Nomination of Bank Deposits under Section 45ZA of the Banking Regulation Act, 1949 – A Critical Appraisal

Nomination of Bank Deposits under Section 45ZA of the Banking Regulation Act, 1949 – A Critical Appraisal

1. Introduction

Section 45ZA of the Banking Regulation Act, 1949 (hereinafter “BR Act”) creates a statutory nomination facility for bank deposits. It empowers a depositor to designate an individual who, upon the depositor’s death, is entitled to receive the deposit from the banking company. Although apparently straightforward, the provision has spawned significant jurisprudence concerning (a) the compulsory discharge of a bank on payment to the nominee and (b) the nature of the nominee’s entitlement vis-à-vis the legal heirs of the deceased. This article critically analyses Section 45ZA in light of the legislative scheme, Reserve Bank of India (RBI) policy, and the evolving case-law, drawing upon the decisions and materials listed in the reference dossier.

2. Legislative Framework and Placement within the BR Act

Part III of the BR Act deals with “Suspension of Business and Winding-up of Banking Companies”, culminating in the broad depositor-protection powers conferred on the RBI in Sections 45 to 45X.[1] Section 45ZA, inserted by Act 62 of 1983 (and later amended by Act 30 of 2017), is housed in this cluster, underscoring Parliament’s intention to protect depositors and facilitate speedy settlement on death. The text of sub-sections (1) and (2) is worth recalling:

“(1) Where a deposit is held by a banking company to the credit of one or more persons, the depositor or, as the case may be, all the depositors together, may nominate, in the prescribed manner, one person to whom, in the event of the death of the sole depositor or the death of all the depositors, the amount of the deposit may be returned by the banking company.
(2) Notwithstanding anything contained in any other law… the nominee shall, on the death of the sole depositor… become entitled to all the rights of the sole depositor… in relation to such deposit to the exclusion of all other persons, unless the nomination is varied or cancelled…”.

Section 56 applies the provision mutatis mutandis to co-operative banks.[2] “Nomination Rules” have been framed in 1985 prescribing the form (DA 1) and procedure for variation/cancellation (DA 2).

3. Policy Rationale

The statutory scheme serves four inter-related objectives:

  • Depositor Protection: enabling depositors to direct post-mortem disbursement without engaging the estate’s succession process.
  • Operational Certainty for Banks: relieving banks of the risk of multiple claims and potential criminal liability for wrongful withholding (compare Section 46(4) read with Section 47A of the BR Act).[3]
  • Systemic Stability: ensuring swift release of funds, thereby avoiding unnecessary litigation that could erode public confidence in the banking system (a concern echoed in Joseph Kuruvilla Vellukunnel and Canara Bank v. M.S. Jasra).[4]
  • Administrative Economy: reducing court congestion by eliminating routine succession certificate applications for relatively modest deposits.

4. Core Legal Issues

4.1 Scope of Section 45ZA

The provision extends to all deposits—savings, current, term deposits, recurring deposits—held by “banking companies”, including co-operative banks by virtue of Section 56. Consumer fora have readily applied it to fixed-deposit receipts (Kamla Devi, 2021;[5] Gurmeet Singh, 2022[6]).

4.2 Procedure: Creation, Variation and Cancellation of Nomination

RBI Master Circulars insist that nomination be obtained at the time of account opening; nevertheless, courts have enforced nominations even if executed subsequently, provided the statutory form is used. Absent variation under Rule 3 of the 1985 Rules, an existing nomination subsists.

4.3 Bank’s Statutory Discharge and Liability

Several decisions stress that once a valid nomination exists, the bank has no discretion to insist upon a succession certificate or probate. In K. Gangadar Reddy v. Gooty Co-operative Town Bank, the Andhra Pradesh High Court quashed a bank’s directive requiring heirs to obtain a succession certificate, holding that such insistence is contrary to Section 45ZA.[7] Consumer fora have treated refusal to honour a nomination as “deficiency of service” (Saleem v. HDFC Bank, 2024).[8]

4.4 Nature of the Nominee’s Entitlement

The principal controversy lies in the effect of sub-section (2): Does it confer beneficial ownership or merely a right to collect and hold in trust for the legal heirs?

  • Custodial / Trustee View. The Bombay High Court in Jayanand Salgaonkar (2015) invoked the Supreme Court’s ratio in Ram Chander Talwar v. Devender Kumar Talwar (2010) on Section 109A of the Companies Act, holding that a nominee is only a custodian who must pass the asset to the heirs in accordance with succession law.[9]
  • Beneficial Owner View. A contrary trend emerges in certain consumer-forum and single-judge decisions holding that sub-section (2), by using the phrase “to the exclusion of all other persons”, vests complete rights in the nominee (Kamla Devi, Vidyaa Hari Iyer).[10]

The divergence stems from different readings of “rights of the depositor”. The trustee view harmonises Section 45ZA with the Indian Succession Act; the beneficial owner view emphasises the non-obstante clause. The Supreme Court has not squarely settled the issue, though Ram Chander Talwar—while not on Section 45ZA—strongly favours the custodial interpretation.

4.5 Interplay with Succession Laws

Where a depositor leaves a will, conflicts arise between nominees and legatees. In Gurmeet Singh, the District Commission preferred the will over nomination but nonetheless observed that the bank was correct in paying the nominee in terms of Section 45ZA; the ensuing dispute was inter se among claimants.[6] This dichotomy—bank’s discharge v. ultimate beneficial entitlement—finds statutory echo in Section 109B(3) of the Companies Act, 1956, and Section 72 of the Insurance Act, 1938. Legislative policy thus appears to treat nomination as a pragmatic device to absolve the intermediary, without necessarily deciding beneficial ownership.

4.6 RBI’s Supervisory Perspective

RBI’s expansive supervisory powers under Sections 35A, 36, 45L and 45M (illustrated in Colour Merchants Co-op Bank v. RBI, 2024;[11] Dharani Sugars, 2019[12]) underscore that nomination provisions dovetail with the central bank’s broader mandate to protect depositors and ensure orderly credit. Banks that disregard Section 45ZA risk regulatory penalties under Sections 46 and 47A (Indian Bank v. V.A. Balasubramania Gurukal, 1982).[3]

5. Integration with Wider Regulatory Architecture

Section 45ZA cannot be viewed in isolation. The moratorium and reconstruction powers in Sections 45 and 44A, validated in Joseph Kuruvilla Vellukunnel and Canara Bank v. M.S. Jasra, exist to secure systemic stability and depositor confidence.[4] The nomination mechanism is a micro-level analogue of the same objective: shielding individual depositors’ estates from procedural uncertainty.

6. Critical Assessment and Reform Proposals

While the section effectively protects banks, the uncertainty over the nominee’s beneficial status generates litigation. Three reform options merit consideration:

  1. Clarificatory Amendment: Parliament could align Section 45ZA with Section 72 of the Insurance Act (as amended in 2015) which explicitly states that the nominee holds in trust for the legal heirs, thereby eliminating interpretive ambiguity.
  2. Unified Nomination Code: A cross-sectoral statute governing nomination across financial products would foster consistency, echoing the recommendations of multiple expert committees on financial sector legislative reforms.
  3. Enhanced Disclosure: RBI could mandate banks to inform customers, at the time of obtaining nomination, of its limited legal effect—mitigating false expectations among nominees.

7. Conclusion

Section 45ZA embodies a delicate balance between depositor autonomy, banking efficiency, and the law of succession. Judicial consensus is firm on the bank’s obligation to honour a valid nomination and its consequent statutory discharge. However, the deeper question—does the nominee become the owner or merely a trustee?—remains contested. Until authoritative pronouncement by the Supreme Court or legislative clarification, the dualism will persist, inviting forum-shopping and inconsistent outcomes. Harmonising the provision with general succession principles while preserving its operational utility is the way forward for India’s maturing financial-legal architecture.

Footnotes

  1. See Joseph Kuruvilla Vellukunnel v. RBI, AIR 1962 SC 1371; Canara Bank v. M.S. Jasra, (1992) 2 SCC 29.
  2. Section 56(za)(i), BR Act; Reserve Bank of India v. Pattem Surya Prakash Rao, 2007 (6) ALT 53.
  3. Indian Bank v. V.A. Balasubramania Gurukal, 1982 MLJ 47 (Mad HC).
  4. For the RBI’s wider depositor-protection mandate, see Dharani Sugars & Chemicals Ltd. v. Union of India, (2019) 5 SCC 480.
  5. Kamla Devi v. Bhadsali Khas Co-operative, 2021 DCDRC (Rajasthan).
  6. Gurmeet Singh v. Manager, SBI, 2022 DCDRC (Punjab).
  7. K. Gangadar Reddy v. Gooty Co-operative Town Bank, (2014) 2 ALT 66.
  8. Saleem v. HDFC Bank Ltd., 2024 DCDRC (Tamil Nadu).
  9. Jayanand Jayant Salgaonkar v. Jayashree Salgaonkar, 2015 SCC OnLine Bom 4473, relying on Ram Chander Talwar v. Devender Kumar Talwar, (2010) 10 SCC 671.
  10. Vidyaa Hari Iyer v. Sundaram Finance Ltd., 2020 SCC OnLine Mad 5625.
  11. Colour Merchants Co-op Bank Ltd. v. RBI, 2024 SCC OnLine Guj 237.
  12. Dharani Sugars & Chemicals Ltd. v. Union of India, (2019) 5 SCC 480.