Indian institute of banking & finance jaiib module (A & B) legal aspects of banking operations thursday 17 april 08 t m c vasudevan

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

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

The Courts will interfere only when there is a

mala fide intention or fraud or forgery takes place.

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

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

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

• Bank K to discuss with R

• Can not debit the current account of L but extend an advance in favour of L and then make the payment

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

• a.. Bank has to refuse payment

• b.. Bank to honor the guarantee commitment at any cost

• c.. Bank to lend advance for Rs.2.00 lacs and close Fixed deposit and make payment to beneficiary by way of Demand draft or Banker’s cheque.

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

102.. An arbitrator under Banking Ombudsman

• a.. CMD of one of the Nationalised Banks

• b.. One of the Deputy Governors of RBI

• C.. Finance Ministry Representative

• D.. Banking Ombudsman himself

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

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

• B.. The Bank has to honour the claim

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

• D.. Both B & C

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

• A.. True

• B.. False

• C.. Unless a fraud or forgery the court will not interfere

• D.. None of the above

• 105.. Banks generally issue Performance guarantees.

• Advance payment , Deferred payment and Statutory guarantees are also being issued by banks

• Before issuing a bank guarantee, the bank will go through the draft copy and after satisfying with the contents they agree to issue.

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

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

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

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

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

• a.. Back to back guarantee

• b.. Secondary guarantee

• c.. Commitment of the client

• d.. None of these

108..Reimbursing bank is appointed by

• A.. Negotiating Bank

• B.. Confirming Bank

• C.. Paying Bank

• D.. None of the above

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

• A.. True

• B.. False

• C.. Green Clause LC is the refinement of Red Clause

• D.. Both are ordinary LCs.

110..The Combined Transport Bill is known as

• A.. Multiple Bill of exchange

• B.. Multiple Bill of Lading

• C.. Multiple Bill of Entry

• D.. Multimodal Transport.

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

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

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

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

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

• .. Banks under a LC deal in documents

• .. LC terms and conditions should not be vague .

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

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

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

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

• a.. Notifying bank b.. Nominated bank

• c.. Paying bank d.. Notified bank

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

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

• 116..Red and Green Clause Letter of Credits

• a.. Anticipatory Credits

• b.. Ordinary Credits

• c.. Back to Back Credits

• d.. Anticipating Credits

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

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

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

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

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

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

120..One instrument need not be stamped. Identify

• A.. Promissory Note

• B.. Bill of Exchange

• C.. Power of Attorney

• D.. Cheque

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

• A.. Negotiable Instrument

• B.. Irrevocable Power of Attorney

• C.. Actionable Claim

• D.. All the above

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

• A .. Charge need not be registered with ROC

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

• C.. Charge has to be registered with ROC

• D.. None of the above

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

• A.. After sight Bill

• B.. Time Bill

• C.. Usance Bill

• D.. At Sight Bill

124..Which is correct?

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

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

• C.. An Equitable Mortgage Private Sale allowed

• D.. For Simple Mortgage stamp duty to be paid

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

• A.. Mortgage and Pledge

• B.. Hypothecation and Mortgage

• C.. Pledge and Third Party Pledge

• D.. Hypothecation and Pledge

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

• A.. Simple Mortgage

• B.. English Mortgage

• C.. Equitable Mortgage

• D.. None of these

127..A bank relying on the contents of their Pledge agreement, have sold the gold ornaments without intimating the owner.

• A.. The Bank is not in order

• B.. The Bank should have given a reasonable intimation

• C.. The Bank is perfectly in order otherwise the agreement becomes meaningless

• D.. In case of Hypothecation Notice required and not for Pledge

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

129..Which statement is not incorrect?

• A.. Hypothecation can be converted into Pledge

• B.. Mortgage can be converted into Hypothecation

• C.. Pledge can become Mortgage, if needed

• D.. Assignment represents Negotiation

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

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

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

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

• A.. to be discontinued

• B.. to be allowed

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

• D.. to follow the contents of partnership deed

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

• a.. Recover the finance from the drawer

• b.. Recover the finance from the drawee

• c.. Recover the finance from the payee

• d.. Forego the advance lent

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

• A.. Bank relied on the contents of Overdraft agreement

• B.. S should have given an opportunity to B in writing

• C.. Bank has the right to terminate

• D.. There is no need for the bank to issue a separate notice as the borrower B has to know the conditions of the bank.

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

• A.. Assignment of Book Debts

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

• C.. Term Loan for Building

• D.. Cash credit (Hypothecation of Inventory)

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

• A.. 30 days

• B.. 30 days of his appointment

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

• D..30 days from the date of liquidation

• 136.. Life policy as security will involve

• a.. Pledge

• b.. Hypothecation

• c.. Assignment

• d.. Both a & c

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

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

• b.. Possible by way of proper endorsement

• c.. Possible by closing the deposit before maturity and with that open a new account in the name of the depositor’s brother

• d.. None of the above

• 138.. There are 6 types of Mortgages.

• The Transfer of Property Act discusses about the Mortgages.

• The basic requirements include

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

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

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

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

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

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

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

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

• b.. Hypothecation / Assignment / Pledge / Mortgage/Pledge

• c.. Pledge / Mortgage / Hypothecation / Assignment/ Hypothecation

• d.. Hypothecation/ Hypothecation/Pledge/Mortgage/Pledge

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

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

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

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

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

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

• a.. Will be two types of Registrations

• b.. One with the Registrar of Companies

• c.. Another with the Sub Registrar of

• Assurances in whose jurisdiction the

• mortgaged property is situated

• d.. All of these

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

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

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

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

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

• a.. The Registration is in order

• b.. The Registration is not in order

• c.. The Charge should have been filed within 1 month from the date of sanction

• d.. Since the finance has been taken only on 13th of September, time to be calculated from that date to file the charge