the Name of the Nominee in Pass Books / Fixed Deposit Receipts: When a bank account holder has availed himself of nomination facility, the same may be indicated on the passbook so that, in case of death of the account holder, his relatives can know from the pass book that the nomination facility has been availed of by the deceased depositor and take suitable action. Banks may, therefore, introduce the practice of recording on the face of the passbook the position regarding availment of nomination facility with the legend "Nomination Registered". This may be done in the case of term deposit receipts also.

Further, banks are advised that in addition to the legend “Nomination Registered”, they should also indicate the name of the Nominee in the Pass Books / Statement of Accounts / FDRs, in case the customer is agreeable to the same.

Separate nomination for savings bank account and pension account: Nomination facility is available for Savings Bank Account opened for credit of pension. Banking Companies (Nomination) Rules, 1985 are distinct from the Arrears of Pension (Nomination) Rules, 1983 and nomination exercised by the pensioner under the latter rules for receipt of arrears of pension will not be valid for the purpose of deposit accounts held by the pensioners with banks for which a separate nomination is necessary in terms of the Banking Companies (Nomination) Rules, 1985 in case a pensioner desires to avail of nomination facility.

Nomination facility in respect of deposits

(i) Nomination facility is intended for individuals including a sole proprietary concern.

(ii) Rules stipulate that nomination shall be made only in favour of individuals. As such, a nominee cannot be an Association, Trust, Society or any other Organisation or any office-bearer thereof in his official capacity. In view thereof any nomination other than in favour of an individual will not be valid.

(iii) There cannot be more than one nominee in respect of a joint deposit account.

(iv) Banks may allow variation/cancellation of a subsisting nomination by all the surviving depositor(s) acting together. This is also applicable to deposits having operating instructions "either or survivor".

(v) In the case of a joint deposit account the nominee's right arises only after the death of all the depositors.

Witness in Nomination Forms:  In this connection, we clarify that for the various Forms prescribed under Rules, only Thumb-impression(s) shall be attested by two witnesses. Signatures of the account holders need not be attested by witnesses.

Nomination in case of Joint Deposit Accounts: It is understood that sometimes the customers opening joint accounts with or without "Either or Survivor" mandate, are dissuaded from exercising the nomination facility. It is clarified that nomination facility is available for joint deposit accounts also. Banks are, therefore, advised to ensure that their branches offer nomination facility to all deposit accounts including joint accounts opened by the customers.

Nomination in Safe Deposit Lockers / Safe Custody Articles:

(i) Nomination facilities are available only in the case of individual depositors and not in respect of persons jointly depositing articles for safe custody.

(ii) Section 45ZE of the Banking Regulation Act, 1949 does not preclude a minor from being a nominee for obtaining delivery of the contents of a locker. However, the responsibility of the banks in such cases is to ensure that when the contents of a locker were sought to be removed on behalf of the minor nominee, the articles were handed over to a person who, in law, was competent to receive the articles on behalf of the minor.

(iii) As regards lockers hired jointly, on the death of any one of the joint hirers, the contents of the locker are only allowed to be removed jointly by the nominees and the survivor(s) after an inventory was taken in the prescribed manner. In such a case, after such removal preceded by an inventory, the nominee and surviving hirer(s) may still keep the entire contents with the same bank, if they so desire, by entering into a fresh contract of hiring a locker.

Books Written by Abinash Mandilwar