Opening and operating bank accounts of mentally ill, lunatic and insolvent persons

Dealing with accounts of mentally ill or lunatic or insolvent persons remains a delicate job for bankers. Whenever bankers learn that one of their customers is incapable of operating the account due to mental incapacity the operation of such a customer’s account shall be immediately suspended. While dealing with such accounts, bankers need be to extra careful.  Any act of stopping the operation by the bankers on wrong information received by them may put them embarrassment and difficulty.

The parliament of India created The National Trust for the welfare of persons with autism, cerebral palsy, mental retardation, and multiple disabilities Act in 1999. The provision of this legislation was to provide for the appointment of legal guardians for persons with autism, cerebral palsy, mental retardation, and multiple disabilities by the local-level committee set up under the act.

A parent of a person with a disability or any relative can make an application to the Local Level Committee for the appointment of any person of his choice to act as a guardian of the person with such a disability. Any registered organisation may also make an application to the Local Level Committee (LLC) for the appointment of a guardian in this regard. (LLC is a district-level committee to provide guardianship for persons with autism, cerebral palsy, mental retardation, and multiple disabilities). A legal guardian so appointed can open and operate the bank account as long as he remains a legal guardian.

Appointment of guardian of mentally ill person:

The Mental Health Act, of 1987 provides for a law relating to the treatment and care of mentally ill persons and to make better provisions with respect to their property and affairs. According to the said Act, “mentally ill person” means a person who is in need of treatment by reason of any mental disorder other than mental retardation. Sections 53 and 54 of this Act provide for the appointment of guardians for mentally ill persons and in certain cases, managers in respect of their property. The prescribed appointing authorities are the district courts and collectors of districts under the Mental Health Act, of 1987.

Under clause j of section 2  the above act defines a person with a disability to mean a person suffering from any of the conditions related to autism, cerebral palsy, mental retardation, or a combination of any two or more of such conditions including a person suffering from severe multiple disabilities,

 Section 3.5 of the Mental Health Care Act 2017 states “The determination of a person’s mental illness shall alone not imply or be taken to mean that the person is of unsound mind unless he has been declared as such by a competent court.”

Appointment of guardian of mentally ill person:

(1) Where the mentally ill person is incapable of taking care of himself, the District Court or, where a direction has been issued under sub-section (2) of section 54, the Collector of the District, may appoint any suitable person to be his guardian.

(2) In the discharge of his functions under sub-section (1), the Collector shall be subject to the supervision and control of the State Government or of any authority appointed by it on that behalf.

For the purpose of opening/operating bank accounts, in case of doubt, care may be taken to obtain Proper legal advice.

Accounts of lunatic persons
Lunatics are persons of unsound mind.  A contract with the insane person is void ab-initio. Banks in such cases relied upon the ‘Guardianship Certificate’ issued either by the District Court under Mental Health Act 1987 or by the Local Level Committees set up under “Mental Retardation and Multiple Disabilities Act 1999”.

Though the persons of unsound mind are disqualified from contracting, the disqualification does not apply to contracts already entered into by lunatics, during the period of their sanity or contracts which are ratified by them during such period.  The banks upon receipt of a notice that a customer of their bank has been declared incapable stop the operation immediately in the customer’s account.

The remedy for Customers in a comatose or in a vegetative state:

In the case of an account holder in a comatose or in a vegetative state, for example, the account holder is suffering from a brain tumor. In such cases, the customer is incapable of operating the account because the most common symptoms of a brain tumor include changes in personality, vision problems, memory loss, mood swings, etc. The above condition is not a legal disability for which a guardian/next friend can be appointed. So the remedy is to approach the High court U/A226 of the Constitution by the wife for appointing her as his representative to do the needful on his behalf before the bank or other authority.

Whenever banks learn that the customer is suffering from mental incapacity and no declaration is received by them on his mental health, the Bank Manager will make a proper inquiry and then suspend the operation in the account till the customer is recovered from his illness.

Bankers as a matter of abundant precaution will write a letter to the hospital where he is admitted or to his attending doctor if he is at home. The operation in the account will be allowed or stopped only on the basis of a doctor’s certificate or court order.

If a Power of Attorney is operating the account, the authority to operate the account should be stopped when the customer himself becomes mentally incapable to operate the account.  The same rule applies to the operation of accounts with joint names, when one of them becomes mentally incapable, the operation of the account will be stopped.

For the purpose of opening/operating bank accounts, in case of doubt, care may be taken to obtain Proper legal advice.

For dealing with the account of an insolvent person, read ‘How to deal with accounts of insolvent persons?‘

Originally posted on July 19, 2014, edited and reposted on March 14, 2023

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