Allahabad High Court Directs Release of FDRs to Nominee with Succession Condition

Allahabad High Court ruled in favor of Manoj Kumar Sharma, directing the Bank of Baroda to release fixed deposit receipts (FDRs) held by the late account holder, where Sharma was designated as the nominee. However, the court emphasized that the disbursement of funds is subject to the legal framework of succession.

The case revolves around a series of FDRs belonging to Sharma’s deceased mother, with the petitioner asserting his rights as the nominee. The Division Bench, comprising Justice Shekhar B. Saraf and Justice Vipin Chandra Dixit, deliberated extensively on the applicability of the Banking Regulation Act, 1949, and the nominee's rights vis-à-vis the succession laws.

The Case Details

Manoj Kumar Sharma, the petitioner, sought the release of funds from FDR Account Nos. 25660300006755, 25660300006754, 25660300015398, and 25660300006756, where he was named the nominee. Sharma's mother passed away on February 8, 2020, leaving behind these FDRs in her name.

Although a nominee was designated for these accounts, the issue became contentious due to parallel succession proceedings initiated by other legal heirs disputing the will of the deceased. The Civil Judge (Senior Division) in Moradabad had earlier dismissed Sharma’s succession suit, citing the pending challenge to the will.

Sharma argued that, as per Section 45ZA of the Banking Regulation Act, a nominee has the right to receive the deposit, which acts as a valid discharge of the bank's liability. He also referenced a Reserve Bank of India (RBI) Circular from June 2005, which prohibits banks from insisting on a succession certificate or legal representation for the release of funds to nominees.

Court’s Analysis and Observations

Nominee's Rights Under Section 45ZA

The court emphasized the provisions of Section 45ZA of the Banking Regulation Act, which states that a nominee is entitled to receive the deposit amount upon the depositor's death. The nominee assumes the rights of the depositor solely to receive the funds but does not gain ownership of the money.

Quoting the Supreme Court judgment in Ram Chander Talwar v. Devender Kumar Talwar (2010), the court noted:

“The nominee merely steps into the shoes of the depositor for the purpose of receiving the money. The funds remain part of the deceased's estate and are subject to succession laws.”

Binding Nature of RBI Circular

The RBI Circular of 2005 strengthens the nominee's rights, mandating that banks avoid unnecessary delays in disbursing funds. The circular clarifies that payment to nominees constitutes full discharge of the bank's liability, provided proper identification and death proof are furnished.

The court observed:

“Banks cannot insist on succession certificates or other legal documentation, which would inconvenience the nominee. However, the nominee must hold the funds in trust for the legal heirs.”

Balancing Nominee’s Rights with Succession Laws

The High Court drew a fine distinction between the nominee’s immediate right to receive funds and the ultimate distribution of assets under succession laws. While the bank must release the funds to Sharma as the nominee, he is obligated to act as a trustee for the legal heirs until succession claims are resolved.

Order and Directions

The court issued the following directives:

Immediate Disbursement: The Bank of Baroda must release the FDR funds to Manoj Kumar Sharma within three weeks.

Undertaking by Nominee: Sharma must file an affidavit with the bank, undertaking to hold the funds in trust and to distribute them according to the court's decision in the succession case.

Successor Rights: The legal heirs of the deceased retain the right to claim their share of the funds in accordance with succession laws.

Implications of the Judgment

This decision is a significant precedent in disputes involving nominees and succession. By reaffirming the rights of nominees under the Banking Regulation Act, the court has provided clarity on the interplay between statutory rights and inheritance laws.

The judgment highlights the importance of balancing efficiency in banking operations with the equitable distribution of assets among rightful heirs. It also underscores the nominee's fiduciary duty to act in good faith and honor the claims of legal successors.

Reactions

Legal experts have hailed the judgment as a robust interpretation of Section 45ZA, which safeguards both nominees and legal heirs. Financial institutions are also expected to benefit from the clarity provided on nominee-related disputes, reducing administrative hurdles in such cases.

Manoj Kumar Sharma, while expressing relief over the judgment, stated, "This ruling affirms my rights as a nominee. I am committed to ensuring the rightful claims of all heirs are respected as per the law."

As succession proceedings continue in Moradabad’s Civil Court, this judgment ensures immediate relief for the nominee while keeping the doors open for legal heirs to assert their claims.