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Updated: Jul 13, 2021

BANKING LAW important question with answers

Q1 define banker and customer state general relationship between banker and customer with suitable case law.

Define banker and customer:-

Banker :- banker is a person who has managed bank and provides service to customer

Customer :- customer means a person who has an account with the bank

Relationship between banker and it customer

Banker and customer relationship divided into two categories as follow

A) General relationship

Debtor and creditor

B) Special relationship

Bailor and Bailee

Principal and agent

Trustee and beneficiary

Case –hanuman bank ltd v/s nadir

Q2 define endorsement, described the various type of endorsement

ENDORSMENT –endorsement means the writing of one’s name the on the back of the instrument or any paper attached to it with the intention of transforming the right there in the endorsement is signing a negotiable instrument for the purpose of negotiation . A person who effected and endorsement is called endorser and a person whom negotiable instrument is transferred is called the endorsee

Essential of valid endorsement (Type or class of endorsement)

1) Blank or general endorsement

2) Special or full endorsement

3) Partial endorsement

4) Restrictive endorsement

5) Conditional and qualified endorsement

a) Sans recourse

b) Facultive

c) Sans frais

Liberty deprived upon a contingency

Q3 define lending elaborate the principal of good lending

Lending define _ (loan and advance )landing of fund to the constituent mainly trader ,business and industrial enterprises company the major portion of banks fund is employed by way of loan and advance

Principal of sound lending or good landing




The purpose of the loan

The principal of diversification of risk

Precaution and procedure (advance money on security of good)

Selection of the borrowers

Selection of the commodities

Charging the security

Storage of goods

Conduct of the account

Legal requirement

Q4 Define promissory note distinguish it from bill of exchange:-

Define promissory note :- section 4 of the act define a promissory note as a promissory note is an instrument in writing (not being bank note or currency note ) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to or the order of a certain person or the bearer of the instrument

Essential of promissory note

· It must be in writing

· It must be expressed

· The promise to pay must be unconditional

· Signed by the maker

· Maker must be certain

· Promise must be to pay a certain sum

· Pay money

Meaning of bill exchange

section 5 of the negotiable instrument Act define of exchange as an instrument in writing containing an unconditional order signed by the maker directing to certain person to pay a certain sum of money only to or to the order of a certain person or to the order of the bearer of the instrument

Writing acknowledgment of the debt written by the creditor and accepted by the debtor 3 parties to bill of exchange 1) drawer, accepter, or drawee and payee

Essential element of bill of exchange

· It must be in writing

· Signed by the drawer

· parties to the instrument

Difference between bill of exchange and promissory notes cheque and clam and drafts Promissory notes

Promissory notes

2 parties maker and payee

Promissory note does not required any acceptance it is signed by the person who is liable to pay

Unconditional promise to pay

In promissory note liability of maker is primary

Promissory note cannot be draw in sets

Bill of exchange

3 parties drawer ,accepter ,drawee and payee

Acceptance is required of the drawee before it is presented for payment

Unconditional order to pay

But in case bill of exchange liability of drawer of bill exchange is secondary

Bill of exchange be drawn in sets

Q5 discuss the function and promotional role of RBI explained the constitution and management of RBI

Reserve bank of India – (RBI) - reserve bank of India was a fresh bill introduced in the India legislature assembly on September 8, 1929 and reserved bank of India Act was passed in September 1934 the reserve bank of India started functioning from 1st April 1935

Reserve bank of Indian constitution

The reserve bank was originated constituted as a shareholder bank with a capital of RS 5 crore divided into 5 lakh fully paid up share of RS 100 each with the expansion of the nominal value of RS 2.2 lakh subscriber by the central government


After independence the public opinion was stronger in favor of nationalization of the reserve bank a decision was taken in the regarded in 1947 reserve bank of India (transfer to public ownership) Act was passed in 1948 and from 1st January 1949 it being to functioning as a government owned institution

Management of RBI

The management of reserve bank of India is vested within the central board of director comprising 20 members appointed by central government

1) 1 governor and 4 deputy governor

2) 4 directors one from each local board

3) 10 directors

4) 1 government official

5) Term 5 years governor and deputy governor

Local board

For each of the regional area of country, western, eastern, north, southern area

Head quarter

Bombay, Calcutta, madras and Delhi, consist 5 members appointed central government

Function of the central board

· Right to notes issue –every country central bank issue notes sole right

· Banker to the government _RBI government bank

· Bankers bank _ empowered to supervise the working of member banks

· Lender of last resort-financial accommodation (help) to members bank

· Control of credit – 3 ways

· Custodian of reserves of international currency

Relationship between reserve bank of India & commercial banks

· Apex bank and customer bank

· Commercial bank are bound to take permission for opening there branches

· Commercial bank operation and account book etc. subject of inspection of RBI

· RBI can issue direction to commercial bank

· Power to interfere in the management

· RBI as controller of credit

Q6- write a detailed note on banking ombudsman ombudsman: -

ombudsman is a person appointed by a legislation body to receive investigate and report on complained by private individual against government officialBanking ombudsman scheme 1995 was formed by the reserve bank of India and issued under section 35-A of the banking regulation Act 1949 .

Applicability of the scheme: - the banking ombudsman scheme 1995 applies to the business in India of every commercial bank

Object of the scheme :- satisfaction and satisfaction settlement of such complaints

Appointment of banking ombudsman

RBI appoint one or more person to be known as banking ombudsman hold office during the pleasure of the governor, reserve bank of India . Banking ombudsman have been appointed in capital and big cities only

Location of office

Office will be located at such place as may be specified by the reserve bank of India.

Qualification for banking ombudsman

A person of high standing in the legal banking financial services public administrative or management sector

Tenure of banking ombudsman

3 years age limit of 65 years

Power and duties

To receive complaint relates banking service to consider such complaint and facilities the satisfaction or settlement by agreement by making recommendation and

Jurisdiction of banking ombudsman

· The authority of banking ombudsman relates to matter to banking services and lone and advances

Procedure for redressal of grievance:-

Any person who has a grievance against a bank may himself or through an authorized representative makes complaint in writing to banking ombudsman within the jurisdiction branch or office

Settlement of dispute

Banking ombudsman tries to promote settlement between the complaint and bank through conciliation or mediation

Rejection of complaint:-

Banking ombudsman complaint made without any sufficient cause or not perused or no loss or damages.

Annual report of functioning and working

Evaluation of banking ombudsman scheme


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