JOINT ACCOUNTS


1. Succession of properties on death is a common concern for many. Popular and common advice to a person is "open a joint account or hold properties jointly" to avoid harassment of succession. Usual reference is where the person wants to purchase shares or hold fixed deposits of companies or open savings bank account or locker or desires to hold fixed deposit in banks.

2. Hence the normal understanding is that in the case of joint accounts, on the death of the account-holder the survivor of the account will become the sole owner of the money or the property without any problem. He will not be required to produce documents like Will, it's Probate, Succession certificate, Letters of Administration or other any other succession documents necessitating going to the courts or authorities and suffer delays and procedural wrangles. A simple death certificate with minor documentations will take care of the succession.  

3. Where the shares of companies are considered, the foregoing advice or understanding is on a firm ground. It was not so earlier. There were doubts, for instance arising out of the decision of Honourable Company Law Board {CLB} in the case of Mrs Kamala V. Pai v M/s Esso Standard Refining Company of India Ltd.  Here, CLB held that where the heirs of a deceased joint-holder had obtained a succession certificate and the surviving joint-holder had disclaimed interest in the shares, the company ought not to refuse registration of the shares in the names of the heirs of the deceased. Hence the joint holder did not get the shares.

4. But, that position since changed in the case of Smt Kana Sen and Others v C.K. Sen and Co. [P] Ltd and another, as was decided by CLB, which held that where shares were held jointly by two persons and one of them dies, it is the survivor alone who was recognized as having title to shares. The legal heirs of the deceased joint holder could not seek substitution of their names for his name as joint holders with the survivor. It is pertinent that the decision was based on the Articles of Association of that company and that this nature of provision is found in Articles of many other companies.

5. Now, the prescribed Table F of a company limited by shares under the Companies Act  2013 states as follows which reinforces the law laid down :-

“23. (i) On the death of a member, the survivor or survivors where the member was a joint holder, and his nominee or nominees or legal representatives where he was a sole holder, shall be the only persons recognised by the company as having any title to his interest in the shares.

(ii) ………………………...”

6. But the position has been interpreted and held differently in case of bank accounts by Honourable Mumbai High Court [Panaji Bench] in a case of Cedric X. Pinheiro v Smt. Josefina Remedios and another.  Here, savings and fixed deposit accounts with a bank were opened in the same two joint names {First & Second holders} payable to either or survivor. The First Holder had executed a Will which, in point of time, was after opening of the savings account. He, after making the Will, opened a fixed deposit account. The interesting aspect was that the “Legal heir” as per the Will was a person who was different from the Second holder of the above two bank accounts.

The First Holder died, where-after, a dispute arose in respect of the two bank amounts. The “Survivor” {the Second holder} of the two joint accounts, and, “Legal heir” as per the Will, who were different persons made counter claims in their respective names. The High Court considered the facts and circumstances. It noted that under the Will, the Legal heir was made the sole and universal heir who was entitled to any sum of money deposited in any bank. And, it held that the Will was a clear expression of the intention of the maker that all money deposited in banks will go to the Legal heir. It, then, considered the fact that savings account was opened before the Will was made and fixed deposit account was opened after making of the Will. The Court therefore held that succession of savings accounts will be guided by the Will. But the case of fixed deposit was different. It could have been opened in the joint name of the Legal heir since it was opened after making of the Will; instead, it was opened jointly with the Survivor {the Second holder}. This indicated that the fixed deposit was meant for the Survivor and not the Legal heir. Therefore, the Legal heir was to get the money in savings account and the Survivor was to get the money in the fixed deposit account.

7. Now what does one conclude? The surviving joint holder does not have undisputed right to the property in all the cases. Facts of each case could change the position.

NOMINATION


8. But, what could be a safe alternative for easy succession? Nomination?  Here the position is not uniform.  A nominee does not automatically get ownership right in the property unless the law gives him that specific right. Moreover the norm is that the nominee is the legal heir else the same may be challenged in a court of law unless he has statute to support him.

9. The Banking Regulation Act 1949 says that nominee will be entitled to a bank deposit to the exclusion of others. However, for articles/ jewellery, etc., in a bank locker, nominee has the right to return of the same but not ownership rights. Hence the nominee holds the contents of the locker in his capacity as a trustee on behalf of the legal heirs of the deceased locker holder.

10.The erstwhile Companies Act 1956 and now the Companies Act 2013 have provisions for nomination of shares {securities} and fixed deposits with companies. 

11.As per these provisions the nominee gets the title to the shares/  amounts in fixed deposits notwithstanding anything contained in any other law for the time being in force or in any disposition, whether testamentary or otherwise.

12. Hence the nominee shall, on the death of the holder of shares or fixed deposits become entitled to all the rights in the shares or fixed deposits to the exclusion of all other persons, unless the nomination is varied or cancelled in the prescribed manner.

13. The Insurance Act 1938 authorizes the nominee to receive the Life Insurance money. Thus nominee is statutorily recognized as a payee who can give a valid discharge to the LIC for the payment of policy monies. The nominee, in turn, is to hold the money in trust and that money is liable to be claimed by legal heirs of the deceased policy holder. But this position is undergoing reversal by Insurance Amendment Act 2015. Hence the nominee will be a beneficial nominee having ownership right to the policy money with a rider that such nominees would only be legal heirs.  In the case of Provident Funds Act 1925 it is laid down that nominee receives the money absolutely to the exclusion of others.

CONCLUSION


The varied position is confusing to a lay man who is usually affected the most. An effort to streamline the laws should be the order of day for common good.

 

Also read related article: How to Pay Zero Tax for Income up to Rs 10 Lakhs by CA Chirag Chauhan

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    I hope by reading this article you got enlighten on ,Brief analysis on joint account & nominations for successionsBrief analysis on joint account & nominations for successions ?, What happens to joint accounts on death ?, How nomination works on death ?, Brief analysis on joint account & nominations for successions, further to mention before taken any financial decision based on this content it is prefered to take an expert opinion as matter can be subjective.