Protecting the Depositor

(b) in the next place, to every other depositor of the banking company a sum of two hundred and fifty rupees or the balance at his credit, whichever is less, in priority to all other debts from out of the remaining assets available for payment to general creditors.

The proviso caps the total. Where one person, in his own name and not jointly, is a depositor both in the savings bank account and in any other account, the sum total paid to him under clauses (a) and (b) shall not exceed two hundred and fifty rupees.

Section 43A(3) provides that if full payment cannot be made within the three months out of assets in cash, the liquidator shall pay pro rata so far as he can and pay the rest as assets are collected. Section 43A(4) then applies the remaining assets to the general body.

Two hundred and fifty rupees. The figure was fixed by the Banking Companies (Second Amendment) Act, 1960, which the section names, and it has never been revised. It is on the statute book today, and it is the single most striking fact in this subject.

What the two hundred and fifty rupees actually teaches

The lazy conclusion is that Parliament was careless. That is not the right answer, and an examiner will reward the right one.

The correct inference is that depositor protection was deliberately moved out of the Act and into insurance. In 1961, one year after the figure was fixed, Parliament enacted the Deposit Insurance Corporation Act, 1961, establishing the corporation now called the Deposit Insurance and Credit Guarantee Corporation. From that point the instrument of depositor protection was a guaranteed payment funded by premiums, not a priority in a liquidation that might have no assets.

And the insurance figure has been revised, repeatedly. The cover stood at one lakh rupees for many years and was raised to five lakh rupees with effect from 4 February 2020. Chapter 200 works the corporation and the cover.

More important still, the payment was made quick. The DICGC (Amendment) Act, 2021, in force from 1 September 2021, inserted section 18A into that Act, requiring interim payment to depositors of a bank under all-inclusive directions within ninety days. That is the answer to the real problem, which was never the amount of the preference but the years a depositor waited.

So the argument to make in an answer is this. A statutory preference in a liquidation is worth only what the estate holds, arrives only when the liquidator can pay, and is by nature uncertain. Insurance is certain, funded in advance, and now time-bound. Section 43A was not updated because it was superseded, and the fossil figure on the statute book is the evidence of that shift. What remains fairly criticised is that Parliament left a dead figure standing rather than repealing or updating it, which misleads every reader who meets it for the first time.

Section 26A: the unclaimed deposits fund

Section 26A(1). The Reserve Bank shall establish a Fund to be called the Depositor Education and Awareness Fund.

Section 26A(2). There shall be credited to the Fund the amount to the credit of any account in India with a banking company which has not been operated upon for a period of ten years, or any deposit or amount remaining unclaimed for more than ten years, within three months from the expiry of that ten-year period.

Section 26A(3) preserves the depositor's right, and this is the part students get wrong. Where a depositor or claimant later comes forward, the banking company shall be liable to repay him, together with interest as specified, and is then entitled to claim refund of that amount from the Fund. The money is not forfeited. Transfer to the Fund extinguishes nothing; it moves dormant balances out of the banking system while preserving the claim for ever.

Section 26A(4) and (5) provide that the Fund shall be utilised for the promotion of depositors' interests and such other purposes as may be specified by the Reserve Bank, and that a committee shall administer it.

Section 26 is the return that feeds this section, and chapter 90 owns it: the annual return, within thirty days of the year's end, of accounts not operated for ten years.

Sections 45ZA to 45ZF: nomination

Nomination solves a problem the general law handles badly. When a depositor dies, the bank faces competing claimants and cannot safely pay anyone without a succession certificate, so the family waits months for money they need immediately.

Section 45ZA: nomination for payment of depositors' money. Where a deposit is held by a banking company to the credit of one or more persons, the depositor or all the depositors together may nominate one person to whom, in the event of the death of the sole depositor or of all the depositors, the amount of the deposit may be returned by the banking company.

Section 45ZB: notice of claims of other persons. Where a nomination is made, the banking company shall not be required to take notice of any claim by any other person to the deposit, and payment by the bank to the nominee is a full discharge of its liability.

Section 45ZC and 45ZD do the same for articles kept in safe custody: nomination for the return of articles, and the bank's protection against notice of other claims.

Section 45ZE and 45ZF do the same for safety lockers: nomination for the release of the contents of a locker on the death of the sole hirer or of all the hirers, and the corresponding protection.

The nominee is a receiver, not an owner, and this is the classic examination trap. Payment to the nominee discharges the bank, but the nominee takes the money subject to the rights of those entitled under the law of succession. Nomination does not make him the heir and does not override a will. It settles who the bank pays, not who is entitled to keep it.

What the 2025 amendment changed here

The Banking Laws (Amendment) Act, 2025, Act 16 of 2025, which received assent on 15 April 2025, rewrote the nomination provisions, and the nomination changes were brought into force on 1 November 2025. Read from the Act's own text:

Up to four nominees. Section 45ZA was amended so that nomination may be made in favour of one or more persons not exceeding four, and the Act distinguishes successive nomination from simultaneous nomination. Section 11 of the amending Act made the same change to section 45ZC for articles in safe custody, and section 12 substituted section 45ZE(1) so that locker hirers may nominate one or more persons not exceeding four, successively.

Simultaneous nomination must state the shares. For a simultaneous nomination the amending Act requires that the nomination shall not be made in favour of more than the permitted number, that it shall explicitly state the proportion of the amount of deposit in percentage in favour of each nominee, and that it shall be made in respect of the whole of the deposit; a nomination not complying is invalid, as if no nomination had been made.

A new section 45ZG: priority of successive nominations. Section 13 of the amending Act inserted section 45ZG, which provides that where nomination is made successively in favour of more than one person under section 45ZA(1), 45ZC(1) or 45ZE(1), the nomination is effective only in favour of one person in the order of priority: the first nominee if he survives the person who made the nomination; the second only after the death of the first; and any nominee lower in the order only after the death of all those above him. Where the order is not mentioned, persons are deemed nominated in the order in which their names appear. Section 45ZG does not apply to simultaneous nominations under section 45ZA(1).

Why the change was needed. A single nominee died before the depositor in a very large number of cases, and the nomination then failed entirely, throwing the family back on succession law. Four nominees, successively or simultaneously, is the answer, and chapter 660 works the whole of the 2025 Act.

A worked example

Anil Barve keeps a savings account with a balance of ninety thousand rupees and a fixed deposit of four lakh rupees with Krishna Urban Bank. The bank is wound up.

Under section 43A he receives, in the first place, two hundred and fifty rupees on the savings account, and in the next place he would receive two hundred and fifty rupees as a depositor in another account, except that the proviso caps his total at two hundred and fifty rupees because he is the same person in his own name in both. That is his entire statutory preference on a balance of four lakh ninety thousand.

Under deposit insurance he is in a different position altogether. His deposits with that bank are insured up to five lakh rupees, so his whole balance is covered, and under section 18A of the DICGC Act, 1961 he is entitled to interim payment within ninety days of the bank being put under all-inclusive directions. Chapter 200 works it.

Now suppose Anil had died before the bank failed, having nominated his son. Payment to the son would have discharged the bank under section 45ZB, but the son would hold the money subject to the rights of Anil's heirs under succession law, and if Anil left a will giving the deposit to his daughter, she is entitled to it as against her brother.

And suppose Anil had nominated his son and, after him, his daughter, under the 2025 amendment. That is a successive nomination, and by the new section 45ZG the daughter's nomination becomes effective only on the son's death, the son's being effective if he survives Anil.

Preference against insurance

What it does NOT mean

Section 43A does not give the depositor priority over secured creditors. It operates on the assets available for payment to general creditors, and after the preferential payments the Companies Act requires.

The Depositor Education and Awareness Fund does not confiscate dormant money. Section 26A(3) preserves the depositor's right to be repaid by the bank with interest, the bank recovering from the Fund.

A nominee is not an heir. He receives, and the bank is discharged; entitlement is decided by succession law.

And the two hundred and fifty rupees is not a misprint. It is the live text of the statute, which is exactly why it is worth quoting.

Quick revision

Section 43A: after Companies Act preferential payments, within three months of the winding-up order, two hundred and fifty rupees or the balance, whichever is less, first to savings account depositors and then to every other depositor, in priority to all other debts; capped at two hundred and fifty rupees in total for the same person; pro rata if cash is short. Fixed by the Banking Companies (Second Amendment) Act, 1960 and never revised.

The inference: protection moved to insurance. DICGC established under the 1961 Act; cover one lakh to five lakh with effect from 4 February 2020; section 18A, in force 1 September 2021, requires interim payment within ninety days.

Section 26A: the Depositor Education and Awareness Fund; balances unoperated for ten years credited within three months; the depositor's right to repayment with interest is preserved, the bank claiming refund from the Fund.

Sections 45ZA to 45ZF: nomination for deposits, articles in safe custody and lockers; payment to the nominee discharges the bank; the nominee takes subject to succession law.

Act 16 of 2025: up to four nominees, successive or simultaneous; a simultaneous nomination must state percentages and cover the whole deposit; new section 45ZG fixes the priority of successive nominees.

Test yourself

1. How much does section 43A give a depositor, and when was the figure fixed? Two hundred and fifty rupees or the balance at his credit, whichever is less, first on a savings bank account and then as any other depositor, capped at two hundred and fifty rupees in total for the same person. The figure was fixed by the Banking Companies (Second Amendment) Act, 1960 and has never been revised.

2. What is the right inference to draw from that figure not having been revised? That depositor protection was moved out of the Act and into insurance. The Deposit Insurance Corporation Act was passed in 1961, the cover now stands at five lakh rupees since 4 February 2020, and section 18A requires interim payment within ninety days, so the priority in a liquidation was superseded rather than forgotten.

3. What happens to an account not operated for ten years? Its balance is credited to the Depositor Education and Awareness Fund under section 26A within three months of the ten years expiring, but the depositor's right survives: the bank must repay him with interest and then claim refund from the Fund.

4. Does payment to a nominee decide who owns the money? No. It discharges the bank under section 45ZB, but the nominee holds subject to the rights of those entitled under succession law, so a will or the law of intestacy decides entitlement.

5. How many nominees may a depositor now appoint, and what governs their order? Up to four, under the Banking Laws (Amendment) Act, 2025, either successively or simultaneously. Where the nomination is successive, section 45ZG makes it effective in favour of one person at a time in the order of priority, the first nominee if he survives, and each later nominee only on the death of all above him.