Summary of this article
Supreme Court questions lack of access to unclaimed accounts
Heirs struggle due to missing account information, awareness gaps
Government cites privacy, fraud risks in sharing account details
The Supreme Court on March 18 questioned the Union government and the Reserve Bank of India (RBI) why the information of unclaimed bank accounts of deceased individuals cannot be shared with their legal heirs.
A bench comprising Justice Vikram Nath and Justice Sandeep Mehta was hearing a public interest litigation (PIL) filed in 2022 by Sucheta Dalal, managing editor of Moneylife. The plea raises concerns about the increasing number of unclaimed deposits and investments which remain inaccessible for lack of information.
Court Flags Gap Access For Heirs
Appearing for the petitioner, Prashant Bhushan maintained that legal heirs are usually not aware of the number of accounts or investments held by the deceased. This lack of awareness makes it difficult to take claim to funds even when heirs are legally entitled to them.
The petition sought directions to make such information available in a centralised system for legal heirs to identify and claim such funds without the need of incomplete records or third parties.
The Bench examined whether the lack of such a system created a structural barrier. Justice Mehta raised a hypothetical scenario in which a person maintains a number of accounts, which could be located in different jurisdictions, and dies without having left any clear documentation. In these instances, heirs may not have any option of tracing these assets.
Concerns About Fraud And Abuse
The court also recognised the dangers in broader disclosure of financial information. Justice Mehta said that making account details publicly available could expose the system to fraud, with people pretending to be legal heirs to withdraw funds.
The Union government also shared these fears. Additional Solicitor General N Venkataraman said that issues, such as data privacy and the possibility of misuse are something that needs to be taken into account before bringing in any mechanism for disclosure.
Existing Framework For Unclaimed Funds
The government told the Supreme Court that unclaimed deposits are put to the Depositor Education and Awareness Fund (DEAF) after remaining inactive for 10 years. This fund is used for financial literacy and awareness efforts.
It added that the petitioner has not contested this transfer process. The government also said that if a legitimate heir comes forward with a valid claim, the amount is to be refunded from the fund.
Representing RBI, senior advocate Ranjith Kumar said that systems like central know-your-customer (KYC) are already in place to help in identification. He added that banks hold these funds in trust and have to carefully check the claims before releasing money, even in support of indemnity bonds.
What The Petition Seeks
The petition has urged setting up a centralised online database that would include information on inoperative or dormant accounts of deceased people. It has also suggested basic information, such as the accountholder's name, address and the date of the last transaction to be made available.
Directions have been sought from several authorities, including the Ministry of Finance, RBI, Ministry of Corporate Affairs, and the Securities and Exchange Board of India (Sebi), to ensure that unclaimed funds transferred to government managed pools can be traced by legal heirs.
These include transfer of funds to DEAF, the Investor Education and Protection Fund (IEPF), and the Senior Citizens' Welfare Fund (SCWF).
Why Funds Remain Unclaimed
One of the main reasons for unclaimed funds is the lack of awareness on the part of legal heirs. Many families are not notified about all financial accounts, deposits or investments held by the deceased.
Another problem is that there is a lack of effort from financial institutions to trace or notify heirs about dormant accounts. As a result, the funds remain unclaimed and are eventually transferred to designated funds.
The petition also highlights accessibility problems with existing platforms. For instance, although IEPF publishes the names of those individuals whose funds have been transferred, there are often technical problems that users face in accessing the information.
In several cases, this leads to the involvement of intermediaries who assist in recovering funds, adding to the cost and complexity for claimants.
Scale Of The Issue
The amount of unclaimed funds has increased greatly over time. Submissions in front of the court have revealed that the overall value of such funds is more than Rs 1.5 lakh crore, in different categories. For instance, in case of IEPF, the amount went from Rs 400 crore in 1999 to Rs 4,100 crore by March 2020, as cited in the petition.
Court Seeks Response
During the hearing, the court noted that the issue may not be restricted to policy considerations alone. It raised the question of whether the access to information to legal heirs might be a matter of access rather than policy.
The Union government has argued that the issue comes under the domain of policy, in view of the implications with regard to privacy and security. The apex court, however, indicated that the concern relates to allowing the rightful access without changing the existing framework of fund transfers.
The Bench has asked the Union government and RBI to file their response within four weeks. The matter is on to be heard next on May 5.
