The clause of confusion in Senior Citizens’ Savings Scheme

Anguished by the draconian clauses of the Senior Citizens’ Savings Scheme, advocate LK Chaubal urges NGOs to file a PIL against the finance ministry

The Central Government introduced an investment scheme for seniors, effective August 2, 2004, and formulated rules called Senior Citizens Savings Scheme Rules 2004. According to the scheme, any person aged 60 years or above can open an account in any post office or bank authorised by the Central Government, and receive subscriptions under the Public Provident Fund Scheme.

A depositor may operate an account subject to the rule that the total deposit in all accounts does not exceed Rs15 lakh. The deposit matures in five years from the date of deposit and provides interest at 9 per cent per annum, payable quarterly. A depositor may open the account in his/her individual capacity or jointly with his/her spouse.

The scheme also has provisions for a retired person, 55-60 years of age, to open an account. The depositor can, at any time but before the maturity of deposit, nominate a person or persons, to receive the entitled payment due on the account. Nomination facility is also available in the case of a joint account with the spouse.

Issues: In case of nominations, the spouse will be the first person entitled to receive the amount payable after the death of depositor. The nominee’s claim shall arise only after the death of both — the depositor and spouse.

The nomination form provides multiple nominations with shares, creating the false impression that the depositor is disinheriting his legal heirs. It also seems that the depositor is giving the bank a mandate to give the amount to a third person after his death.

The legal aspects of nomination are ambiguous. In law, the nomination is not a gift or a will. The nominee receives the amount as a trustee and he has to distribute the amount amongst the heirs of the deceased. This legal position has been established in several judgments.

A depositor, therefore, should be well aware that he cannot disinherit his legal heirs by nomination. The legal heirs may challenge the nomination in court. If the depositor wants to disinherit his legal heir, he has to do so by a will duly executed.

The main purpose of nomination is to safeguard the interest of the bank. The nominee can give a valid discharge to the bank — and once the bank makes payment to the nominee — it is exonerated from all its liabilities. 

Multiple nominations with shares create other problems. If the depositor nominates two persons jointly to receive the amount and if one of the nominees predecease — and the depositor also dies without making any changes in the nomination — how then does the bank deal with the deposit? Will the bank pay the surviving nominees their shares and treat the deceased nominee’s share as assets of the depositor’s legal heirs? The rules are silent on this point.

Recommendations: The LIC model can be followed. LIC policies enable policy holders to avail nominations — by asking the policyholder to name the first, second and third nominee, respectively. The claim of second nominee arises only in the absence of first nominee — and the third nominee can claim only when both first and second nominees are absent.

Two nominees jointly cannot make a claim. The provision for multiple nominations — with shares of the nominees — as per the Senior Citizens’ Savings Scheme Rules, is faulty.

If the nominee predeceases the depositor and the depositor also dies without changing the nomination, the share allotted to the deceased nominee would be treated as if the deceased has not nominated any person to receive that share. And, therefore, that share will devolve on the legal heir(s) of the deceased person, says Rajesh Kothari, CA.

Voices: This is not only harassment but also a breach of trust.-Subhash Shah

We feel cheated. TDS on retrospective basis, since 2004, is too much harassment to the seniors. -Dilip Dani