jaiib-mocktest-8

City Union Bank Limited CENTRAL OFFICE KUMBAKONAM

LEGAL & REGULATORY ASPECTS OF BANKING (JAIIB EXAMINATION -1)

KNOWLEDGE IS POWER . . .

1

UNIT-I LEGAL FRAMEWORK OF REGULATION OF BANKS SL.NO 1(i)

(ii) (iii)

(iv)

(v)

2 3 4 5

6 7(i) (ii) (iii) (iv) (v)

8

9

QUESTION ANSWER A public sector bank is a body True corporate created under a special statue. A banking company is registered False under the banking regulation Act. Co-operative banks are registered True under the Multi-State Co-operative Societies Act or a State Co-operative Societies Act. Subsidiaries of the State Bank are False companies registered under the Companies act. Accepting deposits for safe custody False. would fall within the definition of “banking”. Reserve Bank was constituted RBI Act under-------------A Regional Rural Bank is-----------A body corporate created under a special statue. Banking companies are licensed by- Reserve Bank --------------Business which a banking company BR Act may undertake other than banking is as stipulated by --------------. BR Act was enacted for--------------. For regulating banking companies Central Government can give True direction to the Reserve bank. All kinds of business of banks is False regulated only by the Reserve Bank Central Government is the primary False regulator of banks. State Governments have no control False over Co-operative banks. On cancellation of licence of any True bank, an appeal lies with Central Government CO-operative banks operating in Multi-State Co-operative Societies different states are registered Act. under--------------. Government can exempt a bank On recommendation of RBI from the provisions of BR Act--------

2

10 11 12

13 14

15 16

15 16 17

18

19

20

----------exercises the central banking function in India. Company matters of a banking company are regulated by------------. Trading in shares and securities by banks is subject to regulation by---------One of the essential characteristics of banking is-----------Banking companies operating in India are constituted in the form of--------------. Companies Act applies to banking companies------------------. Under the reserve Bank of India Act , Reserve Bank regulates acceptance of deposits by---------------. BR Act is applicable to co-operative banks---------------. “Corresponding new banks” means--------------. Central Government may give directions to the Reserve Bank when considered necessary in public interest only after consulting---------A Co-operative society registered under the Multi-State Co-operative Societies Act-----------------. A multi-state CO-operative bank means a multi-state co-operative society which is a ----------------. For the purposes of the BR Act, a “co-operative society” means a society registered or deemed to have been registered under--------------.

3

Reserve Bank. Authorities under the Companies Act. SEBI.

UNIT-II CONTROL OVER ORGANISATION OF BANKS SL.NO 1(i)

(ii)

(iii)

(iv)

(v)

(vi)

2.(i)

(ii)

(iii)

(iv)

(v)

QUESTION A company has to obtain a-----------from the Reserve bank to commence banking business in terms of section 22 of the BR Act. Shifting of a bank's branch in the same -----------does not require Reserve Bank's permission under Section 23. Foreign banks are required under section 11 of the BR Act to deposit----------arising out of their business in India with the Reserve Bank. Banks may float subsidiaries for carrying on the business specified in ----------------. A shareholder of a banking company can exercise voting rights up to------------of the total voting rights of all shareholders. Banking companies are not permitted to give dividend until all------------are written off. A temporary branch for less than thirty days in a town where a bank has an existing branch does not require permission from Reserve bank. A company whose banking licence is rejected can undertake business as a moneylender or undertake other business. The decision of Reserve bank to revoke licence is final and no appeal lies from it. Banking companies are permitted to give brokerage up to two-and-half percent of the paid-up value of shares. No person can hold the shares of banks beyond ceiling specified under the BR Act.

4

ANSWER Licence

Same city, town or village

20 percent of profit for each year

Section 6(1)(a) to (o) of BR Act.

10 per cent

Capitalised expenses

True

True

False

True

True

(vi)

3(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

4(i)

(ii)

(iii) (iv)

(v)

A banking company cannot hold shares in any other company other than a subsidiary. A director of a banking company should not have-----------in any other company. At least---------------of the directors should have the qualifications prescribed under Section 10A(2) of the BR Act. When the board of a banking company is ordered to be reconstituted under section 10A of the BR Act, directors will be removed-----------for the purpose of reconstitution. Before removing the chairman of a bank from office,Reserve bank has to---------------. The provisions of Section 36AA of the BR Act regarding removal of managerial personnel have----------over other laws. Reserve Bank is authorised to appoint---------under section 36AB of the BR Act. The----------has stipulated the 'fit and proper' criteria for directors of banking companies. The maximum period of office that may be held continuously by an ordinary director in a banking company is eight years. The decisions of the board of directors, during the period when the board's constitution is defective shell be void. The post of chairman of a banking company may be on part-time basis. The chairman of a banking company can hold office only for a maximum period of eight years. From the order removing chairman of a banking company,appeal lies to Central Government within 30 days

5

False

Substantial interest

51 per cent

By lots

Give opportunity to being heard.

Overriding effect.

Additional Directors

RBI

True

False

True False

True

(vi)

(vii)

5.(i)

(ii)

(iii)

(iv)

(v)

6 (i)

(ii)

(iii)

7(i)

(ii)

of order. Reserve Bank has the power to True remove any officer or other staff of a banking company under section 36M of the BR Act. The concept of 'fit and proper' False criteria for directors is not applicable to public sector banks. Reserve bank may issue licence to a banking company under section 22 of the BR Act subject to--------------. Reserve Bank is not empowered to cancel the licence granted to a banking company on the ground that ---------------. A bank requires permission of the Reserve Bank for opening a new branch or shifting an existing branch-----------In addition to the requirements as to minimum capital and reserves under section 11 of the BR Act, Reserve bank--------------. In the case of banking company,a shareholder cannot exercise voting rights on poll------------. Choose the correct statements from the following There are no restrictions in the BR Act on payment of dividend by banking companies. Before payment of dividend by a banking company, all its capitalised expenses, unless specifically exempted under the BR Act, have to be completely written off. Banking companies are not permitted to pay dividend above ten per cent of net profits. There are no specific qualifications required for the directors of a banking company At least fifty-one per cent of the directors of a banking company should consist of persons with professional or other experience as

6

(iii)

8(i)

(ii)

(iii) 9(i)

(ii)

(iii)

10(i)

(ii)

(iii)

provided in the BR Act. At least fifty-one per cent of the directors of a banking company should be charted accounts or experts in finance. There is no provision for maintenance of reserves by a banking company under the BR Act. Every banking company has to maintain a reserve fund and transfer before declaring dividend,not less than twenty per cent of the profit to the reserve fund. The maintenance of a reserve fund is optional for a bank. The chairman of a banking company has to be always on whole -time basis and should be entrusted with the management of the whole of the affairs of the banking company The chairman of a banking company can be on part-time basis and a managing director can be appointed on whole-time basis who shall be entrusted with the whole of the affairs of the banking company. The chairman of a banking company can be on part-time basis and the whole of the affairs of the banking company shall be entrusted to a committee of the board of directors. A banking company can from subsidiaries for undertaking any business approved by its board of directors. A banking company can form subsidiaries for undertaking any business mentioned in section 6(1) (a) to (o) of the BR Act, which is permissible for a banking company to undertake. A banking company does not

7

require the permission of the Reserve Bank to form a subsidiary for doing banking business exclusively outside India.

8

UNIT-III REGULATION OF BANKING BUSINESS

SL.NO 1(i)

(ii)

(iii) (iv)

(v)

(vi)

2.(i)

(ii)

(iii) (iv)

(v)

(vi)

QUESTION Reserve Bank may issue directions to banking companies under section 21 of BR Act on-----------------------------may regulate acceptance of deposits including rate of interest on deposits by banking business under section 35A of the BR Act. The banking Ombudsman can settle a dispute between -----------Directions can be issued to banking companies on loans and advances -------------The purpose of ------------is to make credit available to essential sectors of the economy according to national priorities -----------Act prohibits lending at exorbitant rates and empowers reopening of such contracts. Reserve Bank can issue directions on loans and advances under section 21 of the Banking Regulation Act Regulation of credit to different sectors of the economy is known as selective credit control. Banks are free to lend to their directors Banks have to file a return to Reserve Bank regarding unclaimed deposits under section 26 of the BR Act Directions may be issued under RBI Act to banks in respect of loans and advances in the interest of depositors. The directions issued by Reserve bank under section 35A of the BR Act may be either generally to banks or to a particular bank.

9

ANSWER Loans and Advances

Reserve Bank

A bank and its customers In public Interest

Selective credit control

Usurious Loans Act.

True

True

False True

False

True

3(i)

(ii)

(iii)

(iv)

(v)

(vi)

4(i)

(ii)

(iii)

(iv)

(v)

(vi)

The amount transferable to the reserve fund by the banks incorporated in India is -------------of the profit for each year. Every banking company has to maintain certain amount of assets under Section 25 of the banking regulation Act as at the ----------The penalty which is payable by a banking company which is a scheduled bank for failure to maintain the cash reserve in any week for the first time is----------------------------have to maintain cash reserve under Section 18 of the BR Act. The liquid assets to be maintained under section 24(2A) of BR Act are----------of the balances maintained under section 42 of the RBI Act. The payment of penalty under section 24 of BR Act can be enforced by making an application before------------Only scheduled banks have a duty to maintain cash reserve under section 42 of the Reserve Bank of India Act Every banking company has to maintain the liquid assets as required under section 24 of the banking regulation Act. The share capital and reserves of a banking company form part of its demand and time liabilities for the purpose of section 42 of the RBI Act The cash reserve required under section 42(1) of the RBI Act will be a minimum of three percent of the demand and time liabilities Interest is payable to scheduled banks on the cash reserve maintained as required under section 42(1) of the RBI Act. No banking company incorporated in India is required to maintain

10

20 per cent

Last Friday of every quarter

3 per cent over the bank rate

Banking companies which are not scheduled banks. Not inclusive

Civil court

True

True

False

False

False

False

5.1.

2

3

4

5

6. (i)

(ii)

(iii)

7.(i)

(ii)

reserve fund under section 17(1) of the BR Act. The directions of the Reserve bank issued to the banking companies under section 35A of the banking Regulation Act are--------------. A contract if entered into by a banking company with any party in contravention of a direction issued by the reserve bank------------Liquid assets are required to be maintained in India under section 24 of the BR Act,may be held in the form of----------------For the purpose of maintenance of liquid assets under section 24 of the BR Act,unencumbered approved securities shall be valued at---------The penal interest chargeable on a banking company under section under section 24(2A) of the Act-------------Choose the correct statement from following: There are no restrictions on a banking company against grant of loans or advances on the security of its own shares. A banking company can lend to any firm in which its director is a partner. A banking company is prohibited from entering into any commitment for granting loans or advances to or on behalf of any individual in respect of whom any of its directors is a partner or guarantor. The power of the Reserve Bank to control advances extends to specifying the purposes for which advances may or may not be made. A direction ,regarding advances may be issued by Reserve Bank to banking companies generally and not to any banking company in particular.

11

(iii)

8(i)

(ii)

(iii)

9(i)

(ii)

(iii)

10(i)

(ii)

(iii)

A direction regarding advance can be issued by the Reserve bank only in the interest of banking policy and on no other grounds. The depositor of a banking company can make a nomination in the form prescribed under the banking Companies(Nomination) rules,1985. There is no no form prescribed for nomination by depositors under Banking Companies (Nomination) Rules, 1985 The nominee is entitled to receive the proceeds of the deposit on maturity of the deposit during the lifetime of the depositor or later. Banking Ombudsman is appointed by the Government under the Banking Regulation Act. Banking Ombudsman is appointed by the Reserve bank under the banking Ombudsman scheme,2006 framed in the nature of directions under the Banking Regulation Act,1949. Banking Ombudsman is appointed by the Reserve Bank under the Reserve Bank of India Act. For maintenance of cash reserve under section 42 of the RBI Act,'demand and time liabilities' do not include paid-up capital of the banking company. Loan taken from the Reserve bank and Exim Bank are included in 'demand and time liabilities' under Section 42 of the RBI Act. Any loan taken by a regional rural bank from its sponsor, forms part of its demand and time liabilities for the purpose of cash reserve under section 42 of the RBI Act.

12

UNIT IV RETURNS, INSPECTION, WINDING UP SL.NO

QUESTION

ANSWER

1(i)

A banking company has to prepare End of calender year. profit and loss accounts and balance sheet as at the -----------or at the expiration of twelve months ending with such date as notified by the Central Government.

(ii)

The balance sheet and profit and loss Auditor of companies account shall be audited by a person duly qualified to be----------

(iii)

Three copies of the balance sheet and Registrar of Companies accounts along with the auditor's report of a banking company sent to the Reserve bank under Section 31 of the BR Act,have also to be sent to ---------------

(iv)

Reserve bank is empowered to Inspection conduct------------of a banking company under section 35(1) of the BR Act

(v)

A copy of the inspection Should be given report,relating to banking company ,-----------to that banking company.

(vi)

The board for financial supervision is Reserve Bank constituted by-----------------

(vii)

Under section 35(4) of the BR Act, To the detriment of interest of Central Government can prohibit a depositors banking company from accepting fresh deposits if the business of the banking company is conducted-------------

3(i)

The undertaking of a banking Directions under sections 21 and company may be acquired by the 35A of the BR Act. Central Government if it is satisfied on a report from the Reserve Bank that the banking company has failed on more than one occasion to comply with the ---------------------

(ii)

The Central Government may make Scheme

13

SL.NO

QUESTION

ANSWER

a----------after consultation with the Reserve Bank for carrying out the purpose of part IIC of the BR Act, in relation to an acquired bank. (iii)

------------may apply to the high court Reserve Bank. for winding up of a banking company under section 38 of the of the BR Act.

(iv)

The High Court shall order winding Pay its debts up of a banking company if the banking company is unable to --------------

(v)

In a winding up proceeding the Be deemed to have filed claim. depositors shall ---------for the amounts shown in the books of the bank standing to their credit.

(vi)

The-------------may apply to the Reserve Bank Central Government for an order of moratorium in respect of a banking company.

(vii)

The provisions of a scheme of Have overriding effect on amalgamation sanctioned by the Central Government under section 45 of the BR Act will--------------the provisions of other laws.

4(i)

Central Government can acquire the False undertaking of a banking company under Section 36AE of the banking Regulation Act in the interest of banking policy without any report from the Reserve Bank on the affairs of the banking company.

(ii)

The undertaking of an acquired bank True may vest in the Central Government or in any company or corporation as directed by the Central Government.

(iii)

On the application of Reserve Bank, False the High Court may stay the commencement or continuance of proceedings against any banking company for any period.

14

SL.NO

QUESTION

ANSWER

(iv)

The Reserve Bank or State Bank or True another person as specified by the Reserve Bank in its application before the High Court may be appointed as liquidator of a banking company.

(v)

On winding up of a banking False company, all the depositors as a class get the first preference for payment.

(vi)

The reserve bank may prepare a True scheme for reconstruction or amalgamation of a banking company under Section 45 of the BR Act.

(vii)

Making any false statement in a True return or other document submitted under the provisions of the BR Act is punishable with imprisonment and fine also.

5(i)

A banking company has to prepare its annual accounts in the forms---------------

(ii)

A banking company has to submit three copies of its accounts and balance sheet together with auditor's report-------------------.

(iii)

The expenses incidental to a special audit under section 30(1B) of the BR Act shall be borne by ------------.

(iv)

The balance sheet and profit and loss account of a banking company, have to be audited, as stipulated under section 30 the banking regulation Act, by------------------.

(v)

Reserve bank shall cause on inspection of a banking company, by one or more of its officers--------------.

6

Choose the correct statements from following Reserve Bank may publish, if they consider in the public interest to do so, any information obtained by them

(i)

15

SL.NO

QUESTION

ANSWER

under the BR Act in such consolidated form as it thinks fit. (ii)

Reserve Bank may not publish any information in whatever form collected from a banking company in exercise of the powers under the BR Act.

(iii)

Reserve bank may not publish information obtained during inspection of a banking company even in a consolidated form.

7(i)

Board of Financial Supervision is a body established by the Government under the provisions of the BR Act.

(ii)

Board of Financial Supervision is a body established under the Reserve Bank of India Act for the supervision of banks and financial companies.

(iii)

Board of financial supervision is a body established by the Government for supervising the securities market.

8(i)

The Reserve Bank may order moratorium in respect of a banking company when it is satisfied that there is good reason to do so.

(ii)

The Central Government may order moratorium on its own motion when it is satisfied that the financial position of the banking company is not satisfactory.

(iii)

The Central Government may after considering the application made by the Reserve Bank for an order of moratorium in respect of a banking company, order moratorium staying the commencement and continuance of all actions and proceedings against the banking company.

9(i)

The High Court shall under section 38 of the BR Act order winding up of a banking company if it is unable to

16

SL.NO

QUESTION

ANSWER

pay its debts. (ii)

The High Court shall under section 38 of the BR Act order winding up of a banking company if the Government makes an application therefore under section 37 of the BR Act

(iii)

The High Court shall under section 38 of the BR Act order winding up of a banking company if the continuance of the banking company is prejudicial to the interests of its shareholders and the Reserve bank applies to the court on that ground.

10(i)

No provisions of the Companies Act apply to the liquidator in the winding up of a banking company.

(ii)

All provisions of the Companies Act apply to the liquidator in the winding up of a banking company.

(iii)

All provisions of the Companies Act relating to liquidator, insofar as they are consistent with BR Act, apply to a liquidator of a banking company.

17

UNIT-5 PUBLIC SECTOR BANKS AND CO-OPERATIVE BANKS Sl.No Question 1 The State Bank of India is a -----------constituted under the State Bank of India Act 2 The Chairman of State Bank of India is appointed by --------------in consultation with the Reserve Bank. 3 State Bank has to act as ----------and carry out Central Government Business and other business entrusted by the Reserve Bank. 4 The provisions of the ---------are applicable to State Bank as stipulated in Section 51 of the BR act. 5 The majority of shares of subsidiary banks are held by 6 Regional rural banks operate in 7 The management of the affairs of a regional rural bank vests in 8 The State Bank can make statutory regulations for carrying out the purposes of the State Bank of India Act, in consultation with Reserve Bank and with previous approval of the Central Government 9 The Central Government is not authorized to give any directions to the State Bank in matters of policy involving public interest 10 The provisions of Section 42 of the Reserve Bank of India Act relating to cash reserve apply to State Bank. 11 Subsidiary banks do not have to maintain liquid assets under Section 24 of BR Act 12 Regional rural banks may transact the business of banking as defined in Section 5(b) of the BR Act and also other business specified in Section 6(1) of that Act. 13 Two regional rural banks may be amalgamated by the Reserve Bank by notification in the gazette 14 The management of Nationalised Banks is governed by the Naitonalised Banks(Management and Miscellaneous provisions) Schemes of 1970 and 1980 15 Unless the context otherwise requires, the reference to a ---------in the Banking Regulation

18

Answers Body corporate Central Government

Agent of Reserve Bank

Banking Regulation Act.

State Bank of India Notified area Its board of directors True

False (RA-) True

False (RA-) True

False (RA-) True

Banking Company

16

17

18

19

20

21

22

23

24

25

26

27

28

Act shall be construed as reference to a cooperative bank. ------------in relation to a co-operative society, for the purpose of BR At, includes a member of any committee or body for the time being vested with the management of the affairs of that society. The requirement of minimum paid-up capital and reserves for a co-operative bank to commence or carry on banking business is -----There are restrictions on co-operative banks on ----in other co-operative societies under Section 19 of the BR Act. Central and State co-operative banks have to submit their returns under Section 31 of BR Act to---Under Section 23 of BR Act. Without the permission of Reserve Bank a---------can open a new place of business within the area of its operation Co-operative Banks have to prepare their balance sheet and profit and loss account in the forms set out in the Third Schedule to --Banking Regulation Act was made applicable to Co-operative banks by the Banking Laws(Application to Co-operative Societies) Act,1965 A primary co-operative bank does not require licence from the Reserve Bank to carry on banking business The provisions of the Banking Regulation Act as provided in Section 56 of the Act apply to cooperative banks. A‟co-operative Bank‟ means a primary cooperative bank, central co-operative bank and state co-operative bank There are no restrictions under the BR Act on lending by co-operative banks to their directors or firms in which they are interested. A scheduled co-operative bank has to maintain cash reserve as stipulated in section 42 if the Reserve Bank of India Act(as applicable to cooperative societies) Inspection of co-operative banks is done by the State Government under the co-operative societies Act and the Reserve Bank has no

19

Director

Rs.1Lakh

Holding of shares

Reserve Bank and National Bank Central co-operative Bank

Banking Regulation Act

True

False (RA-) True

True

False (RA-) True

False (RA-)

29 30 31

32 33 34

power to inspect under the Banking Regulation Act. State Bank may act as agent of the Reserve Bank-------------------shall be the ex-officio chairman of the subsidiary banks The thrust of business of regional rural banks is to make loans d advances available „in rural areas‟ Nationalised Banks can undertake ---The auditor of a Nationalised bank has to be

20

UNIT-6 CASE LAWS ON RESPONSIBILITY OF PAYING BANK Sl.No Question 1 The law relating to payment of cheques and protection to banker is contained in the Indian Contract Act. 2 The responsibility of a banker to pay back the money of the customer specifically stated in the Negotiable Instruments Act,1881 3 Section 31 of the Negotiable Instruments Act applies only to the banker 4 The banker is first bound to honour a customer cheque and only thereafter exercise his right of set off. 5 A forged signature is no mandate of the customer 6 A customer is bound to inform the bank about lost cheque leaves 7 In a joint account if one of the signatures is forged, the bank and the customer are equally liable. 8 Payment to be made in due course need not always be made to holder but can be made to his agent or servant 9 In case bank makes payment by mistake it can recover the same even if the payee has changed his position. 10 If a bank makes payment without checking the instrument under an ultraviolet lamp, it can be held liable on the grounds of negligence

21

Answers False

True

True False

True False False

True

False

False

UNIT-7 CASE LAWS ON RESPONSIBILITY OF COLLECTING BANK Sl.No Question 1 The statutory protection to a collecting banker is as per section 6 of the Indian Contract Act 2 Section 131A of the Negotiable Instruments Act extends the protection granted to a banker while receiving payment of cheque, and drafts 3 The duties of collecting bank to claim protection has been laid down under the Indian Contract Act and Banking Regulation Act 4 In the absence of proper reference the banker can be held liable on the grounds of negligence 5 It is necessary for the banker to make enquiries regarding the reference given by the customer

22

Answers False True

False

True True

UNIT-8 INDEMNITIES Sl.No Question 1 Section ------OF Indian Contract Act defines an indemnity 2 A person promising to save another from loss is called 3 -------------is a person who is promised to be saved from loss 4 Contract of indemnity as defined in the Contract Act is exhaustive 5 Insurance contracts are not contracts of indemnity 6 There are----parties to a contract of indemnity 7 Indemnifiers liability in a contract of indemnity is 8 There are three parties to a contract of indemnity the indemnifier, indemnity holder d the person on whose behalf the indemnity is given 9 Indemnifier‟s liability occurs only if the indemnity holder suffers loss 10 Customers as matter of right and without an indemnity can obtain duplicate of demand drafts or travellers‟ cheque 11 Indemnities are required by banks purely as a formality and do not serve any other purpose. 12 The indemnity obtained by a banker only protects him from the actual value of the instrument 13 The two conditions that an indemnity holder is bound to comply before being indemnified for a loss

14

15

Answers 124 Indemnifier Indemnity holder False False 2 Primary False

True False

False False

He should act within the scope of his authority and should not contravene any directions of the indemnifier Indemnity holder entitle to be indemnified To the extent of the damages suffered costs incurred and sums paid for compromise of any suit In case of compromise the indemnity holder has 1)The compromiser was to satisfy certain conditions before recovering not contrary to the orders the loss from the indemnifier, the conditions are of the indemnifier 2) Such compromise was prudent 3) the indemnifier had

23

16 17 18

authorized the indemnity holder to compromise the suit An indemnity holder can act beyond his False authority An indemnity holder can be compensated only False for damages and not for the costs incurred by hi An indemnity holder is entitled to compromise a False suit as thought fit by him though contrary to the orders of the indemnifier

24

UNIT-9 BANK GUARANTEES Sl.No Question 1 In bank guarantees the bank makes payment on 2

Answers Merely on demand by the beneficiary. In case of bank guarantee s on behalf of Must pay the beneficiary company that is in liquidation the bank on invocation of the guarantee by the beneficiary

25

UNIT-10 LETERS OF CREDIT Sl.No Question 1 A letter of credit is a form of guarantee given by banks on behalf of its customer 2 Letters of credit are bills of exchange drawn by a seller or a buyer 3 LCs are negotiable instruments 4 The letter of credit is opened on the request of 5 The LC issuing bank is also called 6

7

8 9

10

11 12 13

14 15 16 17 18 19

20

21

Answers True False

False Applicant The importers bank or the opening bank The right to receive payment under a letter of The seller only credit or the right to draw bills on a letter of credit is vested in The advising bank‟s responsibility is To inform the beneficiary/seller about the letter of credit The advising bank is also called the Notifying bank Negotiating bank is the bank which Makes payment of the bills drawn by the seller and accepts the documents When the LC specifies the bank that is to Nominated Bank negotiate the bills drawn under the LC then the bank is also called The confirming bank is The advising bank when it confirms the LC When the confirming bank confirm the credit it Undertakes on its part the liability under the LC Reimbursing bank is the bank That reimburses the negotiating/paying or confirming bank Ordinary letter of credit is usually---Sight credits Letter of credit under which usance bills can be Acceptance credits drawn is called an In a revocable LC the credit can be amended or Issuing bank cancelled by the Only---letters of credit can be confirmed Irrevocable Credit in which the beneficiary is not liable for Without recourse the bills drawn thereunder is----credit A back-to-back credit would involve at least --- Three: the issuing, bank, viz.,the---bank,-----------bank and the---- advising and third bank All parties to a letter of credit transaction need False to comply with the terms only as far as practical and not strictly In case the documents submitted by seller do False 26

22 23 24

25 26

not comply with the terms of letter of credit then the same can be accepted and sent for confirmation of buyer A bill of exchange is document to title to goods A bill of exchange is also called a „bill‟ or a „draft‟ Invoice in a letter of credit transaction is a document similar to a quotation based on which the buyer places his order A bill of lading on a bona fide transfer confers on the transferee a right to the goods An airway bill is also a document evidencing title to goods

27

False True False

True False

UNIT-11 DEFERRED PAYMENT GUARANTEE Sl.No Question 1(i) In a deferred payment guarantee, the guarantee is to ensure delivery of goods. (ii) A deferred payment guarantee is mostly based on a primary contract between the buyer and the seller. (iii) A deferred payment guarantee differs from other kinds of guarantee issued by banks as regards payment liability of the bank on invocation. (iv) In a deferred payment guarantee the banks liability comes into existence only if all the installments are not paid and not on the nonpayment of any one installment by the customer.

28

Answers False True

False

False

UNIT-12 LAWS RELATING TO BILL FINANCE Sl.No Question 1 Bill of exchange means a unconditional direction to the drawer to pay the moneys. 2 The maker of the bill is called-------------. 3 Bill purchase facility is granted in the case of demand bills. 4 ----------------facility is granted in the case of usance bills. 5 ----------------of the bill is bound in case of dishonour of bill. 6 Ownership of goods can be transferred by endorsement and delivery of----------------------7 In bills co-acceptance facility the banker becomes a surety for the value of bill.

29

Answers True Drawer True Bill Discounting Drawer Document of title to goods True

UNIT-13 VARIOUS TYPES OF SECURITIES Sl.No Question 1 If money lent is more than Rs.100 on the security of land, then the mortgaged(simple) requires registration. 2 A mortgage deed need not be witnessed. 3 Permission from Income Tax authorities under the Section 230 to create mortgage is required only if the land belongs to a company. 4 Arrears of tax constitute a preferential charge on the property. 5 There are three types of shares-ordinary,equity and preference. 6 Debenture is a kind of share issued by a company and has no voting rights. 7 Borrower can create a valid pledge with documents of title of goods. 8 Bills of lading, dock warrants, warehousekeeper's certificate,etc., are some examples of documents of title of goods. 9 Documents of title to goods are negotiable instruments. 10 Only Life Insurance Companies can issue life policies. 11 Insurance contracts are contracts of absolute good faith. 12 An assignee of a life policy can sue in his/her own name. 13 For a loan against fixed deposit receipt, the stamp duty is very high. 14 Supply bills are bills of exchange

30

Answers True

False False

True False False True True

False True True True False False.

UNIT-14 LAW RELATING TO SECURITIES AND MODES OF CHARGING-I Sl.No Question 1 Mortgage is ------------in the immovable property. 2 Simple mortgage is created by an instrument in writing. 3 Mortgage by deposit of title deeds is required to be registered. 4 In the case of usufructuary mortgage the possession of the properties is given. 5 In mortgage by way of conditional sale the property is sold with a condition for reconveyance. 6 All successive mortgages created will rank equally and no mortgage will have a greater priority over the other. 7 To decide as to which mortgage will have priority over the other in the case of two or more mortgages on the same immovable property, the date of ----------mortgage is pertinent. 8 Limitation period for filling a suit for sale of mortgaged properties is----------------years from the date the mortgage debt becomes due. 9 Mortgage suits are filed in the Court within whose jurisdiction the mortgagee resides.

31

Answers Transfer of interest True False True False

False

Execution of

Twelve

False

UNIT-15 LAW RELATING TO SECURITIES AND MODES OF CHARGING-II Sl.No Question 1 Pledge means-------------of goods for purpose of securing a payment of debt or performance of promise. 2 The most important characteristic of pledge is-------------of goods. 3 Owner of goods cannot make a pledge. 4 Hypothecation letter gives a banker right to possession of goods is given 5 Hypothecation letter gives a banker right to possession of goods in the event of default.

32

Answers Bailment

Possession False True True

UNIT-16 DIFFERENT TYPES OF BORROWERS Sl.No Question 1 Individual borrowers are governed by the-----------Act 2 In a Hindu undivided family the business of the family is managed by--------------3 A company is------------and---------------from its members. 4 A Private Limited Company has minimum--------number of members and a maximum of----------numbers of members. 5 A Public Limited company shares are----------transferable. 6 Statutory corporations are established by Acts of------------7 Private trusts are governed by the------------Act. 8 Trusts of Hindus are governed by the---------Act. 9 Trust of Muslims are governed by the----------Act

33

Answers Indian Contract Karta Separate and distinct 2,50

Freely Parliament Parliament Religious and Charitable Endowments Act Wakf

UNIT-17 TYPES OF CREDIT FACILITIES Sl.No 1

Question Credit facilities are mainly classified in to

2

Fund based facilities, among other things, include

3

Non-fund based facilities, among other things, include Term loans based on period of repayment are classified into

4

5 6 7 8

9

Answers (i)Fund based facilities (ii)Non fund based facilities (i)Cash credits/Overdrafts (ii)Term Loans (iii)Bill Finance (i)Bank guarantee (ii)Letter of credit facility (i)Short-term loan (ii)Medium-term loan (iii)Long-term loan Fund based facility Non-Fund based facility Banking custom

Cash Credit facility is a------------Bills co-acceptance facility is a------------Banker is entitled to charge interest on temporary overdraft under---------------. Limitation period for filling a suit in term loans Three is-----------years from the date of default of installment Period of repayment in the case of medium- 5-7 years term loan is------------

34

UNIT-18 SECURED AND UNSECURED LOANS, REGISTRATION OF FIRMS, INCORPORATION OF COMPANIES Sl.No Question Answers 1 Only personal security of the borrower is In secured available in the case of----------loans. 2 Secured loans are normally secured by----------- Pledge, Hypothecation, Mortgage or Assignment of Debts 3 Pledge is------------of goods as a security for Bailment debt. 4 Hypothecation is treated as-------------pledge. Constructive 5 Personal obligation of mortgagor is a distinct Mortgage of deposit of feature of-----------title deeds 6 Section 58 of Partnership Act, 1932 provides Registration of for------------partnership 7 A partner on behalf of firm cannot institute a False suit on contract, if the firm is registered. 8 Shares of public limited company are freely True transferable. 9 Certificate of incorporation is a document True evidencing existence of company. 10 Certificate of commencement of business is False required for private limited company to start business.

35

UNIT-19 REGISTRATION AND SATISFACTION OF CHARGES Sl.No Question 1 Charge means any form of----------for----------2 Charges created by company shall be registered with-------------3 Under Companies Act a charge includes---------4 Charge, if not registered is not enforceable against company. 5 Charge shall be registered within------------days from the date of creation of charge.

36

Answers Security, Debt Registrar of Companies Mortgage False 30

UNIT-20 INTRODUCTION TO SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST, 2002 (SARFAESI ACT, 2002) Sl.No Question 1 Banks obtain security while lending, so that in the case of need, the money can be------------of securities. 2 The SARFAESI Act is applicable to the housing finance companies whose names are notified by the Central Government. 3 In Mardia Chemical Case the Supreme Court decided that the condition of deposit of amount is fully invalid. 4 After Mardia Chemical Case, the amendment made in the SARFAESI Act stipulates deposit of ---------------amount before preferring the appeal to DRT (Appellate Tribunal). 5 Whether movable securities in possession of the bank can be sold by the bank without the intervention of the Court? 6 As per the laws existing today, the mortgaged security cannot be sold without a Court intervention. Is this correct? 7 Provisions of SARFAESI Act, 2002 applies to which securities?

8

Answers Realised by sale

True

True

50 Per cent

Yes, bank can sell as provided in the Contract Act, 1872 No, SARFAESI Act, 2002 has now made enabling provisions. Where the security interests are created for repayment of financial assistance given by the bank or a financial institution. In the Mardia case what did the Supreme Court Condition to pay seventydeclared as invalid? five percent of the amounts as pre-condition while preferring appeal to the DRT.

37

UNIT-21 DEFINITIONS OF SARFAESI ACT, 2002 Sl.No Question 1 The SARFAESI Act is applicable for pledged securities also. 2 For the enforcement of a mortgage security, court intervention is required even for actions under the SARFAESI Act. 3 Banks and financial institutions can issue notice for enforcement over security under SARFAESI Act only if these securities are not-----------------creditor and only when the account is classified as--------------4 If the borrower does not pay within----------days after notice by the secured creditor the creditor can-----------------of the security. 5 After receipt of notice from the secured creditor for repayment of dues by the borrower, the borrower is legally prevented from transferring his property in any way. 6 On request of the secured creditor the District magistrate or the Chief Judicial Magistrate can take possession of the security for handling over it to the creditor. 7 When the management of the company is taken over by the secured creditor, the directors of such company are entitled to compensation for loss of office. 8 When any bank or financial institution obtains a charge against property, with which authority will the transaction have to be registered under the SARFAESI Act, 2002? 9 When can the provisions of SARFAESI Act, 2002 be invoked for proceeding against the charged property? 10 11

Answers False False

In possession, NPA

Sixty, take possession

True

True

False

With the central Registry.

When there is default in repayment and the bank declares the account as NPA. Whether existing or future receivables are Yes property? From the following which function is of a Acquisition of financial securitisation company? asset from the originator.

38

UNIT-22 REGULATION OF SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS OF BANKS AND FINANCIAL INSTITUTIONS Sl.No Question 1 A securitisation or reconstruction company needs registration from the RBI for commencement of business. 2 Right of acquisition of a financial asset by the securitisation or reconstruction company is subject to the prior agreements or contracts about the asset. 3 Acquisition of a financial asset by the securitisation company or reconstruction company is with the liability also over such an asset. 4 Which are the four documents involved in the securitisation transaction? 5

6

7

8

9

10

Answers True

False

False

Offer document, debenture, agreement and security receipt For each asset acquired or to be acquired, by Separate the securitisation company or the reconstruction company there should be-------------scheme. When the securitisation company or Undivided interest reconstruction company issues security receipts, the holder thereof, is entitled to a-------------in the financial asset. The security receipt issued by the securitisation False or reconstruction company requires registration. Any direction issued by the RBI under the Statutory, binding SARFAESI Act has----------effect and is-------------on the parties concerned. After application of the SARFAESI Act what They have to get have the existing companies to do about registered within six registration with RBI? months from the commencement of the Act. Which, from amongst the following, is a reason The company ceases to for the cancellation of registration of the carry on the business of securitisation company and reconstruction securitisation or company without giving a hearing opportunity? reconstruction.

39

UNIT-23 ENFORCEMENT OF SECURITY INTEREST Sl.No Question 1 Asset reconstruction means-------------by any securitisation company or reconstruction company of any right or interest of the creditor in any---------------2 SARFAESI Act is applicable to the Regional Rural Banks. 3 Mortgage or asset backed debt instruments can be issued by the securitisation company or reconstruction company to the general public. 4 A guarantor to the loan is within the meaning of the word borrower under SARFAESI Act. 5 SARFAESI Act is applicable only when there is security. 6 Has SARFAESI Act defined Hypothecation and whether the Act is applicable to Hypothecation security? 7 On giving of a default notice by the creditor, the borrower gives a reply to it. What should the creditor do?

8

Answers Acquisition, Financial assistance

False False

True True True

Give the consideration to the reply as per the guidelines issued in the Mardia Chemical case by the Supreme Court and reply to it. On sale of the Security asset, the sale proceeds Towards payment of cost, are appropriated firstly. charges and expenses for the preservation and protection of securities , insurance premiums, etc.

40

UNIT 24 CENTRAL REGISTRY Sl.No Question 1 After coming into operation, the provisions relating to central registry the banks and financial institutes will have to register all security will have to register all security interests created in the asset. 2 The period stipulated in the Act for filing details of security interest is--------------days. 3 Duty to report satisfaction of charge to the central register is on creditor or on the borrower? 4 Besides the SARFAESI Act, some other laws require some registration of charge created in the property. Is such double registration avoidable?

41

Answers True

30 Creditor

No, registration under the SARFAESI Act as well as only other applicable law will have to be made as the SARFAESI Act is not substitution of any other law.

UNIT 25 OFFENCES AND PENALTIES Sl.No Question 1 Is there any punishment provided in the Act for not following RBI directions? 2 Can the Honorary Magistrate take cognisance of offence under the SARFAESI Act? 3 Whether breach of RBI directives is punishable offence and to what extent?

42

Answers Yes No Yes, a fine up to Rs.5 Lacs and for continuation of offence a fine of up to Rs.10,000 per day.

UNIT 26 MISCELLANEOUS PROVISIONS Sl.No Question 1 For challenging an action initiated by secured creditor against the defaulting borrower under the SARFAESI Act, the borrower can go to the Civil Court for an injunction. 2 Can the bank take action under SARFAESI Act against a deposit under lien with it? 3 Are hire-purchase and lease contracts covered under SARFAESI Act? 4 After the bank's notice a defaulting borrower has paid within sixty days a substantial amount and the present dues are Rs.15 Lacs which is 15 percent of the claimed amount. Can bank proceed to take possession of the security? 5 If on some point the provisions of the Transfer of Property Act and the SARFAESI Act are different, which act will prevail? 6 Can a bank proceed to take possession of the security after four years of cause of action? 7 Provisions of the SARFAESI Act are applicable to which of the following? 8

Answers False

No No No

SARFAESI Act

No

Securities charged to creditors and not in possession of the creditor. When the rules, framed by the Central When both the Houses of Government, under the Act get validity? parliament approve the Rule so framed.

43

UNIT 27 THE BANKING OMBUDSMAN SCHEME, 2006: PURPOSE, EXTENT, DEFINITIONS, ESTABLISHMENT AND POWERS Sl.No Question 1 Disputes amongst two banks can be taken up before the banking ombudsman. 2 Co-operative banks are not covered by the banking ombudsman scheme. 3 Banking ombudsman is appointed by a committee of Supreme Court Judges. 4 It is not within the powers of banking ombudsman to deal with the complaint unless both parties agree for his intervention. 5 What is the object of introducing the banking ombudsman scheme, 2006? 6

7

Complaints relating to non-acceptance of small denomination notes by a bank, can be made to a banking ombudsman. Complaints can be made against promises made by sales agents but not fulfilled by the bank represented by them under the banking ombudsman Scheme 2006?

44

Answers True False False False

To enable resolution of complaints relating to banking services. Banking ombudsman can deal with the complaints under the scheme. The banking ombudsman can entertain the complaint under the scheme.

UNIT 28 PROCEDURE FOR REDRESSAL OF GRIEVANCE Sl.No 1

2

3

4

5 6 7

8

9

10

Question Bank can refuse acceptance of small denomination notes from the customer and therefore, on this ground there cannot be a complaint to banking ombudsman. On valid grounds bank can refuse the opening of a new account, but on this ground, compliant before the banking ombudsman is maintainable. Can a prospective borrower go before the banking ombudsman for non-sanction of his loan by the bank? Banking ombudsman has powers to call for any information and certified copies from the bank when he is dealing with the complaint. For settling the complaint the banking ombudsman is bound by legal rules of evidence. What is the maximum amount the banking ombudsman can award as compensation? Limitation period for filing of the review application against the award given by the banking ombudsman is -------------days. Can a customer from whose account someone fraudulently has withdrawn money make a complaint before the banking ombudsman? Reserve Bank and the Central Government may forward a complaint to the banking ombudsman?

Answers False

False

No

Yes

False Rs.10 Lacs 45

Yes, as this aspect comes under the powers of the banking ombudsman. Reserve bank and the Central Government are empowered to send the complaint received by them to the banking ombudsman. Can the complaint be filed through an advocate Advocates are not as the authorised representative of the allowed to act as complainant? authorised representatives of the complainants under the scheme.

45

UNIT 29 RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 (DRT ACT) PRELIMINARY Sl.No 1 2 3 4

5

Question DRT Act is applicable only if the debt recoverable is above Rs.---------------The debt recoverable through DRT may be secured or In secured. Overdrawn amount in an account is not a debt recoverable under DRT Act. If a Civil Court has passed a decree it has to be executed through that court only and cannot come to recovery tribunal. A bank has allowed a current A/c holder an ad hoc overdraft of Rs.15 lacs. The amount is due. Whether this is recoverable under provisions of DRT Act?

46

Answers Rs.10 Lacs True False False

Yes, as it is a legally recoverable amount by the bank.

UNIT 30 ESTABLISHMENT OF TRIBUNAL AND APPELLATE TRIBUNAL Sl.No 1 2 3 4

Question Answers Debt recovery tribunals are established by------- Central Government ----Debt recovery tribunals consist benches of three False persons. Jurisdiction of appellate tribunal is with the False respective High Courts. Can the order of Central Government in the No appointment of the presiding officer of the tribunal be challenged in any Court?

47

UNIT 31 JURISDICTION, POWERS AND AUTHORITY OF TRIBUNALS Sl.No 1 2

3

Question A decree passed by the foreign court can be executed by the Tribunal. For reasons the chairperson of the Appellate Tribunal can transfer any case from one tribunal to other Tribunal within his jurisdiction. For the matters for which the Tribunals are empowered the Civil Courts have no jurisdiction.

48

Answers

UNIT 32 PROCEDURE OF TRIBUNALS Sl.No 1 2

3 4 5

6 7

Question DRT jurisdiction for a bank is where the head office of the bank is located. If a bank has filed recovery application, other bank can join the application if the defendants are same. When a case get transferred from Civil Court to tribunal fresh court fee is required to be paid. A counterclaim field before DRT has the same effect as a -------------Since DRT is not a Civil Court it cannot pass interim orders such as attachment, injunction receiver, etc. A person who has to file appeal before the Appellate Tribunal has to pay------------While filing appeal before the appellate Tribunal has to pay-----------------

49

Answers False True

False Plaint in cross-suit False

75 per cent of the debt ordered by the Tribunal. Yes, 75 per cent of the amount determined by the tribunal is required to be deposited at the timing of filing of the appeal.

UNIT 33 RECOVERY OF DEBTS DETERMINED BY TRIBUNAL AND MISCELLANEOUS PROVISIONS Sl.No 1

2

3

4

5 6

7

Question Recovery officers appointed under DRT Act can attach and sell movable as well as immovable property of the person against whom order is passed even if the property is not charged to the creditor. The defendant can raise a plea before the Recovery Officer about correctness of the amount ordered to be paid. If the recovery certificate has clerical or arithmetical mistake-------------can correct the same. For recovery the Recovery Officer can adopt the same methods as adopted for recovery of income tax under the Income Tax Act. Recovery Officer can ask the defendant to furnish by affidavit particulars of his asset. A company is under winding up process. Whether High Court permission is required to a bank to proceed against it before DRT? Doctrine of election will come into play

50

Answers True

False

Presiding Officer of the Tribunal. True

True No, as the DRT Act specially provides to that effect. When all the aforesaid elements are to be present in a case.

UNIT 34 THE BANKER'S BOOKS EVIDENCE ACT, 1891 Sl.No 1

2 3

4

5

Question If the books of the bank are maintained in the electronic form, does all the provisions of this Act are applicable to it. Does this Act apply to any investigation or inquiry under the Criminal Procedure Code? A certified copy of any entry in a banker's Book is received in legal proceeding as-----------evidence for existence of such entry. Unless the Court otherwise directs, bank officer cannot be compelled to produce----------------to prove any banker's book's contents when copy is produced. In a civil suit, to which bank is not a party, one of the parties has produced certified copy of books account. One party to the suit wants to call bank officer as witness to prove the contents of copy. Can it be done?

51

Answers Yes

Yes Prima facie

Original books

No, as the certified copy is a prima facie evidence that is admissible in evidence.

UNIT 35 THE LEGAL SERVICES AUTHORITIES ACT, 1987: LOK ADALATS Sl.No 1 2 3 4 5

Question Lok Adalats are organised under the Lok Adalats Act. Lok Adalats are organised to settle only the existing disputes between the parties. If one party intends to refer the dispute to Lok Adalat, the consent of the other is not required. Lok Adalats shall strive at arriving a compromise or settlement between the parties. There shall be no appeal against the award of the Lok Adalat.

52

Answers False False False True True

UNIT 36 THE CONSUMER PROTECTION ACT, 1986: PREAMBLE, EXTENT AND DEFINITIONS Sl.No 1 2 3 4 5

Question Consumer protection act is enacted to protect the manufacturing conditions of the Industries. The agencies appointed under Consumer Protection Act are quasi-judicial in nature. Can a voluntary consumer association file a complaint on behalf of consumer? A consumer has purchased goods for resale. Can he file complaint? 'N. has purchased a draft from a bank favouring 'B'. The draft is lost in transit and for duplicate draft in liew of first bank need some formalities to be completed by 'N'. Can 'B' file a consumer case against the formalities as it is delaying payment to him.

53

Answers False True Yes No No, as he is not consumer of the bank and is not taking any service from the bank.

UNIT 37 CONSUMER PROTECTION COUNCILS Sl.No 1 2

3 4 5

Question Central Consumer Protection Council is the apex council having all India jurisdiction. Minister-in-Charge of consumer affairs in the Central Government is the Chairman of Central Consumer Protection Council. State Consumer Protection Council is appointed by Central Government. State Consumer Protection Council has to meet at least-------------in a year. Who is the Chairman of the Central Consumer Protection Council?

54

Answers True True

False Twice Minister-in-Charge of Consumer Affairs in the Central Government.

UNIT 38 CONSUMER DISPUTES REDRESSAL AGENCIES Sl.No 1

2 3

4

5

Question To appoint a person as President of District Forum, he must be qualified to be a District Judge. Appointment of District Forum is made by the High Court. Can few consumers file a representative complaint on behalf of general consumers at large? As the agencies appointed for under the Act are quasi-judicial, they do not have powers of Civil Court while conducting the case. District Forum has passed order to pay compensation. How recovery of the ordered amount is made?

55

Answers True

False Yes, but with permission of District Forum False

By referring the order to collector for making recovery as if it is land revenue recovery.

UNIT 39 THE LAW OF LIMITATION Sl.No 1 2

3 4 5

6

7

Question In the Limitation Act, the definition of 'suit' does not include appeal or application. The defendant is required to set up the plea of limitation if he has to succeed in a suit instituted beyond the period of limitation. A suit is said to be instituted when the plaint is presented before the proper officer. Acknowledgment in writing gives rise to fresh period of limitation. Part payment of a debt within the period of limitation entails the plaintiff to compute fresh period of limitation from the date of payment. Limitation for a mortgage suit is three years from the date when the mortgage money becomes due. A suit on demand promissory note can be filed within three years from the date on which the demand was made.

56

Answers True False

True True True

False

False

UNIT 40 TAX LAWS Sl.No 1

2 3 4 5 6 7 8 9 10 11

12 13

14 15 16 17 18 19

Question Liability to pay income tax arises on account of residential status and place of the source of income. Assessment year represents the period of 12 months beginning from 1st April each year. Previous year is the financial year immediately preceding the assessment year. Income is taxed only on salaries. Income exempt from tax is to be deducted out of taxable income before computation of tax. Assessment is of two types (a) summary assessment (b) scrutiny assessment. Partnership firm, if it has no income, need not file a tax return. Tax assessed by AO shall be paid within------days. Entire advance tax is to be paid by 15th March. Tax deduction is to be made before making payment to-------------non-residents. Tax deducted at source is to be deposited within one week from the end of the month in which it is to be deducted. Person deducting tax at source is required to file a quarterly return of TDS. FBT consists of specific items and certain benefits or expenditure incurred by the employer as deemed fringe benefit. For FBT a separate return has to filed. Service Tax Act deals with levy of tax on services. Cenvat credit can be availed of in respect of tax paid on certain specified input services. Failure to deduct tax at source will result in

Answers True

True True False False True False 30 True True True

True True

False False True

Dis allowance of expenditure Banking Cash Transaction Tax is payable if Rs. 50,000 in a day. withdrawal by an individual exceeds Banking Cash Transaction Tax is payable to the 15th day of the next credit of the Central Government by month.

57

UNIT 41 MEANING AND ESSENTIALS OF A CONTRACT Sl.No 1

2 3 4 5

6 7

Question A-------------is free when the parties to the contract agree to the same thing in the same sense. A contract without-----------is void. A person who makes a proposal is known as------------. A person is said to be competent to contract if------------. A enters into an agreement with B to rob C and share the money. B runs away with all the money. A can file a suit against B to recover the money. Mr. X (aged 17) can enter into an agreement with Mr. Y (aged 25) to buy a car. A contract is concluded only when the party to whom the proposal is made, accepts the proposal.

58

Answers Consent

Consideration Promisor He is a major and of sound mind. False

False True.

UNIT 42 CONTRACTS OF INDEMNITY Sl.No 1 2 3

Question Answers Insurance policies are contracts which are in the Indemnity nature of------------------. There are------------parties in a contract of Two indemnity. A person who is indemnified can recover True. damages as well as costs for claiming the damages.

59

UNIT 43 CONTRACTS OF GUARANTEE Sl.No 1(i) (ii) (iii)

(iv)

(v) 2(i) (ii) (iii) (iv) (v)

Question In a Contract of Indemnity the indemnifier is primarily liable. In a Contract of Guarantee the liability of the surely is secondary. Anything done for the benefit of the principal debtor is a sufficient consideration to the surety for giving the guarantee. Where there are co-sureties, a release by the creditor of one of them does not discharge the others. Principal debtor need not pay the surety after the surety has paid the amount to the creditor. Surety is also known as the-------------Liability of the surety is-----------that of the principal debtor. A guarantee which extends to a series of transactions is known as a-------------guarantee. Surety is------------if the principal debtor is released by the creditor. Guarantee obtained by--------------is invalid.

60

Answers True True True

True

False Guarantor Co-extensive with Continuing Discharged. Misrepresentation.

UNIT 44 CONTRACT OF BAILMENT Sl.No 1 2 3 4 5

6 7

8

Question Bailor is a person who delivers his goods to the surety to enable him to give a guarantee. Bailee can use the goods given by the bailor, in the manner as he likes. The bailee can keep the goods bailed to him and he need not return the same to the bailor. Giving a product on rent for use to another person is a contract of bailment. If ornaments kept in the safe locker of bank are stolen, in spite of due care by the bank, the bank is liable to the depositor of ornaments. It is the obligation of the bailee to keep his goods separate from the goods of the bailor. The bailor is liable for any loss to the bailee if the goods bailed are defective and the bailor knowingly does not disclose this fact to the bailee. If the bailee has rendered any service involving the exercise of labour or skill in respect of the goods bailed to him, he has a right to retain such goods until he receives due remuneration for the services he has rendered.

61

Answers False False False True False

True True

True

UNIT 45 CONTRACT OF PLEDGE Sl.No Question 1 In a pledge, the goods are delivered to be kept as security for a debt or for performance of a promise. 2 The pawnee can sell the goods, if the pawnor fails to pay. 3 The pawnee can sell the goods without giving notice to the pawnor. 4 The pawnee can keep the goods even after the pawnor has paid the dues.

62

Answers True

True False False.

UNIT 46 CONTRACT OF AGENCY Sl.No Question 1 Agent can be appointed by-------------. (i)Express appointment (ii)Implication of law (iii)Ratification by principal 2 The usual form of contract of agency is by way of a-------------. 3 When a person by his words or conduct appoints someone as his agent it is known as agency by-----------. 4(i) Consideration is the most essential element in any contract of agency. (ii) A contract of agency is terminated if the agent does not wish to continue ad agent any more. (iii) An agent can have a lien on the goods of the principal for the dues payable by the principal to the agent. (iv) Minor can be a principal or agent (v) The principal has to indemnify the agent for all the lawful acts done by the agent in the course of his duties.

63

Answers Any of the three modes

Power of Attorney Estoppel

False True True

False True.

UNIT 47 MEANING AND ESSENTIALS OF A CONTRACT OF SALE Sl.No Question 1(i) ------------means the consideration for a sale of goods. (ii) Goods as defined under Sale of Goods Act do not include-------------. (iii) -------------goods are to be manufactured/produced/acquired by the seller after making of the contract of sale. (iv) -------------goods means goods identified and agreed upon at the time a contract of sale is made. (v) --------------means voluntary transfer of possession from one person to another. (vi) When the transfer of the property in the goods is to take place at a future time or subject to some conditions thereafter to be fulfilled, the contract is called------------. (vii) In-------------the ownership of goods is yet to pass from the seller to the buyer. 2(i) Shares are goods within the meaning of the Sale of Goods Act. (ii) Fixtures can be regarded as movable goods only if they are intended to be served and sold separately.

64

Answers Price Actionable Claim Future

Specific

Delivery Agreement to sell

Agreement to sell. True True.

UNIT 48 CONDITIONS AND WARRANTIES Sl.No Question 1(i) If the stipulation agreed to between the parties is essential to the main purpose of the contract then such a stipulation is known as a-------------. (ii) A--------------is a stipulation, Collateral to the main purpose of the contract. (iii) There is an implied condition on the part of the seller that he has a right to--------------the goods. (iv) If the sale of goods is by---------------there is an implied condition that the goods shall correspond with the description. 2(i) In every contract of sale it is implied that the seller has got the right to sell the goods. (ii) An implied warranty as to quality or fitness for particular purpose may be annexed by the usage of trade.

65

Answers Condition

Warranty Sell Description

True True.

UNIT 49 UNPAID SELLER Sl.No Question 1(i) The seller of goods is deemed to be an unpaid seller when the-----------------has not been paid (ii) There is no----------------as to the quality or fitness of goods for any particular purpose. (iii) When the-------------is in possession of goods, a lien can be exercised. (iv) ---------------is terminated when the buyer gets the possession of the goods. 2(i) When property in the goods has not passed to the buyer and the buyer becomes insolvent before the price is paid, the seller can withhold the delivery of goods. (ii) A seller who has accepted a negotiable security as an absolute payment is no longer an unpaid seller.

66

Answers Price Implied condition Seller Lien True

True.

UNIT 50 DEFINITION, MEANING AND NATURE OF PARTNERSHIP Sl.No Question 1 If one partner cheats a customer of the partnership firm then all the partners of the partnership firm are liable to compensate the customer. 2 Registration of firms is compulsory under the Partnership Act. 3 It is compulsory to enter into a partnership deed. 4 The partners are free to decide their mutual rights and liabilities. 5 A partnership deed can even provide that a particular partner would not take part in the day-to-day business decisions of the partnership firm. 6 Consent of all the partners is necessary to change the nature of business carried on by the firm. 7 A partnership at will can be dissolved by notice.

67

Answers True

False False True True

True

True.

UNIT 51 RELATIONS OF PARTNERS TO ONE ANOTHER Sl.No Question 1 Every partner has a right to receive False remuneration. 2 It is necessary that all the partners in the False partnership firm must receive equal share of profits in the partnership firm. 3 No partner is entitled to use the partnership True property for his private purposes.

68

Answers

UNIT 52 RELATIONS OF PARTNERS TO THIRD PARTIES Sl.No Question 1 A single partner can be authorised to carry on True business and sign documents on behalf of the firm. 2 Every partner is liable jointly with all other True partners and also severally for all acts of the firm done while he is a partner.

69

Answers

UNIT-53 MINOR ADMITTEED TO THE BENEFITS OF PARTNERSHIP Sl.No Question 1 A Minor can be a partner in a partnership firm 2 3 4

False (RA-) A Minor can be admitted to the benefits of a True partnership firm A Minor is personally liable like other partners False to pay the debts of the firm (RA-) A minor who is admitted to the benefits of a True partnership firm, has a choice when he attain majority as to whether he wants to continue as a partner or not.

70

Answers

UNIT-54-DISSOLUTION OF A FIRM Sl.No Question 1 The partners can mutually agree and dissolve True the firm 2 On the death of a partner the partnership firm False is compulsorily dissolved (RA-)

71

Answers

UNIT-55-EFFECT OF NON-REGISTRATION Sl.No Question 1 A Partner of an unregistered firm can file a suit False against other partners to get his share of profits.

72

Answers

UNIT-56-DEFINITION AND FEATURES OF A COMPANY Sl.No Question 1 Directors are the actual owners of a company 2

False (RA-) A Company has to be compulsorily registered True under the Companies Act 1956

3

A company cannot enter into contracts in its False own name. (RA-)

4

If all the members of a company die, then the False company has to be wound up(i.e dissolved) (RA-)

73

Answers

UNIT-57-TYPES OF COMPANY Sl.No Question 1 In case of a company limited by shares the creditors of the company can recover the money from the members if the company is not making profits. 2 A Member cannot transfer shares in a public company without the consent of other members. 3 The minimum number of members required in a private company is 4 The minimum number of members required in a Public company is 5 The maximum number of members in a private company can be 6 The maximum number of members in a public company can be 7 A private company should have a minimum paid-up capital of Rupees 8 A public company should have a minimum paid-up capital of Rupees 9 In a government company the government holds at least—percent of the paid-up capital

74

Answers False

False 2 7 50 Any number One lakh Five lakh 51

UNIT-58-MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION Sl.No Question 1 In case of conflict between the memorandum of association and articles of association, the articles of association prevail

75

Answers False

UNIT-59-DOCTRINES OF ULTRA VIRES/CONSTRUCTIVE NOTICE/ INDOOR MANAGEMENT Sl.No Question 1 Doctrine of ultra vires lays down that every outsider is assumed to have read the memorandum of association and articles of association 2 Doctrine of constructive notice states that the outsiders are not required to see the compliance of internal regulations of the company. 3 Doctrine of indoor management lays down that a company cannot carry on the objects not permitted by its memorandum of association

76

Answers False

False

False

UNIT-60 MEMBERSHIP Sl.No Question 1 A minor can be a member of a private company but not of a public company 2 A member can inspect the register of members

77

Answers False True

UNIT-61-PROSPECTUS Sl.No Question 1 There are no remedies available for misstatements in prospectus by directors

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Answers False

UNIT-62-DIRECTORS Sl.No Question 1 The maximum number of directors in a private company can be 2 The maximum number of directors in a public company can be 3 The minimum number of directors in a public company can be 4 The minimum number of directors in a private company can be 5 At least --- of the total number of directors of a public company are to be persons whose period of office is liable to determination by retirement by rotation 6 Every public company or a private company which is a subsidiary of a public company having a paid-up share capital of Rupees---- --must have a managing or whole-time director or a manager. 7 Additional directors are appointed by the ---8 Alternate directors are appointed by the 9 Casual vacancies in the board of directors is filled in by the -----

79

Answers 12 12 3 2 Two-third

Five Crore

Board of directors Board of directors Board of directors

UNIT-63 FOREING EXCHANGE MANAGEMENT ACT 1999 Sl.No Question 1 Authorised person is an individual appointed by the RBI to deal in foreign exchange 2 A current account transaction alters the assets or liabilities outside India of persons resident in India 3 A capital account transaction includes payments due in connection with foreign trade in the ordinary course of business 4 Foreign exchange includes traveller‟s cheques 5 RBI can revoke any authorization given to an authorized person 6 Civil Court has the jurisdiction to entertain any suit or proceeding in respect of any matter under the FEMA

80

Answers False False

False

True True False

UNIT-64-TRANSFER OF PROPERTY ACT 1882 Sl.No Question 1 Transfer of Property Act basically contains provisions relating to transfer of moveable property and goods 2 Mortgage is a transfer of an interest in specific immoveable property to secure the payment of money given by way of loan 3 In a simple mortgage the mortgagor does not deliver possession of the mortgaged property to the mortgagee 4 In a mortgage by conditional sale the property is transferred the condition of sale is that on default of payment of the mortgage money on a certain date the sale shall become absolute. 5 In a usufructuary mortgage the mortgagor delivers possession of the mortgaged property to the mortgagee 6 In an English mortgage the property is transferred absolutely by the mortgagor to the mortgagee with a condition for retransfer 7 In a mortgage by deposit of title deeds the property given as a mortgage has to be situated in notified towns. 8 A lease of from year to year or for any term exceeding one year can be made by transfer of possession 9 The debtor has to be given a notice of transfer of actionable claim 10 A lease for agricultural or manufacturing purpose can be terminated by the lessor or lessee by giving -----notice to one another 11 A memorandum recording mortgage by deposit of title deeds does not require 12 The essentials for valid equitable mortgage are debt, deposit of title deeds and 13 In case of accession to the mortgaged property, where the mortgagee is in possession of the mortgaged property, the mortgagee is ----of the accession 14 A mortgagor, while lawfully in possession of the mortgaged property, shall have -----to make leases thereof. 15 The power of sale without intervention of the Court is given to the mortgagee in the case of

81

Answers False

True

True

True

True

True

False

False

False 6 months

Registration Intention of security Entitled

Power

English mortgage

16

A lease for an agricultural or manufacturing purpose is deemed to be a lease for

82

Year to year

UNIT-65-THE RIGHT TO INFORMATION ACT 2005 Sl.No Question 1 The right to Information Act,2005 was enacted to contain corruption 2 The Right to Information Act,2005 came in to force on October 12,2005 3 The right to Information Act, 2005 repealed the Freedom of Information Act, 2002 4 The right to Information Act,2005 applies to all organizations. 5 Central Public Information Officers are appointed by the Central Government 6 Public authority means

7

Right to Information means the right to

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Answers True False True False False Any authority or body or institution of self government established or constituted by or under the Constitution, by any other law made by parliament; by any other law made by State Legislature; by notification issued or order made by the appropriate Government. All the above and obtaining information in the form of diskettes, floppies etc., of information stored in a computer or in any other device.

UNIT-66 RIGHT TO INFORMATION AND OBLIGATIONS OF PUBLIC AUTHORITIES Sl.No Question 1 Every citizen is entitled to seek information under the Right to Information Act from a public authority 2 Every public authority is required to display information about their organization, employees, etc., and update them periodically 3 Central Government appoints Central Public Information Officer in every public authority 4 A person seeking information has to disclose the reason for seeking information 5 Central Assistant Public Information Officer has to forward the request for information to the concerned public authority within five days of the receipt of the request if it does not relate to his organization 6 The request for information has to be disposed of ordinarily within thirty days 7 No third party information can be sought from a public authority 8 If information requested is not provided it will be treated as a deemed refusal 9 There is no redressal if the Central Public Information Officer refuses to provide information 10 Central information commission can recommend taking disciplinary action against the Central Public Information Officer if the latter failed to furnish information within the specified time

84

Answers True

True

False False True

True False True False

True

UNIT-67 THE PREVENTION OF MONEY LAUNDERING ACT,2002 Sl.No Question 1 The Prevention of Money Laundering Act,2002 does not apply to banking transactions 2 The term money laundering has been defined in the Prevention of Money Laundering Act, 2002 3 Director under the Act is appointed by the Reserve Bank of India 4 Record of transactions specified under the Act is to be maintained for ten years 5 RBI and SEBI can prescribe the nature of records to be maintained by a banking company 6 Documents to be verified depend upon the type of the client 7 Bank is not required to enquire the financial status of the client 8 All cash transactions of the value of more than ten lakhs or its equivalent in foreign currency are covered by the Act

85

Answers False False False True True

True False True

UNIT-68 INFORMATION TECHNOLOGY ACT ,2000 Sl.No Question 1 The IT Act was introduced on account of the initiatives of

Answers United Nations commission on International Trade Law.

[Compiled by:R.John Mary Antony Raj, Chief Manager [Compliance])

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