Legal and Regulatory Aspects of Bank - 1 (JAIIB)

Shell Bank refers to the financial institution that does not have a physical presence in any country.

"Public authority" means any authority or body or institution of self-government established or constituted
(a) by or under the Constitution;
(b) by any other law made by Parliament;
(c) by any other law made by State Legislature;
(d) by notification issued or order made by the appropriate government

Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description; and, if the sale is by sample as well as by description, it is not sufficient that the bulk of the goods correspond with the sample if the goods do not also correspond with the description. Therefore, in that condition, the buyer can reject the goods and can claim back the payment.  

No banking company shall hold any immova­ble property howsoever acquired, except such as is required for its own use, for any period exceeding seven years from the acqui­sition thereof or from the commencement of Banking Regulation Act.
Provided further that the Reserve Bank may in any particular case extend the aforesaid period of seven years by such period not exceeding five years where it is satisfied that such extension would be in the interests of the depositors of the banking company.

Under sub-section (2) of section 11 of the BR Act, a foreign bank operating in India has to deposit and keep deposited with the Reserve Bank, an amount of Rs. 15 lac and if it has a place of business in Mumbai or Kolkata or both, Rs. 20 lac. The amount has to be kept in cash, unencumbered approved securities or partially in both. Statements (c) and (d) are not true. 

RBI had announced ‘Clean Note Policy’ in January 1999, for withdrawing soiled notes from circulation and pumping fresh notes into circulation u/s 35A BR Act. Also, RBI notified the Banking Ombudsman Scheme 2006 (on Dec 26, 2005) u/s 35A BR Act. KYC Guidelines were also introduced u/s 35A B R Act. Thus, only option 3 is correct.

If a suit is based on multiple causes of action, the period of limitation will begin to run from the date when the right to sue first accrues – successive violation of the right will not give rise to fresh cause and the suit will be liable to be dismissed if it is beyond the period of limitation counted from the day when the right to sue first
accrued. Thus, if the limitation period is of 3 years and it started on January 25, 2006, we need to count it from the exact date for successive three years. Thus, it will be till January 25, 2009.

The Reserve Bank shall, if it has been directed by the Cen­tral Government to cause an inspection to be made, and may, in any other case, report to the Central Government on any inspec­tion made under this section, and the Central Government, if it is of opinion after considering the report that the affairs of the banking company are being conducted to the detriment of the interests of its depositors. Also, option 4 is not true as acquisitions often result in a number of social benefits. Thus, option 4 is the correct answer. 

Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price,
(a) where the goods have been sold without any stipulation as to credit; or
(b) where the goods have been sold on credit, but the term of credit has expired; or
(c) where the buyer becomes insolvent.
Thus, option 4 is the correct answer.

The Banking Regulation Act, 1949 is a legislation in India that regulates all banking firms in India.The Act provides a framework using which commercial banking in India is supervised and regulated. Thus, option 1 is the correct answer.

Article 63(a) of Indian limitation act, 1963 provides a limitation period, in case of foreclosure of mortgaged property. The limitation period for filing a suit for sale of mortgaged property is twelve years from the date when the mortgage debt becomes due. Thus, option 3 is the correct answer.  

The limitation period on a mortgage is of 12 years and not 3 years. Thus, option 3 is the correct answer. 

Companies like a Non-Banking Financial Company (NBFC) are the companies registered under the Companies Act, 1956 not BR Act.
Subsidiary banks are defined in the State Bank of India (Subsidiary Banks) Act, 1959 and not Companies Act.
Accepting deposits for safe custody falls under banking regulation act.
Thus, only option 1 is correct.

The period of limitation for a suit for specific performance of a contract is three years and the time of limitation starts to run from the date fixed for the performance, or, if no such date is fixed, when the plaintiff has notice that performance is refused.

The Securities and Exchange Board of India (SEBI) is the regulatory authority established under the SEBI Act, 1992 and is the principal regulator for Stock Exchanges in India. Thus, trading in shares of a bank at National Stock Exchange is regulated by this authority.

The acknowledgement binds only those persons who have signed it. Thus, if borrower has acknowledged the liability by signing a letter after the limitation period, the limitation period shall not get extended.

Under section 12 of Banking Regulation Act, no banking company shall carry on business in India, unless it satisfies the condition that the subscribed capital of the company is not less than one-half of the authorised capital and the paid-up capital is not less than one-half of the subscribed capital. Thus, option 3 is the correct answer.

Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961 and the taxation of individual's income is dependent on income tax authority.

An entity whose income exceeds the "maximum amount", which is not chargeable to the income tax, is an assessee, and shall be chargeable to the income tax at the rate or rates prescribed under the finance act for the relevant assessment year. Thus, option 2 is the correct answer.

Property means the general property in goods, and not merely a special property and seller means a person who sells or agrees to sell goods to the buyer for a price. When the goods are transferred from the seller to the buyer, the contract becomes a sale as "contract of sale" includes an agreement to sell as well as a sale. Thus, all the given statements are true.  

Every director elected under 'election of new directors', shall hold office until the date up to which his predecessor would have held office, if the election had not been held. Thus, option 2 is the correct answer.

Every Chairman, Managing Director or Chief Executive Officer, by whatever name called, of a banking company shall furnish to the Reserve Bank through that banking company returns containing full particulars of the extent and value of his holding of shares. Thus, option 4 is correct.

A condition is a stipulation essential to the main purpose of the contract, the breach of which gives rise to a right to treat the contract as repudiated. X demanded the bottle to be able to withhold the hot water, but it did not and thus, it didn't stand by the condition. Thus, option 1 is correct, i.e. breach of condition. 

Paid up capital and reserves is under Sec 11. Thus, option 3 is the correct answer.

Tax Deduction Account Number or Tax Collection Account Number is a 10-digit alphanumeric number issued by the Income Tax Department (we will refer to it as TAN). TAN is to be obtained by all persons who are responsible for deducting tax at source (TDS) or who are required to collect tax at source.

Section 26 of BR Act is about the ‘return of unclaimed deposits’. Thus, option 3 is the correct answer.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (also known as the SARFAESI Act) is an Indian law. It allows banks and other financial institutions to auction residential or commercial properties to recover loans. Bank may take recourse to one or more of the above measures.

The due date for payment of service tax is 6th day of the month following the relevant month/quarter, if electronically paid and in other cases, 5th day of the month following the relevant month/quarter. It is provided under section 75 of the Finance Act, 1994 that in case of delayed payments (after due date), the assessee is required to pay simple interest at the rate prescribed.

(a) In case of default in maintenance of CRR requirement on a daily basis, penal interest will be recovered for that day at the rate of three per cent per annum above the Bank Rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day.
(b) If the shortfall continues on the succeeding day(s), penal interest will be recovered at the rate of five per cent per annum above the Bank Rate.
(c) In cases of default in maintenance of CRR on average basis during a fortnight, penal interest will be recovered as envisaged in sub-section (3) of section 42 of Reserve Bank of India Act, 1934.

The Board of Financial Supervision (BFS) was constituted in November 1994 as a committee of the Central Board of Directors. Its objective is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The RBI carries out its functions related to financial supervision under the guidance of BFS. The Board normally holds meeting every month. Thus, all the options are correct.

The nomination to be made by the depositor or, as the case may be, all the depositors together in respect of a deposit held by a co-operative bank to the credit of one or more individuals. Where the locker is hired from a co-operative bank by two or more individuals jointly, the nomination is to be made by such hirers. Thus, it is not limited to only one hirer. Therefore, option 2 is incorrect.

The Banking Ombudsman, assuming the charge of an arbitrator, shall follow the procedure as laid down under the Scheme read with the provisions of the Arbitration and Conciliation Act, 1996.

A securitization company or reconstruction company aggrieved by the order of cancellation of certificate of registration may prefer an appeal, within a period of thirty days from the date on which such order of cancellation is communicated to it, to the Central Government provided that before rejecting an appeal, such company shall be given a reasonable opportunity of being heard as cancellation without giving opportunity is not licit.

Excise duty paid on input goods, service tax paid on input services and excise duty paid on capital goods make them eligible for Cenvat Credit. Thus, option 2 is correct.

The provisions of the SARFAESI Act will prevail in case of any conflict and inconsistency of any provision therein with any provisions of the Transfer of Property Act and the CPC. Thus, option 2 is the correct answer.

The state authority or district authority, supreme court legal services committee, high court legal services committee and taluk legal services committee can organize Lok Adalts.

It is an Act to regulate securitization and reconstruction of financial assets, enforcement of security interest, and for matters connected therewith or incidental thereto. It need not to be registered with the Companies Act.

If no settlement is there, the case shall be remitted back to the court which referred the matter to Lok Adalt. In case of potential court case, Lok Adalt shall advise the parties to seek remedy in court.

RBI, during April 2001, advised banks and financial institutions that cases involving an amount up to Rs. 20 lac (RBI enhanced it from Rs. 5 lac, Aug 03, 2004) may be referred to Lok Adalts.

"Security receipt" means a receipt or other security, issued by a securitization company or reconstruction company to any qualified institutional buyer pursuant to a scheme, evidencing the purchase or acquisition by the holder thereof, of an undivided right, title or interest in the financial asset involved in securitization. Thus, in that case, it does not require any registration.

For ensuring compliance with the provisions, a banking company shall furnish to RBI, not later than 20 days after the close of the month, a monthly return, showing particulars of its Liquid Assets maintained and its Demand and Time Liabilities at close of business of each alternate Friday during the month.

DRT - Debts Recovery Tribunal or DRAT - Debts Recovery Appellate Tribunal.
The borrowers, in many cases, continue having negotiations with the Bank Officials and it will consume a lot of time. It is only when the borrowers feel that they may not get their dispute or grievance settled with the Bank, that they will approach the Tribunal or the Courts.

The Foreign Exchange Management Act, 1999 (FEMA) is an Act of the Parliament of India "to consolidate and amend the law relating to foreign exchange".

Capital account transaction is defined as a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India. In other words, it includes those transactions which are undertaken by a resident of India such that his/her assets or liabilities outside India are altered (either increased or decreased).

Additional Directors are appointed by the Board between the two annual general meetings subject to the provisions of the Articles of Association of a company. Additional Directors shall hold office only up to the date of the next annual general meeting of the company.

Where the period of limitation prescribed for any suit, appeal or application expires on a day when the court is closed, the suit, appeal or application may be instituted, preferred or made on the day that the court re-opens.

Section 43A of Banking Regulation Act deals with preferential payments to depositors on liquidation of a bank.

The Banking Regulation Act, 1949 is a legislation in India that regulates all banking firms in India.
Companies Act enables companies to be formed by registration, and set out the responsibilities of companies, their directors and secretaries. 

Bank is always liable to the person whomsoever the check is favourable to, not the bearer. Thus, in the given case, the bank is liable to X. 

The seller of goods is deemed to be an “unpaid seller”, when the whole of the price has not been paid or tendered or when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. Thus, option 2 is the correct answer.

'Current account transaction' is a transaction other than a capital account transaction and such transaction includes payments due in connection with foreign trade, interest on loans and foreign travel, education and medical care of parents, spouse and children. 

RBI is entrusted with the 21-member Central Board of Directors: the Governor, 4 Deputy Governors, 2 Finance Ministry representatives, and 10 government-nominated directors to represent important elements from India's economy, and 4 directors to represent local boards.

If the Suit or Appeal is not filed within the stipulated time period, then this provision is not applicable to get an extension of time period for filing the same. Thus, it tends to be dismissed by the court.

Section 22 of the RBI Act 1934 makes provided that RBI has the sole right to issue bank notes of all denominations. Thus, Reserve Bank is responsible for the design, production and overall management of the nation’s currency, with the goal of ensuring an adequate supply of clean and genuine notes.

An office or branch or an agency in India that is owned and controlled by a person resident outside India, falls under the category of persons resident in India.

Foreign bill is a payment drawn up in one country that is payable in another country. An example of a foreign bill of exchange is an agreement drawn up between two countries for trading purposes.

“Repatriation to India” means bringing into India the realised foreign exchange and the selling of such foreign exchange to an authorised person in India in exchange for rupees, or the holding of realised amount in an account with an authorised person in India to the extent notified by the Reserve Bank. Thus, option 3 is correct. 

All of the above can be partners in LLP. 

As per Section 172 of Indian Contract Act, the bailment of goods as security for payment of a debt or performance of a promise is called "pledge". The bailor is in this case called the "pawner". The bailee is called the "pawnee".

This is a payment guarantee issued to your exporter for deferred or timely payment of the goods, and corresponding interest.

The bank is not liable because X had given specific authority to Y to use his personal account also.

In case the bank guarantees on behalf of one of its customers against some payment to be deposited by the customer in a pending court case, such guarantees are classified under statutory guarantees. 

The legal framework for administration of exchange control in India is provided by the Foreign Exchange Management Act, 1999. Under the Act, freedom has been granted for buying and selling of foreign exchange for undertaking current account transactions. The act involves all the three options, so option 4 is the correct answer.

Every Securitization Company or Reconstruction Company shall maintain, on an ongoing basis, a capital adequacy ratio, which shall not be less than fifteen percent of its total risk weighted assets and minimum capital of Rs. 100 cr.

Advising bank advises the letter of credit to the exporter at the request of the issuing bank. Advising banks act upon issuing bank's request advising the letters of credit to the beneficiaries. Once the letter of credit is issued, it must be conveyed to the importer.

Documents can be presented for negotiation during first 10 days of the month.

"Central Registry" means the registry set up or cause to be set up under sub-section (1) of section 20. The particulars of every transaction of securitisation, asset reconstruction or creation of security interest shall be filed, with the Central Registrar in the manner and on payment of such fee as may be prescribed, within thirty days after the date of such transaction or creation of security, by the securitisation company or reconstruction company or the secured creditor.

It was held that until the bill has been accepted, the drawer is the principal debtor and after acceptance, the drawee or acceptor is the principal debtor and the drawer becomes secondarily liable.

If any person contravenes any provision of this Act, or contravenes any rule, regulation, notification, direction or order issued in exercise of the powers under this Act, or contravenes any condition subject to which an authorization is issued by the Reserve Bank, he shall, upon adjudication, be liable to a penalty up to thrice the sum involved in such contravention where such amount is quantifiable, or up to two lakh rupees where the amount is not quantifiable, and where such contravention is a continuing one, further penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

The pawner must reimburse for any expenses incurred to the preservation of the goods. 

For opening an account of a company, under Prevention of Money Laundering Act, 2002, all the documents listed in the options are required. Thus, option 4 is the correct answer.

Preference share is a share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends. Thus, the given definition is not true.

A supply bill authorizes the expenditure of funds on government activities for the whole or part of the financial year. It is introduced by the government as part of parliament's involvement in the raising and spending of public funds.

If a banking company is found to be not complying with the requirement of PMLA Act 2002, the Director can impose a fine of minimum Rs. 10000 and maximum Rs. 5 lac.

The private key is used to encrypt the hash. The encrypted hash along with other information, such as the hashing algorithm, is the digital signature. Thus, it helps in creating the electronic signature.

Director under PML Act 2002 is appointed by Government of India.

Customer identification means identifying the customer and verifying his/her identity by using reliable, independent source documents, data or information.

SARFAESI is effective only for secured loans where bank can enforce the underlying security, e.g. hypothecation, pledge and mortgages. In such cases, court intervention is not necessary, unless the security is invalid or fraudulent. Any security interest created over agricultural land cannot be proceeded. SARFAESI Act is applicable in case of securities where security interest is created for repayment of the loans by any borrower. Thus, option 4 is the answer.  

It has been prescribed that the plan of realisation of assets shall not exceed five years from the date of acquisition of asset. Thus, option 4 gives the wrong information.

A citizen has a right to obtain information in the form of diskettes, floppies, tapes, video cassettes or in any other electronic mode or through printout provided information is already stored in a computer or in any other device from which the information may be transferred to diskettes.

A minor is a person whose age is below 18 years. 

If any person fails or omits to comply with the order of a Forum, he may be punished with imprisonment up to three years (section 27 of the Act) or with fine of Rs. 2000, which may extend to Rs. 10000 or both.

The bank will get the title of holder in due course, the bank will become the payee and not the drawer. The bank will receive the full payment, no amount as interest will be deducted. 

The Central Government has issued the Securitization 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 securitization, asset reconstruction of financial assets and security interest over property.
Thus, it doesn't deal with sale of financial assets.

The person requesting for information has to pay the prescribed fee, which cannot be in the form of cheque, be it from the account of the information seeker.

Absolute mortgage is not a type of mortgage.

Option 3 is correct.

Effective implementation of the SARFAESI Act was delayed by more than two years because several writ petitions were filed in the High Courts. The matter was finally decided by this Court in Mardia Chemicals vs Union of India (2004) 4 SCC311 and the validity of the SARFAESI Act was upheld except the condition of deposit of 75% amount enshrined in Section 17(2).

The bank can request DRAT explaining the circumstances and if satisfied, DRAT may permit the bank.

United Nation Commission on International Trade Law introduced The Information Technology Act, 2000.

Spurious goods or services are those which are genuine and claimed to be genuine.

The Central Information Commission (CIC) set up under the Right to Information Act is the authorised body, established in 2005, under the Government of India to act upon complaints.

If appeal is to be made by the liable party to the next court, under Consumer Protection Act, it can be made within thirty days of date of order by depositing half of the amount of decree, with varying maximum amount.

To create an agency, no consideration is required.

Both of the cheques will be returned because both the cheques are signed by Amit Kumar before the Power of Attorney was transferred. 

The unpaid seller of goods loses his lien or right of retention thereon – (a) when he delivers the goods to a carrier or other bailee or custodier for the purpose of transmission to the buyer without reserving the right of disposal of the goods; (b) when the buyer or his agent lawfully obtains possession of the goods; or (c) by waiver thereof. 

Implied authority, also known as “usual authority”, is the authority of an agent acting on behalf of another person or entity. The person acting with implied authority does what is reasonably necessary in order to effectively perform his duties. The acts undertaken surrounding the use of implied authority depend on the circumstances and the case.
Thus, in case of implied authority of the partner, one can appoint agent with the consent of the other partners. 

In implied condition on the part of the seller, in the case of a sale, the seller has a right to sell the goods, and in the case of an agreement to sell, the seller will have a right to sell the goods at the time when the property is to pass.

Only the cheques which are signed after the power of attorney has been transferred will be acceptable.

Most mortgages need registration. However, a mortgage created by depositing of title deeds (also known as equitable mortgage) is not compulsorily registrable.

For the said purpose, the District Forum/State Commission/National Commission has to issue a certificate for the said amount to the Collector of the District and the Collector shall proceed to recover the amount in the same manner as arrears of land revenue.

When two parties enter into an agreement, there are two distinct roles each play: the promisor and the promisee. The promisor is the party that makes the proposal/promise, while the promisee is on the receiving end of the promise/proposal.

Security or protection against a loss or other financial burden is known as indemnity. Thus, insurance policies are contracts which are in the nature of indemnity.

The surety's obligation cannot exceed that of the principal. In India, the liability of the surety is, unless otherwise provided by contract, coextensive with that of the principal.

Agent can be appointed by express appointment, estoppel, implied appointment, ratification by principal and necessity, etc. Thus, all the given options are correct.

Under Sale of Goods Act, 1930, “price” means the money consideration for a sale of goods.

Under Sale of Goods Act, 1930, “specific goods” mean goods identified and agreed upon at the time a contract of sale is made.

An implied condition on the part of the seller is that, in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass.

Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. Thus, option 1 is the correct answer.

Subject to the provisions of Sale of Goods Act, 1930 and of any other law for the time being in force, there is no implied warranty or condition as to the quality or fitness for any particular purpose of goods supplied under a contract of sale.

The minimum number of persons required in public, private and one person company is 7, 2 and 1, respectively. Thus, option 4 is the correct answer. 

No restriction has been implied for the maximum number of members in a public company. Thus, option (1) is the correct answer.

According to Sales of Goods Act, 1930, 'Goods' mean every kind of movable property excluding actionable claims and money. 

Under Sale of Goods Act, 1930, a warranty is a stipulation collateral to the main purpose of the contract, the breach of which gives rise to a claim for damages but not to a right to reject the goods and treat the contract as repudiated.

Subject to the provisions of Sale of Goods Act, 1930 and of any law for the time being in force, notwithstanding that the property in the goods may have passed on to the buyer, the unpaid seller of goods, as such, has by implication of law —
(a) a lien on the goods for the price while he is in possession of them;
(b) in case of the insolvency of the buyer, a right of stopping the goods in transit after he has parted with the possession of them;
(c) a right of resale as limited by this Act.

Thus, option (4) is the correct answer.

Minimum 2 partners are required to form an LLP and there is no limit for the maximum number of partners. Thus, option 1 is the correct answer. 

The 1956 Act prescribed minimum 2 directors for a private and 3 for a public company to constitute a Board. This criterion has been retained by the new Act as well. Thus, option 1 is the correct answer. 

The Board of Directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company, to act as an alternate director for a director during his absence for a period of not less than three months.

Persons found guilty of an offence of money laundering are punishable with imprisonment for a term which shall not be less than three years but may extend up to seven years and shall also be liable to fine. 

Section 125 of Companies Act applies to the charges like:
a charge for the purpose of securing any issue of debentures
a charge on uncalled share capital of the company
a charge on any book debts of the company
a charge, not being a pledge, on any movable property of the company
a floating charge on the undertaking or any property of the company including stock-in-trade
a charge on calls made but not paid etc.
However, a charge relating to contingent liabilities of the firm like letter of credit bank guarantee is not under this section.