Joined at the hip

CAVEAT EMPTOR

WHILE DEPOSITING money in a fixed deposit account with a bank or a joint stock company, the application form invariably demands a statement about the mode of refund of the deposited amount.

If the account is opened in joint names, the depositors must indicate whether the amount is to be returned on maturity to "either or survivor" or "anyone of the depositors" or "to all of them jointly". The bank or the borrowing company must follow these instructions scrupulously.

An important question which came up recently for adjudication before the Supreme Court of India was: can a fixed deposit account opened with a bank with instructions containing the "either or survivor" clause be pledged by one of the account holders without the authority, knowledge or concurrence of the other joint account holder?

Anumati and her husband Mam Chand opened a fixed deposit account with Punjab National Bank by depositing Rs 20,000 on May 31, 1988 for a period of 84 months. The fixed deposit was to mature on May 31, 1995 and the amount payable on maturity was Rs 39,930.

According to the depositors, half the amount belonged to Anumati and the other half to Mam Chand. On June 24, 1988, Mam Chand is stated to have pledged the aforesaid fixed deposit in favour of the Punjab National Bank against the guarantee given by him alongwith another person for a loan amount borrowed by a firm, namely M/s Verma Agro Industries.

The said firm having failed to discharge its loan obligations, the bank set off the amount of the fixed deposit account towards the outstanding borrowings of Verma Agro Industries to which Mam Chand had stood guarantee.

Anumati called upon the Punjab National Bank to refund the fixed deposit amount to her as half the amount belonged to her, saying that her husband had no authority to pledge the fixed deposit amount without her concurrence.

The bank did not agree with this demand, which led to Anumati filing a complaint before the District Consumer Disputes Redressal Forum.

It was contended by the Punjab National Bank that as the fixed deposit receipt had specified that it was payable to "either or survivor" one of the depositors "" Mam Chand "" could validly mortgage the said fixed deposit receipt.

The district forum, however, came to the conclusion that the complainant Anumati was entitled to receive half the amount of the fixed deposit receipt, i.e. Rs 19,965 together with interest at

17 per cent per annum. She was also allowed compensation of Rs 3,000 for mental agony and the litigation cost of Rs 1,000.

The bank filed an appeal against the order of the district forum before the State Commission, which reversed the previous order, holding that any one of the two depositors could validly mortgage the deposit.

The National Commission, before which a revision petition was filed, concurred with the view of the State Commission. The matter reached the Supreme Court in appeal filed by the complainant.

By its judgement dated October 25, 2004 in Anumati vs Punjab National Bank the Supreme Court held that the State Commission and the National Commission were wrong in holding that one of the two depositors could pledge or mortgage the fixed deposit amount without the concurrence of the other joint holder.

The court observed that "in the present case the contract in respect of the joint account was between the respondent bank and the husband and wife. The fixed deposit was not a debt due by the bank to Mam Chand alone which could be set off by the bank against any claim that the bank may have had against Mam Chand.

Besides, the right of Mam Chand was to receive the money deposited only after it matured, if he survived. Supposing Mam Chand had died before the fixed deposit matured, the only person entitled to get the money would be the appellant. This right of the appellant could not be taken away without her consent."

In light of the above verdict, banks and joint stock companies accepting fixed deposits from joint depositors cannot act on the instructions of one of the depositors without the concurrence and consent in writing of the other.