What happens to money left in bank accounts after death? Supreme Court seeks answers from Centre, RBI

The Supreme Court on Tuesday called for fresh affidavits from the Central government and the Reserve Bank of India (RBI) on a plea seeking a centralised system to track and help families/ legal heirs claim the money lying in bank accounts, insurance, shares and other financial instruments of deceased relatives [Sucheta Dalal vs. Union of India].

A Bench of Justices Vikram Nath and Sandeep Mehta passed the order while hearing a plea filed by financial journalist Sucheta Dalal.

It asked the Central Government and the RBI to file updated counter affidavits to the plea within four weeks and posted the matter for further hearing on May 5.

During the hearing, advocate Prashant Bhushan, appearing for Dalal, said that large sums of money belonging to individuals remain unclaimed because their legal heirs have no way of finding where such funds are held.

He explained that these amounts are transferred into different government-controlled funds.

“There are three different government funds where unclaimed amounts are transferred. One is the Depositors Education and Awareness Fund, then the Investor Education and Protection Fund, and also the Senior Citizens Welfare Fund. Together these funds have more than ₹1 lakh crore,” Bhushan submitted.

He said the core issue is the absence of a unified system.

“The reason why so much funds of dead people remain unclaimed is because their heirs are not able to find out where the funds are lying. They don’t know how many bank accounts are held by their fathers etc who have passed away,” he told the Court.

Bhushan urged the Court to direct the creation of a centralised, searchable database that would allow families to trace such assets. He also suggested simplifying the process for claiming such funds without requiring lengthy probate proceedings.

"Instead of having to file a probate etc, it can be done by saying you produce will, give indemnity, advertise. This will facilitate the heirs of dead people to claim the funds," Bhushan submitted.

The Bench, however, raised concerns about misuse of such a system.

“Opening this type of data, giving access will give rise to another set of fraudsters who will start filing claims. Have you watched the movie Housefull 4?That will happen,” the Court remarked.

Additional Solicitor General N Venkataraman, appearing for the Central government, opposed the plea and said the issue involves policy choices.

“Let this policy choice go to the government,” he said, adding that the Centre would file an updated affidavit.

The counsel for the RBI submitted that existing safeguards such as KYC norms and nomination requirements already address the issue.

“Banks today insist on giving a nominee’s name. KYC is required to be done every one year. There’s a central KYC. It can be linked to Aadhaar also,” RBI’s counsel said.

He further argued that banks hold such funds in trust and cannot release money without proper legal verification.

“If I am not satisfied with the person who has come claiming the money, I will not give it on the basis of an indemnity bond,” he submitted.

The Court also expressed strong reservations about the suggestion to allow claims without formal legal processes.

Ultimately, noting that the Centre and RBI had not fully addressed these aspects on affidavit, the Court directed them to file fresh responses within four weeks.

As the hearing drew to a close, Bhushan pointed out that authorities had earlier indicated that a centralised database would be created by July 2023 but no such system has been put in place so far.

“Let fresh affidavits come, then we will take a call,” the Court responded.

The case is expected to be heard next on May 5.

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