INDIAN INSTITUTE OF BANKING & FINANCE

JAIIB

MODULE (A & B)

LEGAL ASPECTS OF BANKING OPERATIONS

Thursday 17 APRIL 08

T M C VASUDEVAN

01..Identify which one is treated as the secondary business of a banka.. Accepting Depositb.. Lending Moneyc.. Issuing Demand Draftd.. Making Investments

02..Banking is defined in the Banking Regulation Act.

• Primary function to accept deposit, lend and invest.

• Secondary functions include opening of Letters of credit , Issuing Bank guarantees, Demand Drafts

• Mail Transfers, Telegraphic Transfers, Collection of instruments

• Executor Trustee services, Dealing in Forex related transactions

03..G has approached the drawee bank to handover the original cheque issued by him and since paid to the debit of his account.

A.. Bank to take permission of the Head Office

B.. Bank to refuse

C.. At the most they can provide a Xerox Copy only

D.. Bank to comply with the request.

04..Safe Deposit Locker facilities, accepting Safe custody articles and so on

• Now bankers offer other services like

• ATM, Debit, Credit and other plastic cards

• Accepting Electricity, Telephone bills , and extending services on behalf of the Service providers

05.. As per the provisions of the Banking Regulation Act, a banking company to file within 30days of the close of each financial year a return of unclaimed deposits.

A.. The above statement is not incorrect

B.. The above statement is incorrect.

C.. It is Reserve Bank of India Act

D.. Even the answer C is only partially correct

06..Latest provisions of KYC and other procedures to be adopted while making a person as their customer, the banker has to take due care .

• Any lapse on the part of the bank may cause the bank at a later stage.

• A banker should be able to justify beyond doubt that his customer has become his customer after following all the procedures, norms and he has acted as a prudent banker.

07..Reserve Bank of India Act,1934 was enacted to constitute the Reserve Bank of India

• a.. To regularize the issue of Bank notes• b.. To Regulate the issue of Bank notes• c.. For directing the banks when they err• d.. To Act as the banker of the Central

Government

08 ..Reserve Bank of India act was introduced in 1934 and since then amended from time to time to include the latest requirements.

• A provision was inserted by the Information Technology Act,2000 to enable RBI to make regulations for regulating payment systems of banks and financial institutions

09.. RBI’s whole capital is held by the Central Government.

.. The board has one Governor and not more than 4 Deputy Governors appointed by the Central Govt

.. RBI alone can issue and mange currency in India as per the provisions of RBI act.

10.. RBI as regulator of banking sector is mainly by virtue of the provisions of the Banking Regulation Act

• RBI inspects banks and exercise supervisory powers and may issue directions in public interest

• RBI also collects credit information and make available the same

• RBI also imposes penalties wherever applicable

11.. Reserve Bank of India has so far not issued currency notes of the denomination of

a.. Rs.2/-

b.. Rs.200/-

c.. Rs.5000/-

d.. Rs.10000/-

12..In case of winding up of the banking company, each depositor will have to make the claim within 20 days of the winding up order.A.. True

B.. False

C.. The claims of every depositor deemed to have been filed for the amount as shown in the books of the banking company standing to his credit..

D.. It is not within 20 days but within a period of 15 days.

• 13.. Other than the Governor, Deputy Governors of RBI, the other directors are

a.. Appointed

b.. Nominated

c.. Selected

d.. Elected

14..C has appointed M has the nominee for his safe deposit locker and for savings bank P. Both nominations got registered with the bank. Nomination form for locker not signed by C. Both facilities are joint and operation several.

a.. Operations in the locker will be affectedb.. Operations in the locker will not be affectedc.. On the death of C, P will be entitled to operate the lockerd.. The question of P does arise as he is part of the contract

15.. Making any false statement in any return, balance sheet or other documents or information given under the BR act (sec46) punishable.

A.. The above is incorrect

B.. The above is not incorrect.

C.. Punishment is not for any as stated above.

D.. Punishment is applicable only when there is willfully any false statement and so on.

16.. A is the nominee of the Safe deposit articles, deposited by R with bank L. In the event of death of R

a.. The legal heirs of A will receive the safe deposit articlesb.. A will not be entitled to receive the samec.. According to the Will the same will be given to the person

mentioned therein otherwise to legal heirs of R.d.. L will have to hand over to A after completing the related

formalities.

17.. A & B has kept a joint Reinvestment plan deposit with bank J. U was nominated. Both the depositors unfortunately died along with U nominee while traveling in a car due to accident.

a.. Money will be retained by the bank.

b.. Legal heirs of A, B & C would get.

c.. Legal heirs of C alone would get

d.. All the above are wrong.

18.. The co-operative banks are under the regulatory purview of the Reserve Bank of India. This is due to the amendment to

• a . Reserve Bank of India Act

• b . Cooperative Act

• C . Banking Regulation Act

• d . Both a & b

19..The State Bank of Hyderabad has been established as per the provisions of

A.. Hyderabad State Bank Act

B.. State Bank of Hyderabad Act

C.. State Bank Of India Act

D.. Reserve Bank of India Act

20..The State Bank of Saurashtra was constituted under the

a.. State Bank of India (Amalgamation) Ordinance,1955b.. State Bank of Saurashtra Act,1955c.. Saurashtra State Bank Act,1950d.. Saurashtra State Banks(Amalgamation)

Ordinance, 1950

21.. For State Bank Of India Audit who can be eligible to conduct Audit.

A.. Director of the Bank

B.. Not a member of Local Board

C.. Member of a Local Committee

D.. An Office of the State Bank of India

22..For conducting audit of the State Bank of India, the appointment of auditors done

A.. By Reserve Bank of India independently

b.. By RBI after taking into confidence SBI

c.. By Central Government

d.. By RBI in consultation with Central Government

23..State Bank of Mysore was established as per the provisions of

A.. State Bank of Mysore Act

B.. State Bank of India Act

C.. Reserve Bank of India Act

D.. State Bank of India (Subsidiary Banks) Act

24.. RBI’s refusal of licence will make the company ineligible to undertake banking business, but still the company can carry on other business like money lending

. . RBI can stipulate a higher requirements of capital for the purpose of licensing a banking company, the RBI has to be satisfied that the company has adequate capital structure and earning prospects

25..The Commercial Banks were Nationalised as per ..The Bank Nationalistion Act (Banking Companies

(Acquisition and Transfer of Undertakings)Act,1970.. The Banking Companies (Acquisition and Transfer

of Undertakings) Act,1980... The First nationalisation took place in 1969 and the

Second in 1980... In the first nationalisation 14 Scheduled commercial

banks were nationalised followed by 6 in the next stage.

26.. Presently the number of Nationalised banks are

a.. 14

b.. 06

c.. 19

d.. 20

27.. In addition to the conditions applicable to domestic banks, for foreign banks RBI will look into

• a. Whether the carrying on of banking business by the company in India will be in public interest.

• b. Whether the government of the law of the country in which the company is incorporated discriminates in any way against banking companies

• C.. Whether the company complies with the provisions of the BR Act as applicable to foreign companies

28.. As per the BR act, a foreign bank (banking company incorporated outside India) operating in India has to deposit and keep deposited with RBI an amount of Rs.15 lacs (for such banks having places of business in Mumbai or Kolkata or both Rs.20 lacs)

.. In addition to above, 20% of profit to be remitted with RBI

29..The amount of deposit with RBI by foreign banks to be kept in

a.. Cash

b.. Unencumbered approved securities

c.. Partly in both

d.. Only in encumbered approved securities

30.... The State Bank of India is empowered under Section 47 to inspect the subsidiary banks.

A.. The above statement is not false.

B.. The above statement is incorrect

C.. Only RBI can inspect and not State Bank

D.. One subsidiary bank to inspect another and so on.

31..At least 51% of the total number of directors shall be persons who have special knowledge or practical experience in respect of accountancy, agriculture and rural economy, banking, co-operation and so on

..The directors of a banking company not to hold office for more than 8 years continuously

..The whole –time Chairman and a Managing Director shall hold office for a period not exceeding 5 years

32.. The Whole-time Chairman or the Managing Director of a banking company should have special knowledge or practical experience of the working of a banking company or State Bank of India or a subsidiary bank or a financial institution or financial, economical or business administration.

33.. As per the provisions of the Reserve Bank of India Act, the Whole time Chairman or the Managing Director of a banking company to hold qualification shares of minimum 50.

a. It is not 50 but 200b. They need not hold any qualification sharesc. They need to have minimum qualification shares of 10

as per the provisions of Banking Regulation act and not RBI act

d. They need to hold qualification shares but no restriction with regard to the numbers.

34.. Banks have to file a return on their unclaimed deposit within 30 days of the end of each calendar year.

.. All deposits not operated in 10 years

.. For term deposits, the period of 10 years starts from the expiry of the period of the deposit

35.. RBI issues directions from time to time regulating the lending operations of banking companies

..The tools employed for exercising Selective Credit Control are

..Minimum margins for lending against selected commodities

.. ceilings on the levels of credit and .. charging of minimum rate of interest on

advances against specified commodities

36.. RBI is authorized to regulate interest rates on loans and advances as well as deposits.

• The Usurious Loans Act. 1918 prohibits lending at exorbitant rates. The law has been made to protect the weaker borrowers from the powerful moneylenders

• ..RBI has issued guidelines in respect of internet banking. These cover a.. Technology and Security issues b.. Legal issue and c . Regulatory and supervisory issues

37..Banking Ombudsman is an authority established under the Banking Ombudsman Scheme, 1995 by the RBI. The purpose is to resolve and settle the complaints of banking public against the commercial banks and the scheduled primary cooperative banks without resorting to courts.

38.. ** Banking Ombudsman scheme applicable to all commercial banks, RRBs and schedules primary co-operative banks.

.. Disputes between two banks can also be taken up with the Banking Ombudsman

.. Even the Credit card related issues can be taken up with the Banking Ombudsman

..A banking ombudsman may act as an arbitrator

39.. identify the odd one (Banking ombudsman)a.. Observance of Reserve Bank directives on

interest ratesb. Non-acceptance of application for loans without

assigning valid reasons to the applicantc. Non-issuance of Demand Drafts to non-

customersd. Non-adherence to prescribed working hours by

branches

40.. Appropriation of any amount from the reserve fund or the share premium account has to be reported to RBI within 21 days of such appropriation.

.. Every scheduled bank has to submit a return to RBI showing the demand and time liabilities and borrowings from banks in India

41..A bank has to submit a Friday statement to RBI . The said Friday(15th of a particular month) has not been declared as holiday under the Negotiable Instruments Act, but the previous and subsequent working days were declared . Then the statement to be prepared as on

a.. 16th of that month b.. 14th of that month

c.. 15th of that month d.. 17th of that month

42.. Every banking company has to maintain in India certain amount of assets as per the provisions of BR act.

.. At the close of business on the last Friday of every quarter, such assets shall not be less than 75% of the demand and time liabilities of the banking company in India.

43..As per the provisions of the BR Act, a return regarding the liquid assets maintained in India to be submitted to RBI, within 14 days from the end of every quarter.

a.. Not 14 days b.. It is 20 days

c.. It is 15 days not 20 days

d.. Three months

• 44...A banking company need not submit copies of balance sheet and auditor’s report to the Registrar of Companies.

• a. True b.. Incorrect• C. The banking company has to submit to

Registrar of Companies as well.• D.. Since they are submitting to RBI there is no

need to submit to Registrar Companies separately

45.. Foreign banks (banking companies incorporated outside India) operating in India have to display in a conspicuous place in their principal office a copy of the last audited balance sheet and profit and loss account. This has to be done not later than

a.. The First of July of the year in which it carries on business

b.. The First Monday in Augustc.. The First Friday in Septemberd.. The Last Friday in November

• 46..It is not mandatory to give a copy of the report to the banking company.

a.. Inspection report b.. Scrutiny report

c.. Search report d.. All these reports

47.. To order amalgamation of two banking companies under the provisions of Companies Act rests with

a.. Reserve Bank of India

b.. Reserve Bank of India & Company Law Board

c.. Central Government with the consultation

of Reserve Bank of India

d.. Company Law Board

48.. State Bank of India was established under sec 3 of the State Bank of India Act,1955 to take over the undertaking of the then Imperial Bank and to carry on the business of banking and other business in accordance with that act.

.. The Central Government can give directions to SBI on matters of policy involving public interest in consultation with the Governor of RBI and the Chairman of the State Bank.

49..State Bank of India Chairman and Managing Director are appointed for a period of 7 years.

• A.. For Chairman it is 7 years, but for MD it is 5 years

• B.. For both it is not to exceed 5 years• C. For both it is not to exceed 6 years• D.. For Managing Director it is 7 years but for

Chairman it is only 5 years

50..The State Bank will act as an agent of RBI at the places where it has a branch and where RBI has no branch.

To handle government and other business as required by RBI.

.. The terms and conditions shall be as agreed between them.

51.. Regional Rural Banks have the holding pattern such as Central Government 50% , Sponsor Bank 35% and State Government 15%

• Two or more RRBs may be amalgamated by the Central Government by notification in the Official Gazette.

52..The issued capital of the Regional Rural Bank is held as 15 %:50%:35% by

A.. Regional Rural Bank : State Government : Sponsor Bank

B.. State Government : Central Bank (RBI): Sponsor Bank

C.. State Government : Reserve Bank of India : State Bank of India

D.. None of these

53.. Regional Rural Bank cannot

a.. Open deposit accounts

b.. Lend to Agriculturalists

c.. Extend Credit to small entrepreneurs

d.. None of the above

54.. Management of the affairs of a RRB is vested with the

a.. Board of Directors

b.. Sponsor Bank

c.. Reserve Bank of India

d.. Rural Credit Department

55..Which one is not appropriate (RRB)a.. The auditor’s report and report on the working of RRB has to be laid before the Parliament.b.. RRBs’ were first set up in 1975 under the Regional Rural Banks Ordinance,1975.c.. Reserve Bank of India is empowered to give directions to RRBs on matters of policy involving public interest.d.. The board consists of a Chairman appointed by the

Sponsor Bank.

56.. The directors of Nationalised banks are nominated by the Central Government or elected from shareholders.

.. Among others one Chartered Accountant with not less than 15 years of experience nominated in consultation with RBI.

.. Not more than 6 directors to be nominated by Central Government

57.. In respect of Nationalised Banks, the shares other than those held by the Central Government are freely transferable. No shareholder other than the Central Government can exercise voting rights in excess of 1 % of the total voting rights of all the shareholders.

58..Displaying of an audited balance sheet to be done not later than the first Monday in November of any where the banking business held.

A.. Applicable to all banks

B.. Only applicable to Foreign Banks

C.. Applicable to New Private Banks

D.. None of the above

59.. As per BR Act the return on Liquid Assets to be filed within

A.. 7 days from the end of the month to which it relates.B..15 days from the end of the month to which it relatesC.. 20 days from the end of the month to which it relatesD.. 30 days from the end of the month to which it relates

60.. Banking Ombudsman is

A.. Discontinued and a new company has been set up.

B.. Not applicable to delays in receipt of export proceeds

C.. Applicable to adherence to prescribed working hours by branches.

D.. All the above are not True.

61.. State Bank of India act was amended to divide capital into shares of Rs.10 each instead of Rs.100/-

• The Banking Companies (Acquisition and Transfer of Undertakings )Act amended to facilitate public holdings of shares.

• Authorized capital could be up to Rs.1500/- crore divided into shares of Rs.10/-each and also to increase or reduce the authorized capital between Rs.1500 crore and Rs.3000 crore

62..The minimum paid up capital and reserves to start banking business by a cooperative bank is not less than Rs.1.00 lac

.. A co-operative bank not to lend on its own shares/ unsecured loans or advances to its directors/ any company or associates wherein the director has interest

63..Restrictions not applicable for unsecured loans/ advances made by a co-operative bank against bills for supplies or services made to government or bills of exchange arising out of bona fide, commercial or trade transactions.

.. A co-operative bank to get permission of RBI to open a branch in a new place.

64..The process of merging one or more companies with another , or two or more existing companies merging into a new company.

A... Amalgamationb.. Mergerc.. Take Overd.. Consolidation

65..If an act or omission on the part of an accused constituting an offence continues from day to day a fresh offence is committed on every day on which the act or omission continues.

a.. Continuing offence

b.. Continues offence

c.. Perpetual succession

d.. None of the above

66..The primary objective of this is to finance its members and includes a co-operative land development bank.

a.. Co-operative Credit Society

b.. State Co-operative Bank

c.. Urban Co-operative Bank

d.. Co-operative Bank

67..An officer appointed to conduct court proceedings for winding up of companies and includes Reserve Bank of India or other persons appointed to conduct winding up of banking companies under the appropriate provisions of the Banking Regulation Act.

a.. Inspectorb.. Notary Publicc.. Pleaderd.. None of these

68..Corporate Governance is a dynamic concept involving promotion of corporate fairness, transparency and accountability in the interests of shareholders, employees, customers and other stake holders.

.. The concept has evolved since the first major study by Cadbury Committee in 1992.

69..The Basel Committee on Banking Supervision has issued guidelines (February 2006) for promoting the adoption of sound principles of corporate governance by banking institutions

.. Reserve Bank of India initiated several measures to strengthen the corporate governance in the Indian banking sector.

70..The concept of ‘fit and proper’ criteria for directors of banks which included the process of collecting information, exercising due diligence and constitution of Nomination Committee of the board to scrutinise the declarations made by the bank directors.

71..As per the recommendations of the Ganguly Committee on Corporate Governance, guidelines have been provided in respect of ‘Fit and Proper’ criteria for directors of banks by RBI circular.

. For public sector banks, the principles of corporate governance have been statutorily recognised as per Banking Companies (Acquisition and Transfer of Undertakings) Financial Institutions Laws (Amendment) Act,2006.

72..In any other company a director of a banking company not to have

a.. Any interest

b.. Beneficial interest

c.. Vested interest

d.. None of these

73..When the customer’s signature on the cheque is forged there is no mandate to the bank to pay. As such a banker is not entitled to debit the customer’s account on such forged cheque.

.. The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default.

74.. “Payment in due course” means payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which does not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned.

75.. A cheque has been received by the drawee bank in local clearing. At that time the account has clear balance to meet the cheque amount. However, it has been noted that the Words and Figures differ. The cheque contained Rs Eleven thousand one hundred and eleven in words but in figures read as Rs.1111/- Bank has to

a. Make the payment b. Dishonour the cheque c.. Make payment for only Rs.11111/- as per words d.. Act as a prudent banker

76..A cheque has been received in clearing on 27th of this month bearing the date as 27th of three months ago. The cheque to be returned on the grounds

a. Stale Cheque b.. Ante Dated Cheque c.. Not to be returned d.. Post Dated

77..A cheque has been received for collection. The Collecting banker has given his necessary certificates on the reverse of the cheque, which had more than two endorsements.

a. It is the responsibility of the collecting banker to verify the regularity of endorsements

b. It is not the responsibility of the paying banker to verify the regularity of endorsements

c.. The Collecting bank as well as the paying bank are responsible to verify the regularity of endorsements

d.. It is the duty of paying banker to verify the same to ensure payment in due course

78.. M has issued a cheque favouring V for Rs.6789/- The cheque has been otherwise in order and the account has enough balance.

A.. The Collecting Bank will refuse payment

B.. The Collecting Bank will receive payment

C.. The Drawer’s Bank will not make the payment

D.. The Drawee Bank will not make the payment.

79.. A cheque has been received by the drawer’s banker. On scrutiny it has been observed that the word bearer was altered into order by striking the bearer and writing over it as order. The drawer has signed only the cheque.

a.. The drawee bank need not make payment. b.. The paying banker will be in order to return the same with a reason Material alteration requires drawer’s authentication c.. The above is not a material alteration. d.. The responsibility lies with the collecting banker and not the paying banker.

80.. After paying a cheque ,it has come to t he notice of the bank that one of the endorsements has been forged.

A.. The paying bank is protected

B.. It is a payment in due course

C.. If endorsements are regular he gets protection

D.. All of these

81..Which cannot be transferred by way of an assignment

A.. The right on receivables

B.. The right over a Term deposit of the Bank

C.. The right over an Life Policy

D.. None

82.. A cheque has been paid bearing a visible alteration on the payee’s name. The bank

A.. Will get protection under Sec10 of NI Act 1881

B.. Will get protection under Sec89 of NI Act 1881

C..Will get protection under both these sections

D..Will not get protection under both these sections

83..As per Section 89 of NI Act,1881 a bank can seek protection only if there is a material alteration in the cheque and does not appear to have been altered.

A.. The above is correct

B.. The above is in correct

C.. The material alteration will not alter the position.

D.. The material alteration will to some extent alter the position.

84.. Bank W opened an account 18 months ago. The bank had obtained the signature of an existing account holder of another branch in the application form. They opened the account based on the same. When the banker collected a demand draft on which the payment was released and also parted the amount. After few days, the bank came to know that the said demand draft was so altered as to place of payment as well as amount.

A.. The Collecting bank will get protection.

B.. The Paying bank will get protection

C.. The Collecting bank will be held responsible

D.. Both banks are responsible

85..A Collecting banker should act in good faith.

He should collect cheques only for his customer

Cheques should have been crossed (Generally or specially)

Without negligence he should act.

86.. A banker may have both the roles of Collecting as well as Paying banker.

A Collecting banker has to collect only for his Customer whereas the Paying banker to ensure that the payment is a payment in due course.

A Collecting banker to ensure that he collects such cheques which bear the Crossing whereas the paying banker is concerned about the regularity of endorsements.

87.. For both Collecting banker as well as Paying banker will have to act in good faith and without negligence.

Collecting banker has to ensure that the payment is collected for the concerned customer. Whereas Paying banker to ensure that payment is not made to a wrong person.

88.. The banker to understand his customer properly / adequately and the collecting banker should not act in a haste or in a casual manner.

The proper identification and opening of account with due care assumes lot of importance.

A collecting banker cannot avoid his responsibility, even at a later date, when it is proved that the account opened was not properly opened.

89.. There is no bar as such to collect a third party cheque. However, an account payee crossed cheque, the collecting banker not to collect for a third party.

He has to make necessary enquiries before any third party cheques are collected on behalf of its customer and ensure that his customer has the right to get such payment.

90.. Bank E has collected an uncrossed cheque for his customer J. However, before collecting he has affixed his bank’s crossing seal (using the rubber stamp) .The banker

• a.. Will get protection• b.. Will not get protection• c.. Will get protection, since the act allows a

special crossing also• d.. Will not get protection, since the original

cheque was uncrossed

91..A collecting bank has collected a cheque, the crossing was in favor of another banker.

a.. The paying bank can make the payment since it has been collected by a bank.

b.. The drawee bank not to payc.. The Collecting bank is not in order in

collecting such a crossed chequed.. Both b & c

92.. Customer W of a bank has lost the Fixed Deposit receipt. To obtain a duplicate deposit receipt among other things, W executed an indemnity. W is known as

a.. Surety b.. Guarantor

c.. Indemnifier d.. Indemnified

93.. A contract of indemnity has two parties... Indemnifier and indemnified.. The indemnifier has to make good the loss

as soon as it occurs... There are only two parties to a contract of

indemnity and hence only one contract... An indemnity is for the reimbursement of

loss

94.. IN an indemnity the risk is contingent whereas in a guarantee the liability is subsisting.

a.. The above is correct

b.. The above is incorrect

c.. For indemnity the risk is subsisting and for

guarantee the liability is contingent.

d.. For both risk contingent and liability subsisting

95..The banker obtains indemnity to safeguard their interests . Indemnities obtained by them on account of

a.. Issue of duplicate demand draftb.. Issue of duplicate Term deposit receiptsc.. While settling the death claims in which

minors’ interest is involvedd.. In all the above cases

96..The party who is entitled to be compensated by the indemnifier for any loss caused the indemnity holder due to any act on the part of the indemnifier or a third party, also called the indemnified,

a.. Surety b.. Indemnity holder

c.. Guarantor d.. None of these

97..Issuing of Bank guarantees is one of the functions of a banker.

It is a Non fund based credit extended by the bank

The bank to secure the bank guarantee, in addition to necessary securities, will have to obtain a Counter guarantee or Counter indemnity to safe guard their interest

98..Bank guarantee is the commitment given by the issuing bank (Guarantor) to the beneficiary.

If the claim is made by the beneficiary within the guarantee period and as per the terms and conditions of the bank guarantee, then the bank should make the payment without fail and also without any delay.

99.. Courts will not interfere in the functions of a banker with regard to bank guarantees issued by them.

The Courts will not prevent the bank from making the claim amount on the bank guarantee.

The Courts will interfere only when there is a

mala fide intention or fraud or forgery takes place.

100.. A bank guarantee has been issued by Bank K on behalf of its customer L in favor of R. The guarantee amount being Rs.1.80 lacs. When the claim received by Bank K from R, the bank has a balance of Rs.3.22 lacs in the current account of L. Then the bank K

a.. Can debit L’s current account with the claim amount and make a demand draft in favour of R and send.

b. Before doing so Bank K to consult L and take his permission.

c. Bank K to discuss with Rd. Can not debit the current account of L but extend an

advance in favour of L and then make the payment

101.. Bank has issued a performance guarantee to their client U. Since U did not perform, the beneficiary O invoked the guarantee. Bank has to make the payment. At that time, the current account had minimum balance. The guarantee claim Rs.4.00lacs. Margin Fixed deposit Rs.2.00 lacs. Then

a.. Bank has to refuse payment b.. Bank to honor the guarantee commitment at any costc.. Bank to lend advance for Rs.2.00 lacs and close Fixed deposit and

make payment to beneficiary by way of Demand draft or Banker’s cheque.

d.. Ask the client U to remit Rs.2.00lacs and after receipt of the same they have to make payment to beneficiary. Accordingly O to be informed.

102.. An arbitrator under Banking Ombudsman

• a.. CMD of one of the Nationalised Banks

• b.. One of the Deputy Governors of RBI

• C.. Finance Ministry Representative

• D.. Banking Ombudsman himself

103.. A performance guarantee has been issued on behalf of its client. The guarantee has been invoked by the beneficiary. There is no sufficient balance in the account of the client.

A.. The Bank can postpone paying the guarantee amount.

B.. The Bank has to honour the claim

C.. Later on they can rely on Counter guarantee to recover

D.. Both B & C

104..On a Bank Guarantee, the court will not interfere, since it is a commitment by an individual banker to the beneficiary.

A.. TrueB.. FalseC.. Unless a fraud or forgery the court will

not interfereD.. None of the above

105.. Banks generally issue Performance guarantees. Advance payment , Deferred payment and Statutory

guarantees are also being issued by banks Before issuing a bank guarantee, the bank will go through

the draft copy and after satisfying with the contents they agree to issue.

Besides the documents for various types of securities, appropriate counter guarantee also to be obtained..

Even if the guarantee is backed by 100% margin, the counter guarantee/ counter indemnity has to be obtained on a stamp paper to avoid complications later on.

106.. **Amount of guarantee, period, protective clause, claim period , beneficiary are some of the important aspects which are to be clearly understood and put in place to avoid complications at a later date.

.. If claim has come from the beneficiary utmost importance to be given and due action to be taken.

107..A guarantee given by the customer favouring the bank in turn for the bank giving a guarantee on behalf of the customer to a third party. It is more or less a guarantee-cum-indemnity.

a.. Back to back guarantee

b.. Secondary guarantee

c.. Commitment of the client

d.. None of these

108..Reimbursing bank is appointed by

A.. Negotiating Bank

B.. Confirming Bank

C.. Paying Bank

D.. None of the above

109.. The Red Clause LC and Green Clause LC are one and the same.

• A.. True• B.. False• C.. Green Clause LC is the

refinement of Red Clause• D.. Both are ordinary LCs.

110..The Combined Transport Bill is known as

A.. Multiple Bill of exchange

B.. Multiple Bill of Lading

C.. Multiple Bill of Entry

D.. Multimodal Transport.

• 111..Uniform Customs and Practice for Documentary Credits – UCPDC 600 came into effect on 1 July 2007.

• A reduction in the number of articles from 49 of UCP 500 to 39.

• The replacement of the phrase ‘ reasonable time’ for acceptance or refusal of documents by a firm period of five banking days

• New provisions which allow for the discounting of deferred payment credits.

112.. A Letter of Credit is a commitment by the LC opening bank to the beneficiary (Exporter or Seller) to make payment.

.. Banks under a LC deal in documents

.. LC terms and conditions should not be vague .

113..A Negotiating banker (the bank in the beneficiary / Exporter’s country) negotiates the bills (makes payment on the bills drawn by the seller and accepts the documents). He is also known as Nominated or Paying banker.

.. A confirming banker has to undertake on its part the liabilities of the credit vis-à-vis the beneficiary or the Negotiating bank.

.. Reimbursing bank is appointed by the issuing bank to make reimbursement to the Negotiating, Paying or Confirming bank

114.. The bank in the Beneficiary / Exporters country through which the LC is advised to the beneficiary is called Advising bank. The other name for advising bank is

a.. Notifying bank b.. Nominated bank

c.. Paying bank d.. Notified bank

115..LCs could be Revocable / Irrevocable /Confirmed / With recourse or without recourse/ Transferable and Back – to Back Credits

.. The other types include Red clause and Green Clause LCs.

116..Red and Green Clause Letter of Credits

a.. Anticipatory Credits

b.. Ordinary Credits

c.. Back to Back Credits

d.. Anticipating Credits

117.. LC documents include Bill of exchange, Invoice, Transport documents (like Airway bill, Bill of Lading, LR,RR,) Post parcel receipts, Insurance documents, Packing list, Certificate of Origin, Quality certificate and so on

118.. As in the case of Bank guarantee, the payment under the LC – Banks obligation is primary.

.. Exceptional cases the Court would interfere with the machinery of irrevocable obligations assumed by the banks, such as, clear cases of fraud of which the banks have notice.

119.. **Bills are classified into inland, foreign, demand, Usance, Clean, Documentary.

.. Demand bills are always purchased whereas time bills are discounted.

.. Bills can also be accepted by banks on collection basis

120..One instrument need not be stamped. Identify

A.. Promissory Note

B.. Bill of Exchange

C.. Power of Attorney

D.. Cheque

121..The Sec 130 of the Transfer of Property Act, permits assignment of

A.. Negotiable InstrumentB.. Irrevocable Power of AttorneyC.. Actionable ClaimD.. All the above

122..xyz Private Ltd Company has availed Certain credit facilities including a supply bill limit of Rs. 7.00lacs. Then

A .. Charge need not be registered with ROC

B.. Since it is a clean advance no charge registration required

C.. Charge has to be registered with ROC

D.. None of the above

123..One of the following need not be accepted . Identify

A.. After sight Bill

B.. Time Bill

C.. Usance Bill

D.. At Sight Bill

124..Which is correct?

A.. Hypothecated goods will be under the possession of the Bank..

B.. Under pledge the property pledged will be with the pledgor.

C.. An Equitable Mortgage Private Sale allowed

D.. For Simple Mortgage stamp duty to be paid

125..Generally the banker as a Creditor will have the right and not the possession in respect of

A.. Mortgage and Pledge

B.. Hypothecation and Mortgage

C.. Pledge and Third Party Pledge

D.. Hypothecation and Pledge

126..In which type of mortgage possession is with the mortgagee.

A.. Simple Mortgage

B.. English Mortgage

C.. Equitable Mortgage

D.. None of these

127..A bank relying on the contents of their Pledge agreement, have sold the gold ornaments without intimating the owner.A.. The Bank is not in orderB.. The Bank should have given a reasonable

intimationC.. The Bank is perfectly in order otherwise

the agreement becomes meaninglessD.. In case of Hypothecation Notice required

and not for Pledge

128.. On the strength of the Fixed deposit of the wife L, the husband D, was given the loan. Under the circumstancesa.. D will execute the Pledge agreementb.. L will execute the Demand Promissory Notec.. L will execute the Pledge agreement and D the Demand Promissory Note.d.. Both of them would execute both the above documents.

129..Which statement is not incorrect?A.. Hypothecation can be converted into

Pledge

B.. Mortgage can be converted into Hypothecation

C.. Pledge can become Mortgage, if needed

D.. Assignment represents Negotiation

130.. A customer has tendered an outstation cheque to his banker who accepted on collection basis. After sending the cheque for collection (before realization) at the request of the customer the bank has purchased the same. Then the relationship between the banker and customer would be

a.. Agent – Principal b.. Creditor – Debtor

c.. Debtor – Creditor d.. Principal - Agent

131..One of the partners of UTVP & Co died in abroad. Then the operation in the account

A.. to be discontinued

B.. to be allowed

C.. to be allowed , if the partnership deed is silent

D.. to follow the contents of partnership deed

132..Bank MN purchased a cheque. The same has been returned with the reason “Funds insufficient”. Then the bank which advanced finance has to (primarily)

a.. Recover the finance from the drawerb.. Recover the finance from the draweec.. Recover the finance from the payeed.. Forego the advance lent

133..Bank S has terminated the overdraft account of the borrower B, since his operation in the account has not been satisfactory.A.. Bank relied on the contents of Overdraft

agreementB.. S should have given an opportunity to B in

writingC.. Bank has the right to terminateD.. There is no need for the bank to issue a separate

notice as the borrower B has to know the conditions of the bank.

134..Which type of finance to a Private Limited Company, charge need not be registered with ROC. A.. Assignment of Book Debts

B.. Life policy of the Managing Director taken as collateral security

C.. Term Loan for Building

D.. Cash credit (Hypothecation of Inventory)

135.. A person has been appointed as the Manager of the property charged. He has to give notice to the Registrar of Companies within

A.. 30 days

B.. 30 days of his appointment

C.. 30 days of his taking charge of the post

D..30 days from the date of liquidation

136.. Life policy as security will involve

a.. Pledge

b.. Hypothecation

c.. Assignment

d.. Both a & c

137..A depositor wish to transfer his fixed deposit to his brother’s name.

a.. Not possible since it is already printed on the deposit receipt as Not Transferable

b.. Possible by way of proper endorsementc.. Possible by closing the deposit before maturity

and with that open a new account in the name of the depositor’s brother

d.. None of the above

138.. There are 6 types of Mortgages.

The Transfer of Property Act discusses about the Mortgages.

The basic requirements include

An intention to create mortgage by the owner of the property (mortgagor) in favour of the Mortgagee (Creditor) to secure a debt

139..(1) The sale is ostensible and not real. (2) The mortgagee has the right to receive rent on the property mortgaged (3) Mortgage is put through in a Notified area (4) Private Sale possible- Identify the mortgages

a.. Simple Mortgage/ English Mortgage/ Equitable Mortgage/ Anomalous Mortgage

b.. Mortgage by way of Conditional Sale/ Usufructuary Mortgage / Mortgage by way of Deposit of Title deeds / English Mortgage

c.. Registered Mortgage / English Mortgage / Equitable Mortgage / Simple Mortgage

d.. Mortgage by way of Conditional Sale / Equitable Mortgage / Usufructuary Mortgage / English Mortgage

140...Identify the correct mode of charge in respect of(1) Vehicle(2)Book debts (3)Gold ornaments (4) Flat purchase (5) National Savings Certificate

a.. Pledge / Hypothecation / Hypothecation/ Mortgage/ Pledge

b.. Hypothecation / Assignment / Pledge / Mortgage/Pledgec.. Pledge / Mortgage / Hypothecation / Assignment/

Hypothecationd.. Hypothecation/ Hypothecation/Pledge/Mortgage/Pledge

141..As per the provisions of the Registration Act,1908, a registered document operates, not from the date of its registration , but from the time of its execution. Thus a Mortgage document executed earlier, though registered later than another, has priority over the documents executed later

142.. The limitation period for filing a suit for sale of mortgaged property is 12 years from the date the mortgage debt becomes due.

.. The limitation period for filing suit for foreclosure is 30 years form the date the money secured by mortgage becomes due..

.. Foreclosure means the loss of the right possessed by the mortgagor to redeem the mortgaged property.

.. Under the Mortgage by way of conditional sale, the mortgagee can sue for foreclosure, but not sale of the property.

143.. A private Ltd company has availed finance by way of Simple Mortgage. Then there

a.. Will be two types of Registrations

b.. One with the Registrar of Companies

c.. Another with the Sub Registrar of

Assurances in whose jurisdiction the

mortgaged property is situated

d.. All of these

144.. Hindu Undivided family is governed by personal laws. In Bengal and other parts of erstwhile Bengal province, a Hindu undivided family is governed by Dayabhag Law in other parts of India, it is governed by Mitakshara Law.

While lending to the HUF business banker has to be very careful in protecting the interest of the bank

145.. Trusts, Clubs, Co-operative societies , Schools, Colleges etc., lending has to be properly understood then to be given.

.. The appropriate documents, such as deed, agreements, bye laws, resolutions to be carefully gone through and then proceed.

146.. A Limited Company applied for Working finance on 12th of June. Received the sanction letter on 10th of August and executed the loan documents on 20th of August. Availed the finance on 13th of September only. The charge has been registered with the Registrar of Companies on 16th of September.

a.. The Registration is in order b.. The Registration is not in order c.. The Charge should have been filed within 1 month from the date of

sanction d.. Since the finance has been taken only on 13th of September, time to be

calculated from that date to file the charge

• vasu1611@yahoo.co.in

• Contact resi. : 022 – 27606208

»Mobile : 9819500380