Why Banks Ask for an Indemnity Bond When Releasing Money of a Deceased Depositor to Nominees

When a depositor passes away, families often expect the bank to hand over the balance quickly and without fuss. Instead, they are frequently met with a request for an indemnity bond, affidavits, or other paperwork. A common question that arises is: whether a bank can ask for an indemnity bond in case of releasing a deceased account holder's money? The short answer, supported by judicial precedent and standard banking practice, is generally yes — and understanding why helps both banks and claimants navigate the process smoothly.

The Core Answer: Yes, Banks May Insist on an Indemnity Bond

A bank may require an indemnity bond when releasing the funds of a deceased account holder to a nominee or legal heir. Even where a valid nomination exists, the bank remains obliged to act with care and caution in verifying the claimant's identity and the fact of death through appropriate documentary evidence. The indemnity bond serves as a protective shield for the bank against future claims from other legal heirs who may surface later.

Consumer fora have consistently endorsed this position. In one matter involving the release of a modest savings balance to the surviving heirs, the appellate commission held that where the bank insisted on a joint declaration between the heirs or an indemnity bond in order to safeguard their interest, the bank could not be treated as guilty of deficiency in service

Manager, State Bank of Travancore VS J. Anirodhan

The Nominee Is Not the Owner

A crucial legal principle underpins this practice. Under the Banking Regulation Act, nomination does not convert the nominee into the owner of the funds. As the Supreme Court has clarified, Section 45-ZA(2) merely puts the nominee in the depositor's shoes after death and clothes him with the exclusive right to receive the money — But it by no stretch of imagination makes the nominee the owner of the money lying in the account 2024 0 Supreme(Cal) 318.

The nominee, in effect, receives the payment as a trustee of the legal heirs of the deceased depositor, and such payment does not extinguish any claim another person may have against the nominee 2024 0 Supreme(Cal) 318. Because the estate remains subject to the laws of succession, the bank faces a real risk of a rival claim — and the indemnity bond is the standard tool for managing that risk.

What the Indemnity Bond Actually Does

The purpose of the bond is protective, not obstructive. As one authority explains: The object of the bond is to secure the re-payment of the money if it has been wrongly paid. The object of it is not to prevent the payment, but to indemnify the Government in case any one else claims the money 1888 0 Supreme(Cal) 67.

In practical terms, the bond allows the bank to:

• Release funds promptly without insisting on a succession certificate or letters of administration in straightforward cases
• Recover the amount from the claimant if a superior heir or beneficiary later establishes a right to it
• Demonstrate that it followed due process in establishing the claimant's identity and the fact of death

When Courts Direct or Endorse Indemnity Bonds

Judicial practice across High Courts confirms that the indemnity bond is often the very mechanism courts use to balance prompt release with protection against rival claims.

• Pledged jewellery and locker contents: Where a deceased borrower's gold ornaments were pledged with the bank, courts held that a succession certificate or letters of administration was not required, observing that where the bank has no doubt that the claimants are the legal representatives of the deceased Hindu dying intestate, claimants should not be driven to litigation since the bank can protect itself by obtaining an indemnity bond 1988 0 Supreme(Ori) 123. Similar directions — release of pledged jewels upon execution of an indemnity bond after public notice to potential objectors — have been issued repeatedly 2026 Supreme(Online)(Mad) 35654 and 2026 Supreme(Online)(Mad) 26248 and 2026 Supreme(Online)(Mad) 18554.
• Deposits under a Will: In a case under the Indian Succession (Kerala Amendment) Act, 1996 concerning Section 213, the court held that banks were not justified in insisting on probate for a Will made by an Indian Christian, yet still directed the petitioner to execute an indemnity bond in favour of the bank, undertaking to indemnify it in case any person raised a rival claim to the deceased's deposits 2025 0 Supreme(Ker) 19

  Ambily Jose VS Sub Registrar Office of the Sub Registrar

  .
• Cash certificates and joint holdings: Courts have directed release of amounts standing in joint names subject to the petitioner executing an indemnity bond

  Niharendu Majumder vs Agartala Co-Operative Urban Bank Ltd and Anr

  , and in a joint FDR dispute, held that while the surviving joint holder was entitled to payment, the bank could at the most ask for an indemnity bond for the amount

  PATIALA CENTRAL COOPERATIVE BANK VS KULDEEP SINGH

  .

Bank guidelines themselves contemplate settlement of deceased claims against an indemnity bond with surety to the satisfaction of the sanctioning authority, with specimen formats prescribed for deposit and locker accounts 2012 0 Supreme(Pat) 596.

Limits on the Bank's Power

The requirement is not unlimited, and two qualifications are worth noting:

1. No bond without authority in disputed cheque matters: A consumer commission refused to uphold a bank's demand for an indemnity bond before payment of a disputed cheque amount where the bank failed to produce any RBI rule or regulation empowering it to take such a bond 2025 Supreme(Online)(SCDRC) 34817.
2. Cannot demand what law does not require: Where pledged ornaments were not securities or debts under the Indian Succession Act, 1925, a bank circular demanding a succession certificate was held not legally binding 1988 0 Supreme(Ori) 123.
3. Consequence of skipping the bond: Conversely, a bank that pays out without taking an indemnity bond or following the prescribed procedure does so at its own peril — it cannot take advantage of its own wrong when the payment is later questioned

   State Bank of India VS Allabux

   .

Courts have also occasionally dispensed with administration or surety bonds where a sole legatee under a proved Will would effectively be standing surety for himself, though an indemnity bond protecting the paying institution may still be directed.

Key Takeaways

• A bank generally can and typically does require an indemnity bond before releasing a deceased account holder's balance, whether the claimant is a nominee, legal heir, executor, or surviving joint holder

  Manager, State Bank of Travancore VS J. Anirodhan

  2025 0 Supreme(Ker) 19.
• The nominee receives funds in trust for the legal heirs and does not become their owner 2024 0 Supreme(Cal) 318.
• The bond exists to indemnify the bank against rival claims, not to delay or defeat legitimate payments 1888 0 Supreme(Cal) 67.
• Banks cannot use bond demands to impose extra-statutory requirements such as probate where the law no longer requires it, or a succession certificate where the asset does not qualify as a debt

  Ambily Jose VS Sub Registrar Office of the Sub Registrar

  1988 0 Supreme(Ori) 123.
• Claimants asked for an indemnity bond should generally treat it as a normal, lawful step in the settlement process, ideally with a public notice or surety where heirs are multiple or untraceable 2026 Supreme(Online)(Mad) 35654 and 2012 0 Supreme(Pat) 596.

The information above reflects general principles drawn from judicial decisions and is intended as general information, not specific legal advice for any individual claim.