Legal and Regulatory Aspects of Bank (JAIIB)- 5

A partner may associate anybody else in his share in the firm. If he gives a part of his share to the stranger, then the sub-partner is a non-entity for the partnership.

Partnership deed must be properly drafted and stamped according to the provision of Indian Stamp Act.

Correct Answer: Dinesh has lost his right of stoppage in transit

Co-operative banks serve an important role in the Indian economy, especially in rural areas. In urban areas, they mainly serve small industry and self-employed workers. They are registered under the Co-operative Societies Act, 1912

Under part 2 of Banking Regulations Act, banks may carry out businesses lending or advancing money act as an agent contracting for private or public loans. Banks can also undertake the administration of estates acquisition, maintenance, construction of any building convenient for the purposes of company.

No banking company shall pay any dividend on its shares until all its capi­talised expenses (including preliminary expenses, organisational expenses, share-selling commission, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off.

Functions of a central bank:

Regulator of Currency

Banker, fiscal agent and adviser to the government

Custodian of cash reserves of commercial banks

Custody and management of foreign exchange reserves

Lender of the last resort

Clearing house for transfer and settlement

Controller of credit

Some of the features are:

1. Generally financed by the central or state government
2. Can borrow funds from the public and government organisation through statutory sources
3. Have separate legal entity
4. Have to frame their own policies and procedures within the scope of state legislature
5. Providing better services to public and make adequate profit.
6. Autonomous in their functioning thus they enjoy operation flexibility.
7. Can recruit & appoint their employee with their service condition, since they are corporate body.
8. Have to follow the special statute strictly.
9. Less government interference in matters of the corporation
10. Limited liability of the members of the corporation

Thus, only (i) and (iii) are true. 

A person shall be disqualified for being Chairman who is appointed on a
whole-time basis as a Managing Director, if he––

(a) is a director of any company other, than a company referred to in the proviso
to sub-section 

(b) is a partner of any firm which carries on any trade, business or industry

(c) has substantial interest in any other company or firm

(d) is a director, manager, managing agent, partner or proprietor of any trading,
commercial or industrial concern

(e) is engaged in any other business or vocation.

Some of the important regulations relating to acceptance of deposits by NBFCs are 

The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.
NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. 
NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
NBFCs should have minimum investment grade credit rating.
The deposits with NBFCs are not insured.
The repayment of deposits by NBFCs is not guaranteed by RBI.
Certain mandatory disclosures are to be made about the company in the application form issued by the company soliciting deposits.
Thus, (iii) and (iv) are not true. 

Under Section 21 of Banking Regulation Act, power of Reserve Bank to control advances by banking companies where the Reserve Bank is satisfied that it is necessary or expedient in the public interest or in the interests of depositors or banking policy so to do, it may determine the policy in relation to advances to be followed by banking companies generally or by any banking companies or the banking company concerned, as the case may be, shall be bound to follow the policy as so determined.

The mandate of Section 17 states that every banking company will have to transfer to a reserve fund every year, a sum equivalent to "not less than twenty per cent of such profit". In other words, at least 20% of the profit as shown in the Profit and Loss Account before declaration of any dividend has to be transferred to the reserve fund.

The term ‘loans and advances’ will not include loans or advances against

Government securities

Life insurance policies

Fixed or other deposits

Stocks and shares

Temporary overdrafts for small amounts, i.e. upto Rs. 25,000.

Casual purchase of cheques up to Rs. 5000.

Housing loans, car advances, etc. granted to an employee of the bank under any scheme applicable generally to employees.

Correct statements are
The banking company or the person affected by the RBI order may appeal to the central government within 30 days.
At least 51% of the directors should have the qualification prescribed under section 10A(2) of Banking Regulation Act.
The maximum period of office that may be held continuously by an ordinary director in a banking company is eight years.
A director of a banking company should not have substantial interest in any other company.
 

Section 35 in BANKING REGULATION ACT,1949
 Inspection
Notwithstanding anything to the contrary contained in section 235 of the Companies Act, 1956 (1 of 1956), the Reserve Bank at any time may, and on being directed so to do by the Central Government shall, cause an inspection to be made by one or more of its officers of any banking company and its books and accounts; and the Reserve Bank shall supply to the banking company a copy of its report on such inspection. 

The Reserve Bank shall make an application under Section 38 of the Banking Regulations Act for winding up of a company.
 

SCBs are exempted from maintaining CRR on the following liabilities:

(i) Liabilities to the banking system in India as computed under Clause (d) of the explanation to Section 42(1) of the RBI Act, 1934;

(ii) Credit balances in ACU (USD) accounts;

(iii) Demand and Time Liabilities in respect of their Offshore Banking Units (OBU);and

(iv) SCBs are not required to include inter-bank term deposits/term borrowing liabilities of original maturities of 15 days and above and up to one year in "Liabilities to the Banking System". Similarly, banks should exclude their inter-bank assets of term deposits and term lending of original maturity of 15 days and above and up to one year in "Assets with the Banking System" (item III of Form A return) for the purpose of maintenance of CRR. The interest accrued on these deposits is also exempted from reserve requirements.

Under The State Bank of India Act, 1955
The State Bank shall have power to acquire and hold property, whether movable or immovable, for the purposes for which it is constituted and to dispose off the same.

Correct statements are

(i) A parent AIFI presenting CFS shall consolidate all subsidiaries, domestic as well as foreign

(ii) The AIFIs shall use the same format for CPRs purposes as their solo balance sheet prescribed under the respective Acts with appropriate modifications/notes.

(iii) In addition to solo level financial statements, the AIFIs shall also prepare and disclose consolidated financial statements.

(iv) The AIFIs shall follow the guidance on specific issues with respect to certain accounting standards.

Thus, only (i) and (iii) are correct.

A co-operative bank is a financial entity which belongs to its members who are, at the same time, the owners and the customers of their bank. Co-operative banks are often created by persons belonging to the same local or professional community or sharing a common interest. Co-operative banks generally provide their members with a wide range of banking and financial services. (loans, deposits, banking accounts...)

Section 29 of Banking Regulation Act deals with Accounts and balance-sheet.
 At the expiration of each calendar year, every banking company incorporated in India, in respect of all business transacted by it, and every banking company incorporated outside India, in respect of all business transacted through its branches in India, shall prepare with reference to that year or period, as the case may be, a balance-sheet and profit and loss account as on the last working day of that year or the period, as the case may be, in the Forms set out in the Third Schedule.

The law relating to cheques and protection to bankers is contained in the Negotiable Instruments Act, 1881.

In respect of cheques lost in transit or in the clearing process or at the paying branch, the collecting branch should immediately bring the same to the notice of the account holder, so that the account holder can inform the drawer to record stop payment and can also take care that other cheques issued by him are not dishonoured due to non-credit of the amount of the lost cheques. If the cheque has been lost by the individual, he/she can inform the drawee bank about the same.

Section 131 in The Negotiable Instruments Act, 1881
Non-liability of banker receiving payment of cheque.— A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.

In a joint account, if one of the signatures is forged, then there is no mandate and banker cannot make payment.

The duties of collecting bank to claim protection has been laid down under section 131 of Negotiable Instruments Act.

Section 10 of the Negotiable Instrument Act defines payment in due course to mean the payment in accordance with the apparent tenor of the instrument in good faith and without negligence to any person in possession thereof under circumstances which do not afford a reasonable ground for believing that he is not entitled to receive payment of the amount therein mentioned. 

Correct Answer: (ii) and (iv) 
Section 36 AE: Power of Central Government to acquire undertakings of banking companies in certain cases—
(1) If, upon receipt of a report from the Reserve Bank, the Central Government is satisfied that a banking company
(a) has, on more than one occasion, failed to comply with the directions given to it in writing under Section 21 or Section 35A, in so far as such directions relate to banking policy, or
(b) is being managed in a manner detrimental to the interests of its depositors, and that
(i) in the interests of the depositors of such banking company, or
(ii) in the interest of banking policy, or
(iii) for the better provision of credit generally or of credit to any particular section of the community or in any particular area. 
Section 36 AF: The Central Government may, after consultation with the Reserve Bank, make a scheme for carrying out the purposes of this part in relation to any acquired bank. 
Section 40: Notwithstanding anything to the contrary contained in 2 [Sec.466 of the Companies Act, 1956 (1 of 1956), the 3 [High Court] shall not make any order staying the proceedings in relation to the winding up of banking company, unless the T [High Court] is satisfied that an arrangement has been made whereby the company can pay its depositors in full as their claims accrue.
Section 38A: There shall be attached to every High Court, a Court liquidator to be appointed by the Central Government for the purpose of conducting all proceedings for the winding up of banking companies and performing such other duties in reference thereto as the High Court may impose.

The laws applicable to different kind of borrowers are different. Individuals are governed by the Indian Contract Act and partnership firms under partnership Act.

In the absence of proper reference the banker, can be held liable on the grounds of negligence. Following are the duties of the bank, which when bank fails to carry out, can make it liable due to negligence

• To ensure crossing and special crossing
• To take into account the state of customer's account
• To open the account with proper references and documentary proof etc. 

As stipulated under Section 58(2) of the CA13, the shares of a public company are freely transferrable.

Private trusts are governed by the Indian Trusts Act, 1882. This Act is applicable to the whole of India, except the State of Jammu and Kashmir and the Andaman and Nicobar Islands.

Fund-based working capital products include cash credit, packing credit and short termed loans etc.

(i) The Central Board in discharging its functions shall act on business principles, regard being had to public interest.

(ii) Central Board to be guided by directions of Central Government
 In the discharge of its functions including those relating to a subsidiary bank, the State Bank shall be guided by such directions in matters of policy involving public interest as the Central Government may, in consultation with the Governor of the Reserve Bank and the chairman of the State Bank, give to it.

(iii) Every commercial bank has to keep certain minimum cash reserves with Reserve Bank of India. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate.

(iv) Compensation to be given to shareholders of Imperial Bank.
 Every person who immediately before the appointed day is registered as a holder of shares in the Imperial Bank shall be entitled to compensation in accordance with the provisions contained in the First Schedule.
Thus, all the statements are true.

The Karta is the manager of HUF (Hindu undivided family) and have wide powers by way of controlling the affairs of the HUF. The Karta enjoys his position in the HUF by operation of law without any agreement and consent of other members.

The bank shall not be liable to compensate customers for delayed credit, if some unforeseen event (including but not limited to civil commotion, sabotage, accident, fires, natural disasters or other “Acts of God”, war, resulting in damage to the bank’s facilities or of its correspondent bank(s), etc.) beyond the control of the bank prevents it from performing its obligations within the specified service delivery parameters.

An indemnifier is someone or something that protects another against or compensates for the loss or damage.

Limitation for suit or application for recovery of debts:
The limitation for recovery of the outstanding amount in the cash credit account is three years from the last deposit made by the borrower in the account provided the pay in slip is available with the bank. The position is the same so far as overdraft account is concerned. In term loan account, the loan is payable in installments.

There are two parties to the contract of indemnity, viz. indemnifier (promisor) and the Indemnified (promise).

The credit facilities given by the banks where actual bank funds are not involved are termed as 'non‑fund based facilities'. These facilities are divided in three broad categories as under

Letters of credit

Guarantees

Co‑acceptance of bills/deferred payment guarantees. 

The liability of the indemnifier in the contract of indemnity is primary. If we talk about guarantee, the liability of the surety is secondary because the primary liability is of the debtor.

Both "overdraft" and "cash credit" can refer to a type of secured line of credit with a lender. These terms can also refer to financial institutions that allow you to withdraw more funds than you actually have in your demand deposit accounts, although the specific functionalities of these allowances can vary. These provisions are sometimes referred to as overdraft protection, while others might be called cash credits. Be aware of the policies at your own bank or credit union, and know what costs are associated with overdrawing on your account.

Bank issues a credit on the request of an applicant.

Guarantee contract includes three parties namely creditor, principal debtor and surety.

In case of invocation of the guarantee, the authorised dealer bank should send a detailed report to the Chief General Manager-in-Charge, Foreign Exchange Department, External Payments Division (EPD), Reserve Bank of India, Central Office, Mumbai (400 001), explaining the circumstances leading to the invocation of the guarantee.

Issuing bank is the bank who opens letter of credit. Letter of credit is created by issuing bank who takes responsibility to pay amount on receipt of documents from supplier of goods. (beneficiary under LC).

Advising bank is another party involved under Letter of Credit. Advising bank, as a part of letter of credit, takes responsibility to communicate with necessary parties under letter of credit and other required authorities. The advising bank is the party who sends documents under Letter of Credit to opening bank.

Guarantee is issued in favour of the beneficiary, who requires security against the risk of the principal’s non-performance or default under the primary contractual obligation.

Conditional Payment Undertaking –
This is an instruction to the bank from an account holder to pay a sum of money to a creditor on completion of certain conditions. This bond is a post contract instrument that is used to pay off agents and contractor on completion of a project.

Confirming bank is one of the other parties involved in Letter of Credit. Confirming bank confirms and guarantees to undertake the responsibility of payment or negotiation acceptance under the credit.

Negotiating bank is one of the main parties involved under Letter of Credit.
Negotiating Bbnk, who negotiates documents delivered to bank by beneficiary of Letter of Credit. Negotiating bank is the bank who verifies documents and confirms the terms and conditions under Letter of Credit on behalf of beneficiary to avoid discrepancies

Reimbursing bank is one of the parties involved in an Letter of Credit. Reimbursing bank is the party who authorised to honor the the reimbursement claim of negotiation/ payment/ acceptance.

(i) is false. There are two parties to a contract of indemnity, Indemnifier and Indemnity holder.
(ii) is true. Loss to the indemnity holder is essential, otherwise, the indemnifier cannot be held liable.
(iii) is not true. Contract of Indemnity should have all the essentials of a valid contract like free consent, legality of object, etc. Consideration in this case can be anything done, or any promise made which serves as motivation behind the contract.
(iv) is true. Indemnity can be treated as a sub-species of compensation and a Contract of Indemnity is a species of contracts

Second beneficiary is one of the other parties involved in Letter of Credit.
Second beneficiary who represents the first beneficiary or original beneficiary in their absence, wherein the credits belonging to original beneficiary is transferable as per terms.

Correct Answer: All of the above are correct. 
All given options are correct as per the Banking Regulations Act.

The maker of a bill of exchange or cheque is called the “drawer;” the person thereby directed to pay is called the “drawee.”

Bill of exchange is a written order to a person requiring them to make a specified payment to the signatory or to a named payee; a promissory note.

Bill purchase facility is granted in the case of demand bills.
Bill discount is granted in the case of usance bills.

Correct Answer: b and d
As per Banking regulations act, banks can issue BGs/Letter of Undertaking (LoU)/ Letter of Comfort (LoC) in favour of the overseas supplier, bank and financial institution up to USD 20 mn. per import transaction. Banks can issue unconditional guarantees in favour of overseas employers/importers on behalf of indian exporters.

Bill of lading that is written (drawn) 'To Order' of the consignee and is, therefore, a negotiable instrument of title. Ownership of goods covered under it can be transferred by one party to another by signature (endorsement) and delivery of the Bill of Landing. Generally, goods which have not been paid-for in advance (goods sent under an open-account or a letter-of-credit) are shipped under 'To Order' Bill of Landing.
Bill of lading comes under the "document of title to goods”.

The insurance contract must be signed by both parties (i.e insurer and insured) in an absolute good faith or belief or trust.

"Document of title to goods” includes a bill of lading, dock-warrant, warehouse keeper’s certificate, wharfingers’ certificate, railway receipt, warrant or order for the delivery of goods and any other document used in the ordinary course of business as proof of the possession or control of goods, or authorising or purporting to authorise, either by endorsement or by delivery, the possessor of the document to transfer or receive goods thereby represented.

The bank should obtain from the borrower the deposit receipt duly discharged by signing on the back of it across a revenue stamp and a memorandum of pledge authorising the bank to utilise the proceeds of the deposit on its maturity towards repayment of the loan.

Mortgage is defined in Transfer of Property Act, 1882, Section 58. It involves the transfer of interest in a specific immovable property for the purpose of securing an existing or future debt or for the performance of an engagement which may give rise to a pecuniary liability.
In other words, mortgage means transfer of some interest in property while the legal ownership continues with the mortgagor.

Simple mortgage is where, without delivering possession of the mortgaged property, the mortgagor binds himself personally to pay the mortgage-money and agrees expressly or impliedly that in the event of his failing to pay according to his contract, the mortgagee shall have a right to cause the mortgaged property to be sold and the proceeds of sale to be applied, so far as may be necessary, in payment of the mortgage-money.

English mortgage is where the mortgagor binds himself to repay the mortgage-money on a certain date and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed.

(i) The mortgage deed is the evidence of the interest transferred to the mortgage holder. Often simply referred to as the mortgage, the mortgage deed is the document transferred to the mortgage holder.

(ii) There are two parties to a mortgage: the mortgagor (the borrower) and the mortgagee (the lender)

(iii) A deed of trust involves three parties:
     (a) the trustor (the borrower)
     (b) the beneficiary (the lender)
     (c) the trustee. 

(iv) Preference shares, also known as preferred shares, have the advantage of a higher priority claim to the assets of a corporation in case of insolvency and receive a fixed dividend distribution. Thus, (i) and (iv) are true.

Mortgage by conditional sale is where, the mortgagor ostensibly sells the mortgaged property on condition that on default of payment of the mortgage-money on a certain date the sale shall become absolute, or on condition that on such payment being made the sale shall become void, or on condition that on such payment being made the buyer shall transfer the property to the seller, the transaction is called mortgage by conditional sale and the mortgagee becomes a mortgagee by conditional sale.

The limitation period for filing a suit for sale of mortgaged property is twelve years from the date the mortgage debt becomes due. The limitation period for foreclosure is thirty years from the date of money secured by mortgage becomes due.  

Pledge is a special kind of bailment in which a person transfers the possession of his property to another for securing the loan taken from the other. It only differs from bailment in the matter of purpose. When the purpose of the bailment is to secure a loan or a promise, it is called a pledge. Section 172 of Indian Contract Act, 1872 defines pledge as the bailment of goods as a security for the payment of a debt or performance of a promise. The bailor in this case is called a Pawnor and the bailee is called Pawnee.

In hypothecation, the possession of the property is restrained by the owner and certain rights in that moveable property are transferred to the person in whose favour the property is hypothecated. In a pledge, the possession of goods also passes to the pledgee by way of security, though the possession may be constructive. The true distinction from hypothecation is that the constructive possession of the goods in the case of pledge is specifically secured by the terms of the contract and is continued unabated throughout.

Lien is a right to keep possession of property belonging to another person until a debt owed by that person is discharged.
To constitute a pledge, delivery of possession, actual or constructive, to the pledge is necessary. If the person entitled to the security is in possession of the movable property, it is a pledge, carrying with it a power of sale on default of payment on the due date or if no date is fixed after notice. No particular formality is required to be done regarding creating charge on pledged movable property. 

As a rule, pledge can be made only by the owner of the goods. But, there are certain exceptions to this general rule. Hence, the following persons can also make a valid pledge:

1. Mercantile agent
2. Pledge by persons in possession of goods under a voidable contract
3. Pledge by a person having only a limited interest
4. Pledge by a co-owner in possession
5. Pledge by seller in possession of goods after sale
6. Pledge by buyer in possession of goods before sale

A charge means an interest or right, which a lender or creditor obtains in a property of a company by way of security that a company will pay back the debt. When a charge is created, it has to be registered with the Registrar of Companies.

A charge created by a company is required to be registered with the Registrar within thirty days of its creation in such form and on payment of such fees as may be prescribed.

Section 2(16) of the Companies Act, 2014 defines charges so as to mean an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage.

A charge created by a company is required to be registered with the Registrar within thirty days of its creation in such form and on payment of such fees as may be prescribed.

Based on the observation of the Supreme Court in the Mardia Chemicals vs Union of India case, the Government of India issued notification amending the provisions of the SARFAESI Act. The amendment stipulates payment of 50% amount, instead of 75% as originally enacted.

SEBI is the regulator of CIS. Information on such schemes and grievances against the promoters may be immediately forwarded to SEBI as well as to the EOW/Police Department of the State Government.

Banks utilise Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as an effective tool for bad loans (NPA) recovery. It is possible where non-performing assets are backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. Thus, option 3 is the correct answer. 

As per SARFAESI Act, 2002, upon loan default, banks can seize the securities (except agricultural land) without intervention of the court. The Act gives powers of “seize and desist” to banks. Banks can give a notice in writing to the defaulting borrower requiring it to discharge its liabilities within 60 days. If the borrower fails to comply with the notice, the Bank may take recourse to take possession of the security for the loan, sale or lease or assign the right over the security and manage the same or appoint any person to manage the same.

As per the decision of the Court in Mardia Chemical Ltd. and Others vs. Union of India and Others [(2004) 4 SCC 311], the provision requiring pre-deposit of 75% of the demand made by the Bank or the financial institution in Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has been held to be onerous and oppressive, rendering the remedy illusory and nugatory and constitutionally invalid.

Rights of the borrower as per SARFAESI Act, 2002: 

• The borrowers can at any time before the sale is concluded, remit the dues and avoid loosing the security.
• In case any unhealthy/illegal act is done by the Authorised Officer, he will be liable for penal consequences.
• The borrowers will be entitled to get compensation for such acts.
• For redressing the grievances, the borrowers can firstly approach the DRT and thereafter, the DRAT in appeal. The limitation period is 45 days and 30 days, respectively.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was enacted with the objective of regulating securitisation and reconstruction of financial assets and enforcement of security interest created in favour of secured creditors. 

Central Government has issued the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry) Rules, 2011 and prescribed the forms to be used for the purpose of filing information for registration in respect of transactions of securitisation, asset reconstruction of financial assets and security interest over property. Thus, the transactions will have to be registered with the Central Registry.

SARFAESI Act, 2002 gives powers of “seize and desist” to banks. Banks can give a notice in writing to the defaulting borrower requiring it to discharge its liabilities within 60 days. If the borrower fails to comply with the notice, the Bank may take recourse to take possession of the security for the loan, sale or lease or assign the right over the security and manage the same or appoint any person to manage the same.

The registration of the security receipt is required when there is a transfer of receipt or the security receipt is creating, declaring, assigning, limiting, extinguishing any right title or interest in an immovable property.

The expression “property” is defined in various laws in India, the latest being Section 2(1)(t) of the SARFAESI Act which defines property as: 

(i) immovable property
(ii) movable property
(iii) any debt or any right to receive payment of money whether secured or unsecured
(iv) receivables, whether existing or future
(v) intangible assets, being know-how, patent, copyright, trade mark, licence, franchise or any other business or commercial right of similar nature.

Scheme of acquisition has to be formulated for every acquisition detailing therein the description of financial assets under acquisition, the quantum of investment, rate of return assured etc. Further separate and distinct accounts have to be maintained in respect of each scheme of acquisition. Realisations made from the financial assets have to be held and applied towards the redemption of investments and payment of assured returns.

Section 5 provides for the acquisition of rights or interests in financial assets of any bank or financial institution by SCO/RCO, notwithstanding any thing contrary contained in any agreement or any other law for the time being in force, in either of the following manner:
Issuing a debenture or bond or any other security in the nature of debenture, as consideration agreed upon by a SCO/RCO and bank/financial institution, incorporating therein the terms and conditions of issue.
Entering into an agreement with bank/financial institution for the transfer of such financial assets on such terms and conditions as may be agreed upon.

"Securitisation" means acquisition of financial assets by any securitisation company or reconstruction company from any originator, by raising of funds by such securitisation company or reconstruction company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets.

Under sale of immovable secured assets, the authorised officer shall serve to the borrower a notice of 30 days for sale of the immovable secured assets.

A securitisation company or reconstruction company, existing on the commencement of this Act, shall make an application for registration to the Reserve Bank before the expiry of six months from such commencement and notwithstanding anything contained in this sub-section may continue to carry on the business of securitisation or asset reconstruction until a certificate of registration is granted to it or, as the case may be, rejection of application for registration is communicated to it.

The Reserve Bank may cancel a certificate of registration granted to a securitisation company or a reconstruction company, if such company

(a) ceases to carry on the business of securitisation or asset reconstruction
(b) ceases to receive or hold any investment from a qualified institutional buyer
(c) has failed to comply with any conditions subject to which the certificate of registration has been granted to it
(d) at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of Sub-section (3) of Section 3.

Manager shall have power by notice in writing to recover any money from any person who has acquired any of the secured assets from the borrower, which is due or may become due to the borrower.

When sale of secured asset is made, the appropriation of sale proceeds realised are required to be made.
Firstly, towards costs, charges and expenses incidental towards preservation and protection of securities, insurance premiums etc. that are recoverable from the borrower.
Secondly, towards the due of the secured creditors.
Thirdly, if there is any surplus, it will be paid to the person entitled thereto in accordance with the right and interests.

The changes introduced by the SARFAESI Act in the law relating to creation and enforcement of security over property are as under:

Financial assets are made freely assignable notwithstanding anything contained in any law or any agreement (Section 5)
Security interest is defined in generic term giving effect to substance over form to a limited extent
Powers of enforcement of security interest have been given to the banks and financial institutions
Definition of property is made wide to cover variety of property rights
Since the existing law in India does not permit enforcement of mortgages of immovable properties, the same are also included in the definition of security interest with power of enforcement without the intervention of the Courts.

Under Section 12 of the SARFAESI Act, the Reserve Bank of India is statutorily empowered to issue directions to the securitisation or reconstruction company. If any such company fails to comply with any of the directions issued by the Reserve Bank of India, then such company is punishable with a fine not exceeding Rs. 5 lakh for the default. In case of further continuation of the offence, an additional fine up to Rs. 10,000 per day of the default can be imposed.

The provisions of SARFAESI Act are applicable only for NPA loans with outstanding above Rs. 1 lakh. Non-performing assets should be backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. Security interest by way of lien, pledge, hire purchase and lease (not liable for attachment under Section 60 of CPC) are not covered under this Act

In 2006, the Reserve Bank of India announced the revised Banking Ombudsman Scheme with enlarged scope that included customer complaints on certain new areas, such as credit card complaints, deficiencies in providing the promised services even by banks' sales agents, levying service charges without prior notice to the customer and non-adherence to the fair practices code as adopted by individual banks.

Ordinances must be approved by Parliament within six weeks of reassembling or they shall cease to operate. They also cease to operate in case resolutions disapproving the Ordinance are passed by both Houses.

In 2006, Reserve Bank of India announced the revised Banking Ombudsman Scheme with enlarged scope that included customer complaints on certain new areas, such as credit card complaints, deficiencies in providing the promised services even by banks' sales agents, levying service charges without prior notice to the customer and non-adherence to the fair practices code as adopted by individual banks.
Bank customers can complain about non-payment or any inordinate delay in payments or collection of cheques towards bills or remittances by banks, as also non-acceptance of small denomination notes and coins or charging of commission for acceptance of small denomination notes and coins by banks.

In 2006, Reserve Bank of India announced the revised Banking Ombudsman Scheme with enlarged scope that included customer complaints on certain new areas, such as credit card complaints, deficiencies in providing the promised services even by banks' sales agents, levying service charges without prior notice to the customer and non-adherence to the fair practices code as adopted by individual banks.
The 2006 scheme provides a forum to bank customers to seek redressal of their most common complaints against banks, including those relating to credit cards, service charges, promises given by the sales agents of banks, but not kept by banks, as also, delays in delivery of bank services. 

If one is aggrieved by the decision, one may, within 30 days of the date of receipt of the award, appeal against the award before the appellate authority. The appellate authority may, if he/she is satisfied that the applicant had sufficient cause for not making an application for appeal within time, also allow a further period not exceeding 30 days.

The Annual Report of the Banking Ombudsman Scheme for the year 2011-12 released by RBI's Customer Service Department contains a clarification in this regard. It says, "Clause 12(5) and 12(6) establish pecuniary jurisdiction of the BO i.e. the ceiling upto which BO can award monetary compensation. Under Clause 12(5), BO has powers to pass an award directing payment of an amount, not more than the actual loss suffered by the complainant as a direct consequence of an act of omission or commission of the bank, or Rs. 10 Lakh, whichever is lower."

The Debt Recovery Tribunal (DRT) can hear claims of banks only if the amount claimed is Rs. 10 lakhs and above. 

Grounds of complaints pertaining to deficiency in any of the banking services such as:

Non-payment or delay in payment of cheques, drafts, bills etc.
Non-issuance of drafts to customers
Non-adherence to prescribed working hours by the branches
Failure to honour guarantee or letter of credit
Claims in regards to fraudulent withdrawals or fraudulent encashment of cheque or a bank draft
Complaints for any of the accounts pertaining to delays, non-credit of proceeds to parties accounts
Complaints for non-observance of RBI’s directives applicable to rate of interests on deposits or violation of directives on any other matter
Complaints from exporters for delays in receipt of export proceeds, handling of export bills, collections of bills etc. 

The complaint can be filed by one's authorised representative (other than an advocate).

It is a legally recoverable amount by the bank.

The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India to provide an expeditious grievance redressal mechanism to customers of banks. It provides for an institutional and legal framework for resolution of complaints relating to banking services and other matters as specified under the Scheme. The Scheme has been brought into force by way of direction issued by the Reserve Bank in terms of Section 35A of the Banking Regulation Act, 1949. The Reserve Bank will also appoint its serving senior officials as the Banking Ombudsman and will also fully fund it for better effectiveness.
The Banking Ombudsman shall also entertain complaints covered by this Scheme received by Central Government or Reserve Bank and forwarded to him
for disposal.  

No order of the appropriate Government or of the Central Government appointing any person as the Chairman or any other member of a Board or Court or as the Presiding Officer of a Labour Court shall be called in question in any manner and no act or proceeding before any Board or Court shall be called in question in any manner on the ground merely of the existence of any vacancy in, or defect in the constitution of, such Board or Court.

When against the order passed by the tribunal, the appellants file an appeal before the appellate tribunal constituted under the Act. Under Section 21 of the Act, the judgment-debtor is required to deposit 75 percent of the amount, which is due to the respondent-bank for the appeal to be registered.

When a company is wound up by the members or the creditors without the intervention of the tribunal, it is called as voluntary winding up. It may take place by the passing of an ordinary resolution in the general meeting if 

1. the period fixed for the duration of the company by the articles has expired 
2. some event, on the happening of which the company is to be dissolved, has happened

No, as the certified copy is a prima facie evidence that is admissible in evidence. Bank is not required to produce itself as the certified copy of evidence is presented and it is a prima facie evidence.

Where, in the case of loss of demand draft, the necessary formalities as required by the rules of the bank are not complied with, the bank cannot stated to be deficient in service in not issuing a duplicate draft or canceling the draft and making cash payment to the purchaser (complainant). Also, in this case, B is not the consumer of the bank. Thus, he cannot indulge in given preceedings. Also, formalities are required to be done by N. 

The Consumer Protection Act empowers the Central Government to establish a Central Consumer Protection Council consisting of the Minister-in-charge of consumer affairs in the Central Government as its Chairman and such number of other official and non-official members representing such interests as may be prescribed.

The doctrine of election is based on the principle of equity. The conditions necessary for application of this doctrine are as follows
(1) The transferor must not be the owner of the property which he transfers
(2) The transferor must transfer the property of the other owner to a third person
(3) The transferor must at the same time grant some property in the same instrument, out of his own, to the owner of the property
(4) The two transfers (transfer of the property of owner to the transferee and conferment of benefit on the owner of property) must be made in the same transaction
(5) The question of election does not arise if the two transfers are made by virtue of two separate instruments
(6) The owner must have proprietary interest in the property, a creditor is not put to election as he has only a personal right to be paid by the debtor 
(7) The owner takes no benefit under a transaction directly, but diverts a benefit under it indirectly, is not put to election
(8) Question of election does not arise when benefit is given to a person in a different capacity

Consideration (no consideration, no contract) exceptions are
a. natural love and affection 
b. voluntary compensation
c. time-barred debt
d. completed gift
e. contract of agency
f. remission by the promisee

A contract in which one party wins and the other loses is called a wagering contract.
A contingent event depends upon happening or non-happening of events.

Unlike the partnership firm, a company does not have unlimited liability on its members. The liability of members is limited.