legal aspects 1

7/31/2019 Legal Aspects 1

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LEGAL ASPECTS OF BANKINGOPERATIONS

INDIAN INSTITUTE OF BANKING &FINANCEMODULE C & D


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SARFAESI Act 2002, extends to whole of

India including the State of Jammu &Kashmir. Also applicable to housingfinance companies.

The act is effective from 21.06.2002. It alsocovers the earlier loans which areoutstanding.


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Based on the observation of the Supreme

Court in the Mardia Chemicals vs Union ofIndia case, the Government of Indiaissued notification amending theprovisions of the SARFAESI Act. The

amendment stipulates payment of 50%amount instead of 75% as originallyenacted. (When appealed)


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. Take over of loans or advances from theBank or Financial Institution for the

purpose of recovery is known as Assetreconstruction.

. The word Board is used in the Act refers

to the Securities and Exchange Board ofIndia (SEBI)


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01. The SARFAESI Act is not applicable to

a. Regional Rural Banks

b. Nationalized Banksc. Co-operative Banks

d. State Bank of India and their Associate banks

Answer 1: a


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. Default should have been committed bythe debtor.

. The borrowers account should have beenclassified as NPA as per the guidelines ofRBI.

. The Act is applicable only to a Securedcreditor and not to an unsecured creditor


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02..Which one is not pertaining toHypothecation.

a.. A charge in or upon any movable propertyb.. Right in favour of the creditor

c.. Possession also with the lender

d.. Retaining the ownership with the owner ofthe property

Answer 2: c


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03..Bank G has lent to N a sum of Rs.2 lacson the hypothecation of a car. Identifythe Originator as per the provisions of the

SARFAESI Act.

a.. Borrower N

b.. Bank G

c.. Both are not Originators

d.. SEBI

Answer 3: b


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Obligor is a person liable to pay to thelender (originator).

As per the contract terms and conditionsor otherwise.

He has to discharge any obligation inrespect of a financial asset whetherexisting, future, conditional or contingentor and includes a borrower.


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04.. Identify the odd item (QualifiedInstitutional Buyer)

a.. Bankb.. Insurance company

c.. Individual Investor

d.. An Asset Management Company

Answer 4: c


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The securitization company or reconstruction

Company to raise funds from qualified

institutional buyers by formulating schemes..Separate scheme wise accounts to be

Maintained.

.The Scheme invites subscription to securityreceipts proposed to be issued by such company

under the scheme.


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05.. Acquisition of financial asset from theoriginator, by Securitisation or

reconstruction company is known asa.. Reconstruction

b.. Securitization

c.. Transfer of Assetsd.. None of these

Answer 5: b


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..On acquisition of financial asset thesecuritisation or reconstruction company

becomes the owner of financial asset andsteps into the shoes of the lender bank orfinancial institution.

.. RBI is the regulatory authority forsecuritisation or reconstruction company.


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06..The minimum capital requirement forsecuritization or reconstruction company, at the

time of registration isa.. Rs. 30 Crore

b.. Rs. 50 Crore

c.. Rs.100 Crore

d.. Rs.200 Crore

Answer 6: d


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.. Securitisation company is a company registeredunder the Companies Act,1956 for the purposeof securitisation. It also needs registration from

RBI under the provisions of SARFAESI Act... Security agreement includes an agreement,

instrument or any other document orarrangement under which security interest is

created in favor of secured creditor


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07..The securitisation company can set upseparate trusts scheme wise and act trustees forsuch schemes as provided in the Securitisation

Companies and Reconstruction Companies(Reserve Bank) Guidelines and Directions,2003.The beneficiaries of such trusts area.. Investors

b.. Debtorsc.. Creditors

d.. Lending Bankers

Answer 7: a


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08..The creation of mortgage by deposit oftitle deeds with the secured creditor is

considered asa.. Security Receipt

b.. Security Agreement

c.. Secured Asset

d.. Secured Debt

Answer 8: b


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..Secured debt means a debt which issecured by any security interest.

..Secured Asset means the property onwhich security interest is created.

.. The powers given by SARFAESI Act for

enforcement of securities are againstsecured assets only


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09..Security Receipt is issued

a.. To Borrower by the Bank

b.. To Qualified Institutional buyer by theReconstruction Company

c.. To Creditor by the Securitisation Company

d...To Reconstruction company by theSecuritization Company

Answer 9: b


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..The security receipt evidences thepurchasers undivided right, title and

interest in the security...These receipts are transferable in the

market.

.. Sponsor is a person holding not less than10% of the paid up capital ofsecuritisation or reconstruction company.


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10.. The Securitisation or reconstruction companyto commence business or carry on businesssubject to

1. It obtains certificate of registration from theRegistrar of Companies2. It has the owned funds not less than Rs3 crore or

such other amount not to exceed 10% of thefinancial assets acquired to be acquireda. Correctb. b.. Incorrectc. From SEBI and not Registrar of Companies; Not less than

Rs 2 crore and not to cross 12%d. None of these

Answer 10: d


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..Depending on the nature of security asset RBIhas the powers to specify different amounts ofowned funds for different companies.

..The company can formulate separate schemesfor acquisition of financial asset.

..The securitisation or reconstruction company can

act as trustees for such trusts and manage the

assets held in trust.


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..The Securitisation or reconstruction company canacquire financial asset without execution of anydeed of assignment or transfer in its favor by

the concerned bank or the financial institution...Assignment is complete on the acquiring

company issuing debenture or bond andincorporating therein the terms and conditions

of acquisition.


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The securitization involves two stages.

In the first stage it is acquisition offinancial assets and undivided interesttherein.

Second stage is issue of security receiptsin favor of investors for the purpose ofraising money from investors


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11..As per the provisions of SARFAESI Actthe document to be executed requires

(identify which one is not correct)a.. Payment of stamp duty

b.. As per the provisions of the Indian StampAct

c.. State Stamp duty lawsd.. Central Stamp duty laws

Answer 11: a


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As per RBI guidelines,

a...an acquisition of funded assets should notinclude take over of outstandingcommitments, if any, of any bank or financialinstitution to lend further.

bterms of acquisition of security interest innon-fund based transactions should provide

for the relative commitments to continue withbank or financial institute till demand forfurther funding arises


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12..Which one is correct (Securitizationmatter)

a. Security receipt is in favor of investor

b. Security receipt is issued with RBIspermission

c. Security receipt can not be transferred

d. Security receipt is issued to the borrowerwho has failed to repay

Answer 12: a


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13..When the bank decides that the financialasset now be acquired by the securitisationcompany, a notice of such development to be

given toa.. The Obligor

b.. Such notice is not optional

c.. The Obligor, which is compulsory

d.. The Obligor which is not compulsory under the Act.

Answer 13: d


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If the obligor is a company there is no needfor modification of charge, when the

notice regarding acquisition of financialasset by a securitization company, is notgiven to the debtor company.

However, if such notice is given to theobligor company, then notice to theRegistrar of companies becomes essential.


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14.. A bank had advanced to a person who had defaultedleading to a securitisation company acquiring thefinancial asset. In fact no notice has been issued to the

obligor. Later on the debtor remits some amounttowards his dues to the bank from where he had availedthe financial facility.a.. The bank can utilise the funds

b.. The bank has an obligation to remit to the securitisation

companyc.. The bank first of all should not accept such payment

d.. The bank has to enquire why the debtor had not paid earlierwhen the liability was outstanding with them.

Answer 14: b


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The securitization or reconstruction companyraises funds for acquisition of asset by issue ofsecurity receipts. Public/individual investors arebarred from investing in a securitization orreconstruction company by the Act.

Realization of the asset is held and appliedtowards redemption. i.e., repayment ofinvestments as assured while issuing thesecurity receipt.


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15..In case there is no realization and repayment by thesecuritization or reconstruction company, then thequalified institutional buyers are entitled to call ameeting of all qualified institutional buyers making

investments in that scheme and the resolution passed inthe meeting.a.. The first institutional buyer has the right to call for such

meetingb.. The qualified institutional buyers holding not less than 75%

of the total value of security receipts has the rightc.. Any one of the Institutional investor who takes the lead gets the

priorityd.. None of the above

Answer 15: b


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.. When the securitization orreconstruction company issues security

receipts the holder of the security receiptsis entitled to an undivided interest in thefinancial asset.

.. In such an event the security receiptdoes not require registration which isother wise compulsory under theRegistration Act,1908


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16..XYZ bank has got a security receipt from asecuritization company. They wish to transferthe same. Thena.. Such security receipt need not be registeredb.. Such security receipt has to be registeredc.. Such security receipt cannot be transferredd.. Such security receipt has to be retained by the bank

who is the original institutional investor and hence

there is no question of registration / non registration.

Answer 16: b


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Asset reconstruction means acquisition ofany right or interest of any bank orfinancial institution in any financial assetfor the purpose of realization. Powers totake measures for asset reconstruction are

given without any prejudice to theprovisions contained in any other law.


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If the cause of default in an unit ismismanagement or lack of expertise on

the part of the existing management thesecuritisation or reconstruction companyhas the powers to take over the

management or change the management.This power can be exercised even whenthere is no default.


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The SARFAESI Act is silent about thegrounds or reasons on the basis of which

action of acquisition can be taken.Therefore, loan agreements betweenbank/financial institution and the borrower

are required to be taken into account asprovisions of this do not have overridingeffect on existing contracts and laws.

i i i i


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17..A securitisation or recosnstructioncompany can raise funds by way ofdeposits.

a.. Under special circumstances only

b.. Cannot raise funds by way of deposits

c.. If need arises with the permission of RBI

d.. As and when required with the permission ofRBI,SEBI and Company Law Board

Answer 17: b


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18.. When the asset is acquired forreconstruction there is limit of six years

for such reconstruction.a.. True

b.. False

c.. Not 6 years but 5 yearsd.. No such restriction on number of years

Answer 18: c


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19..Which one is not correcta At the time of enforcing securities as per the

provisions of SARFAESI Act, the securitisation

company may itself acquire secured assets for useor resale if such resale is through a public auction.b.. The Securitisation company is permitted to set up

trusts who can issue security receipts.c.. While issuing security receipts detailed disclosures

are required to be made by the securitisationcompanyd.. While issuing security receipts detailed disclosures

are not required to be made by the reconstructioncompany.

Answer 19: d


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20..While a securitisation company is takingover the financial asset from the creditor

bank, they will issuea.. Debenture

b.. Security Receipt

c.. Undertakingd.. None of these

Answer 20: a


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..Under the SARFAESI act a secured

creditor can enforce the security interestcreated in his favor without theINTERVENTION of the Court or Tribunal.

..The act deals with how the notice to begiven by the secured creditor asking for

repayment of the out standings.


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..The secured creditor bank to give anotice asking the debtor to clear the

liability in full within 60 days from the dateof notice.

.. The above is applicable to such debtorswho have defaulted and classified as NPA.

.. There is no bar for the creditor to seekthe other legal remedies such as resortingto filing of suit in a competent court.

21 Id tif hi h i t i t (SARFAESI


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21..Identify which one is not incorrect. (SARFAESIAct)

a.. Notice as per the provisions of the act is a routine

oneb.. Notice as per the provisions of the act is a statutory

notice.

c.. The Act does contemplate a reply form theborrower to the notice.

d.. When the offer of sale of property is accepted by thepurchaser and the secured creditor accepting theoffer confirms the sale, the purchaser has to deposit50% of the offer price.

Answer 21: b


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22..The authorized officer is authorized toissue sale certificate. Such certificate is

conveyance of immovable property andrequires stamping as per the provisions ofStamp Act.a.. True

b.. Falsec.. Relevant State Laws

d.. Central Laws

Answer 22: c


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As the powers of enforcing securities need to beexercised prudently, fairly and with due care and

caution the Rules framed under SARFAESI Actprovide that Authorized Officer should be of thelevel equivalent to Chief Manager of a publicsector bank or equivalent or any other

authorised person exercising powers ofsuperintendence, direction and control of thebusiness or affairs of the creditors, as the casemay be.


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..For taking possession and then sale ofimmovable property, the secured creditor isrequired to serve a possession notice on theborrower and by affixing the possession noticeon the outer door or at the conspicuous place atthe property.

..The authorized officer is required to publish thepossession notice in two leading newspapers,one of which should be in vernacular language.


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23..Before sale of immovable property bythe secured creditor, the borrower has to

be given a notice about the sale.a.. 30 days of sale

b. 15 days of sale

c.. 45 days of saled. 60 days of sale

Answer 23: a


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24.. If the price for secured asset is comingless than the reserve price, the authorized

officer can sell the asset at a lower pricea.. Then his decision will be final

b.. With the consent of the secured creditor

c.. With the consent of the borrower and thesecured creditor

d.. Without consulting any one

Answer 24: c


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..When the secured creditor is required to takepossession or control of the secured asset or tosell such secured asset, he can take the help ofthe Chief Metropolitan Magistrate or DistrictMagistrate.

..For seeking their help a request in writing isrequired.

..To approach the authority within whose

jurisdiction the secured asset or documentsrelated to it are situated.


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..When the secured creditor takes over the

management of business of a borrower, he maypublish a notice in a newspaper published inEnglish language and in a newspaper publishedin Indian language in circulation in the place

where the principal office of the borrower issituated, for appointment of

a.. If the borrower is a company as defined in theCompanies Act, 1956 to be the directors of such

company, orb.. In any other case, to be the administrator of

the business of borrower.


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**Any person, including borrower,aggrieved by any of the measures taken

by the secured creditor or his authorisedofficer for taking possession of thesecurity may make an application alongwith the prescribed fees to the DebtRecovery Tribunal having jurisdictionwithin 45 days from the date on whichsuch measures are taken.

25 Th DRT h t di ff th


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25..The DRT has to dispose off theapplication preferred seeking justice,

within a period ofa.. 30 daysb.. 45 days

c.. 60 days

d.. 90 days

Answer 25: c

26 If l h t b f d b d th d i i


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26.. If an appeal has to be preferred based on the decisionof Debt Recovery Tribunal with the Appellate Tribunalthe time limit is

a.. 30 days form the date of receipt of the order of DebtRecovery Tribunal

b.. 15 days form the date of receipt of the order of DebtRecovery Tribunal

c.. 60 days form the date of receipt of the order of Debt

Recovery Tribunald.. 45 days form the date of receipt of the order of Debt

Recovery Tribunal

Answer 26: a

27 The amendment to the SARFAESI act stipulate


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27..The amendment to the SARFAESI act, stipulatethat no appeal can lie unless the borrowerdeposits 75% of the debt claimed by thesecured creditor. The Tribunal has powers forreasons to be recorded to reduce this amount to50% of the claim amount.a.. Trueb. From 75% to 50% and tribunal cannot reduce

furtherc.. From 75% to 50% in the first stage and Tribunal canreduce the same to 25%

d.. False

Answer 27: c


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..The Central Government has to appoint bynotification a person as Central Registrar for the

purpose of registration contemplated under theAct.

..The record of Central Registrar can be kept fullyor partially in computer, floppies, diskettes, orany other electronic form. The Central Registrarshall have the control and management of theCentral Registrar.

28..Under the SARFAESI Act now filing of details of


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28..Under the SARFAESI Act now filing of details oftransactions of securitisation, reconstruction andcreation of security interest is required to be

filed with the Central Registrar. The period offiling such details in form as may be prescribedis 21 days after the days of transaction orcreation of security.

a.. Correct

b.. Not 21 days and no such limit

c.. Not 21 days but 30 days

d.. Incorrect

Answer 28: c


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..Whenever any security interest isregistered with the Central Registrar is

modified, the modification is required tobe filed before Central Registrar. It is theduty of the securitisation company or

reconstruction company or the securedcreditor to file the modification.


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..The security interest registered with theCentral Registrar is required to be satisfiedon payment of full amount by the

borrower. The duty to report satisfactionis on the Securitisation company orReconstruction company or the secured

creditor. The reporting to be done within30 days of payment in full or satisfactionof the charge.

29 On receipt of the satisfaction of the charge the


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29..On receipt of the satisfaction of the charge theCentral Registrar to cause a notice to be issuedto the concerned calling upon to show cause as

to why the payment of satisfaction should not berecorded as intimated. Such notice to be issueda.. Within 7 days

b.. Within 14 days

c.. Within 21 daysd.. Within 30 days

Answer 29: b

30.. If a Securitization company of Reconstruction


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30.. If a Securitization company of Reconstructioncompany fails to comply with any of thedirections issued by RBI, then such a company ispunishable by RBI with fine not exceedingRupees Two lacs for the default. For furthercontinuation of the offence an additional fine isup to Rs.5000/= per day of default can beimposed.

a.. Not in correctb.. Incorrectc.. Rs.5 lacs and Rs.10000/- per day respectivelyd.. Rs.7 lacs and Rs 5000/- per day respectively

Answer 30: c

31..The provisions of SARFAESI Act not applicable


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3 e p o s o s o S S ct ot app cab ein respect of

a.. A pledge of movable within the meaning of theIndian Contract Act,1872(sec172)

b.. Any right of an unpaid seller as per Sale of GoodsAct,1930 (sec 47)

c.. Any security interest created in an agricultural land

d.. All the above

Answer 31: d


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32.. A bank had lent Rs.9 lacs to a borrower and obtainedsecurity in the possession of the debtor by way ofhypothecation. Later on by using the provisions of the

SARFAESI Act, bank could recover only Rs.5 lacs. Theoutstanding dues works out to rs.6.35 lacs. Then thebanka.. Can proceed against the borrower under Civil Law

b.. Since the bank had availed the support of SARFAESI Act has to

forego the balance outstandingc.. The bank should have applied their mind before invoking

Securitization Act

d.. The bank can proceed against the borrower under Civil Lawsubject to the provisions of Limitation Act as well.

Answer 32: d

33 A bank has used the Securitization Act


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33..A bank has used the Securitization Actprovisions and could recover only Rs. 18 lacs .Still they will have to recover Rs.11 lacs plusinterest. Fortunately for the bank the limitationperiod on the loan documents is intact.a.. Bank has to seek legal remedy through the Civil

Court.b.. Bank has to seek legal remedy through DRT

c.. Bank has to forego since they have already availedthe legal avenued.. Bank may have to approach the borrower straight

away and request him to settle the balance amount.

Answer 33: b


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34.. A complaint alleging deficiency inbanking service may be filed with the

Banking Ombudsman having thejurisdiction

a.. Non-issue of drafts to customers and others

b.. Inordinate delay in collection of chequesc.. Both a & b

d.. None of the two

Answer 34: b

No complaint to the Banking Ombudsman shall


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..No complaint to the Banking Ombudsman shalllie unless the complainant had before making acomplaint to the Banking Ombudsman made a

written representation to the bank and eitherthe bank had rejected the complaint or thecomplainant had not received any reply within aperiod of one month after the bank concerned

received his representation or the complainant isnot satisfied with the reply given to him by thebank.

The complaint is made not later than one


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..The complaint is made not later than oneyear after the cause of action has arisen.

..The complaint is not in respect of thesubject matter, which was settled throughthe office of the Banking Ombudsman in

any previous proceedings

If l i t i t ttl d b t ithi


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.. If a complaint is not settled by agreement withina period of one month from the date of receiptof the complaint or such further period asconsidered by Banking Ombudsman, he canpass an award.

.. He shall be guided by the evidence placed

before him, the principles of law and practice,directions, instructions and guidelines issued byRBI from time to time to pass the necessaryaward.

35 The Banking Ombudsman while passing an


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35..The Banking Ombudsman while passing anAward in respect of a complaint may direct thecomplainant to furnish a surety for refund of

amount received under the Award along withinterest if any.a.. There is no such requirement

b.. It is not Surety but Indemnity

c.. It is not only Indemnity but also suitable Suretyd.. None of the above

Answer 35: b

A bank not agreeing to accept the Award


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..A bank not agreeing to accept the Awardpassed under the Banking Ombudsmanscheme may file a review applicationbefore the Review Authority within onemonth from the date of receiving copy ofthe Award. Banks application to be

approved by the banks Chairman or in hisabsence by the Managing Director or anyother officer of equal rank.

36 Th B ki O b d i th


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36.. The Banking Ombudsman assuming thecharge of an arbitrator shall follow the

procedure as laid down under the schemeread wit the provisions ofa.. The Arbitration Act, 1996

b.. The Banking Regulation Act,1949

c.. The Reserve Bank of India Act,1934

d.. None of these

Answer 36: d

37 For a Debt Recovery Tribunal the Presiding


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37. For a Debt Recovery Tribunal, the PresidingOfficer holds office for a term of 5 years fromthe date on which he enters upon his office or

until he attains the age of 62 years, which everis less.a.. Correct

b.. In correct

c.. Not 5 years and 62 years but 3 years and 63 yearsrespectively

d.. Not 5 years but 7 years whereas 62 years of age iscorrect .

Answer 37: a

As per the observation of the High Court the


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..As per the observation of the High Court, theDRT has power to entertain the application forexecution of the decree of foreign court.

.. Every application to be filed before the DRT shallbe accompanied by appropriate fees.

.. The Tribunal may , on giving opportunity to both

the sides of being heard, pass interim or finalorder for payment of amount including interestthereon.

38..A Civil suit which is pending stands


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38..A Civil suit which is pending standstransferred to the DRT. Then the feespayable

a.. Will be decided by the DRT

b.. Standard fees to be paid as applicable toa new case referred to the DRT

c.. No fees required to be paidd.. None of the above

Answer 38: c

39.. A bank has moved the DRT for justice. Before


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39..A bank has moved the DRT for justice. Beforethe final order is passed another Bank who havealso advanced to the same borrower has

approached the DRT for inclusion in the sameproceedings.a.. Permissible

b.. Not permissible

c.. Not permissible since both the contracts are differentd.. DRT would not entertain and advise the bank to file

a separate case.

Answer 39: a

40..Any person aggrieved by the order passed by


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y p gg y p ythe Tribunal or deemed to have been passed bythe Tribunal under DRT Act, may prefer an

appeal to the concerned Appellate Tribunal.a.. Within 45 days form the date on which copy of theorder is received.

b.. If the order was made by the Tribunal with theconsent of the parties no appeal possible

c.. Both a & b

d.. Within 60 days from the date on which copy of theorder is received.

Answer 40: c

The DRT issues Recovery Certificate to the


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.. The DRT issues Recovery Certificate to theapplicant. Recovery Officer has to proceed torecover the amount specified in the Recovery

Certificate, by adopting any one of the following

a.. Attachment and sale of movable and

immovable property of the defendantsb. Arrest of the defendant and his detention inprison

c.. Appointment of a receiver for the management

of the movable and immovable properties of thedefendant.

The Bankers Book Evidence Act extends to


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..The Bankers Book Evidence Act extends towhole of India except the Sate of Jammu

& Kashmir,...Bankers books include ledgers, daybooks,

cashbooks, account books and all other

records used in the ordinary course ofbusiness of a bank.

41 Under the Bankers Book Evidence Act


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41..Under the Bankers Book Evidence Act,the term Judge refers to

a.. Judge of a special Courtb.. Judge of a High Court

c.. Judge of a DRT

d.. Judge of Supreme Court

Answer 41: b

42.. For making the order that bank officer should


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geither produce the books of account or appearas witness (as per the Bankers Book Evidence

act) can be made by the Court or Judge with outsummoning the bank. Such order shall be servedon the bank at least 5 days before the same isto be obeyed.

a.. Trueb.. False

c.. Not 5 days but 3 days

d.. At least 3 clear working days

Answer 42: d

The Consumer Protection Act is not applicable in


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..The Consumer Protection Act is not applicable inthe State of Jammu and Kashmir.

..The Act is for better protection of the interests of

the consumers and for that purpose to makeprovision for the establishment of consumercouncils and other authorities for the settlementof consumers dispute.

..The Act is social welfare benefit orientedlegislation for the consumer providing self-contained quasi-judicial machinery to providespeedy and simple redressal to consumerdisputes.

43 A dispute where the person against


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43..A dispute where the person againstwhom complaint has been made, denies

or disputes the allegations contained inthe complaint.a.. Complaint

b.. Consumer Dispute

c.. Dispute

d.. Allegation

Answer 43: c

44 District Consumer Protection Council to


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44..District Consumer Protection Council tomeet as an when necessary. There has to

be at least two meetings every year.a.. Correct

b.. Incorrect

c.. At least One meeting

d.. At least Three meetings

Answer 44: a

45..Which one is not correct (Consumer Protection


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(matters).

a. Once the complaint is admitted by the DistrictForum it cannot be transferred to any other Court

or Tribunal or any authority set up under any law.b. Any person aggrieved by the order passed by the

District Forum may prefer an appeal to the StateCommission within a period of 30 days from thedate of the order.

c. A person who is a Judge of the Supreme Court, tobe nominated by the Law Ministry, who shall be theChairman of Selection Committee to the NationalCommission

d. For filing any complaint before a District Forums,

State Commission or the National Commission thelimitation period is 2 years from the date of causeof action.

Answer 45: c

46.. Borrower K has executed a Demand


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Promissory Note and a Hypothecationagreement to Bank B. Then the bank has

made available the finance.a.. Valid contract

b.. In valid contract

c.. Quasi contractd.. No contract

Answer 46: a

47 A & B has taken a loan from the bank


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47.. A & B has taken a loan from the bankby executing a demand promissory note

and other documents jointly.a.. A is the promisorb.. B is the promisee

c.. Bank is the promiser

d.. Bank is the promisee and both A& Bpromisors

Answer 47: d

48. Identify which is not essential of a valid


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48. Identify which is not essential of a validcontract.

a.. Proposal and acceptanceb.. Consideration

c.. Free consent

d.. Agreement under force

Answer 48: d

..A contract of indemnity is entered into


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..A contract of indemnity is entered intowhen a party apprehends a loss in a

particular contract and it wants itself to becovered from the losses it may incur.

.. A contract guarantee is a contract toperform the promise, or discharge theliability, of a 3rd person in case of default.

49..Bank has lent money to R on the personal guarantee ofL The bank obtained a demand promissory note from R


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L. The bank obtained a demand promissory note from Rand a guarantee agreement from both L & R. Amongother contents, the guarantee agreement protected the

bank with special clauses for which Guarantor L hasgiven his consent. When R failed to repay, Bank asked Lto repay the loan. He promptly refused and advised thebank to approach R who only has taken the money.After trying only they can approach him and not beforethat, that is what L told the bank.a.. The stand of L is incorrectb.. The stand of Bank is incorrectc.. What L says has relevant substanced.. Bank will succeed if they proceed against L even without

proceeding against R based on the guarantee agreement

Answer 49: d

Where there are co-sureties, a release by the


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Where there are co sureties, a release by thecreditor of one of them does not discharge theothers. Also, the surety released does not becomefree from his responsibility to the other sureties.

A surety has the right of Subrogation.

Any guarantee obtained by means ofmisrepresentation made by the creditor is invalid.

Any guarantee which the creditor has obtained bymeans of keeping silence as to material

circumstance is also invalid.

50..N has given his personal guarantee for a loan


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to P by bank W. When the repayments areregular, N has decided to discontinue his

guarantee for certain personal reasons.a.. He has the right to discontinue

b.. Bank will uphold his decision to discontinue

c.. Bank need not concur with the decision of the

suretyd.. Borrower will have to permit the surety to leave

Answer 50: d

51.. A bank has taken gold ornaments as security


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5 ba as ta e go d o a e ts as secu tyby way of pledge and lent. When the borrowerdefaulted, the bank sold the gold ornaments

without intimating the Pledgor in writing. Thebank depended on the contents of the pledgeagreement in which the Pledgor has given it inwriting and authorised the bank to dispose offwithout referring the matter to him in writing.

a.. The banks stand is correctb.. The bank will succeed if contested by the pledgorc.. The bank will fail if contested by the pledgord.. As the creditor the bank has the right to dispose off

Answer 51: c


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.. No consideration is necessary to create anagency.

.. In an emergency, an agent has authority to do

all acts to protect his principal form loss aswould be done by a person in his own case.

.. An agent can detain money received by him onaccount of goods sold, even if all the goods

consigned to him for sale are not sold.

52..A bank as a collecting banker has misplacedthe cheque accepted for collection The


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the cheque accepted for collection. Thecustomer when he approached to know aboutthe realisation of the cheque, then only the bankcould realise it has misplaced the Cheque.

a.. The bank is responsibleb.. Till the cheque is realized or returned, the bank is not

responsible.c.. If the cheque had been purchased then the bank would

have been responsible and not for collection item.d.. The bank is not responsible

Answer 52: a

.. A Sale and an Agreement Sell are


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.. A Sale and an Agreement Sell aredifferent.

.. A sale is a contract in which the partieshave already performed their part.

.. The ownership of goods stands

transferred under a sale.. If the seller fails to deliver, the buyer can

sue the seller

In an agreement to sell the parties are


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.. In an agreement to sell, the parties areyet to perform their mutual promises.

..The ownership of the goods yet to pass onto the seller

.. In case the seller fails to deliver the

goods, the buyer can claim only damages... The seller can only sue for damages.

53..Under Sale the risk in goods is with the


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53..Under Sale the risk in goods is with the

a.. Seller

b.. Buyerc.. Both of them

d.. None of them

Answer 53: b

..Whether a stipulation in a contract of sale is


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pcondition or warranty depends on the types ofcontract. Even if the parties have agreed that a

stipulation is a warranty, in fact, it may be acondition if it is the basis of the contract.

.. If the sale of goods is by description, there is an

implied condition that the goods shallcorrespond with the description.

54..There is an implied condition that theb h ll h d


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buyer shall have and enjoy quietpossession of the goods.a.. True

b.. False

c.. It is not implied condition but implied

warrantyd.. It is not only implied condition but also

implied warranty

Answer 54: c

55.. An Unpaid Seller may exercise his right


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p y gof stoppage in transit by

a.. Taking actual possession of the goodsb.. Giving notice of his claim to the carrier

c.. Both of them

dAny one of them

Answer 55: d

56.. A B C & co a partnership firm has a current accountwith bank J. The account is operated by any one of the


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with bank J. The account is operated by any one of thepartners. A cheque (open cheque) received signed byone of the partners B, representing the firm and in

favour of B. Another cheque signed by C representingthe firm favoring Self.a.. The bank is in order in paying both the chequesb.. The bank is not in order in paying both the chequesc.. The bank is in order in paying the cheque signed by B and

not by C

d.. The bank is in order in paying the cheque signed by C andnot by B

Answer 56: d

..If a minor who is admitted to receive the


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benefits of the partnership firm chooses to

become a partner after he attains majorityis responsible for all the acts of the firmwith effect from the date on which he hasbeen admitted to receive the benefits.

.. A firm can be dissolved with the consent


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of all the partners or in accordance with a

contract between the partners... A firm can also be dissolved by agreement

between the partners or by the court

57..A bank has got the documents executed by a LimitedCompany. However they have overlooked to get the


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p y y gCommon Seal affixed on these documents. A referenceto the Articles of Association has revealed that affixing

the Common Seal for the documents has not beenmentioned. In other words, the Articles of Associationis silent with regard to the same.a. Bank will get protection

b. Bank cannot recover the dues based on the documents

c. Affixing of Common Seal is compulsory in such cases.d. Affixing of Common Seal is not compulsory unless it is

specifically stated in the Articles of Association

Answer 57: d

58..Which one is incorrecta A private company is prohibited from acceptance of


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a.. A private company is prohibited from acceptance ofany deposit from public

b.. A private company should have a minimum paid upcapital of Rs.2 lacks

c.. A foreign company is incorporated in India but has aplace of business in foreign countries

d.. A public company should have minimum 5 members

Answer 58: c

59.. Identify the correct one.a.. Any terms of the Articles of Association can be altered by an


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a.. Any terms of the Articles of Association can be altered by anordinary resolution

b.. Change of Registered Office in another State or the objectclause can be altered only by a special resolution and passed

by the company and with the sanction of the Company LawBoard

c.. The borrowings in excess of the paid up capital plus freereserves in respect of a public limited company can be donebased on resolution by way of circulation among the board ofdirectors.

d.. Both Memorandum and Articles of Associations are not cconsidered as Public documents.

Answer 59: b

..When a company exercise its powers to promoteand/or realise any of its objects stated in the


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and/or realise any of its objects stated in theMemorandum of Association, it is known as Intra

vires ( i.e., within the powers of ) the company... Any other act of the company which is outside

the scope of the objects clause of theMemorandum of Association is called Ultravires(i.e., beyond the powers of ) the company

.. Doctrine of Constructive notice states thatt id i d t h d


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every outsider is assumed to have readthe Memorandum of Association and

Articles of Association.

Doctrine of Indoor Management lays downthat the outsiders are not required to see

the compliance of internal regulations ofthe company.

60.. A person is deemed to become a member of acompany if he allows his name to be put on the


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company if he allows his name to be put on theregister of the members of otherwise holdshimself out as a member even if there is noagreement to become a member.a.. Ordinary Member

b.. Acquiescence Member

c.. Special Member

d.. Non member

Answer 60: b

61.. On the death of a member, if the member hasnot made a nomination for the shares then the


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not made a nomination for the shares then thesurviving joint holder (if any) or his legal

representatives have the right to registerthemselves as members.a.. Transmission of Shares

b.. Transfer of Shares

c.. Assignment of Sharesd.. Negotiation of Shares

Answer 61: a

62.. Identify which is not a Statutory Right

f d d


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a. To receive notice of meetings, attend andvote at meetings

b. To receive dividends

c. To receive copies of annual accounts of thecompany

d. To transfer shares

Answer 62: b

63.. To be registered as a member in thecompanys register of members (subject to


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company s register of members (subject toa valid membership obtained by transfer,

allotment, etc.,)a.. Proprietary Right

b.. Statutory Right

c.. General Rightd.. Documentary Right

Answer 63: a

A prospectus must be signed by every


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..A prospectus must be signed by everyperson mentioned therein as a director or

proposed to be a director... Every application form for shares must be

accompanied by a copy of the prospectus

except application forms issued tounderwriters and existing shareholdersand debenture holders.

64.. A prospectus has to be registered with


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a.. The Registrar of Companies

b.. SEBIc.. Stock Exchange

d.. No one

Answer 64: a

..The provisions of FEMA extend to all over


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..The provisions of FEMA extend to all overIndia and also apply to all branches,

offices and agencies outside India ownedor controlled by a person resident in Indiaand also to any contravention committed

outside India by any such person to whomthis Act applies.

65..A transaction by which there may be a change(either an increase or decrease) in the assets


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(either an increase or decrease) in the assetsor liabilities outside India of persons resident

in India or assets or liabilities in India ofpersons resident outside India.a.. Capital account Transaction

b.. Current account Transaction

c.. Both a & bd.. Neither a nor b

Answer 65: a

66.. The mortgagor agrees that in the event of hisf ili t di t hi t t th


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failing to pay according to his contract, themortgagee shall have a right to get the

mortgaged property sold and recover his dues.a. Mortgage by Conditional Sale

b. Equitable Mortgage

c. English Mortgaged. None of these

Answer 66: d

67..A came with his brother, to take a loan on thesecurity of his Term deposit which will mature


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security of his Term deposit which will matureafter 7 years. He has changed his decision and

wants the same to be transferred in the name ofhis brother.a.. Possible

b.. Impossible

c.. Possible by way of assignmentd.. Not possible since the FDR is not transferable

Answer 67: c

Thanks


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ThanksBest wishes to one and all

K [email protected][email protected]
mailto:[email protected]:[email protected]

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