BANKING LAW questions & answer 7 to 14

Q7 trace the evolution of banking institution

  1. History of modern banking or evolution of Bombay in India first time English agency house establish by the east India Company.

  2. The agency house were basically trading firms and carrying on banking business as part of their main business

  3. The east India Company laid the foundation for modern banking in first half of 19 the century with establishment of the following 3 banks.

1) Bank of Bengal 1809

2) Bank of Bombay 1840

3) Bank of madras 1843


These banks are also known as presidency bank and foundation well as independent units 20th century swadeshi movement the establishment of a number of bank with India management

E.g. Punjab bank Ltd 1895, canara bank Ltd in 1906


Imperial bank of India Act passed 1921

In 1920 the imperial bank of India Act was passed amalgamating the three presidency bank and imperial bank of India was established in 1921 power to holds government found and manage the public debt.

Reserve bank of India 1935

Reserve bank of India Act was passed in 1934 and constituted in 1935 to regulate and issue of bank securing monetary stability in India.

State bank of India Act 1955

In 1995 the state bank of India act was passed




Q 8 Explain special relationship between banker and customer Special relationship of banker’s customer

Every person who as is competent to can made contract and open account with a bank provided the bank is satisfied regarding his bonafide and willing to enter into the contract or enter necessary business relation with him certain type of person .


E.g. minor, lunatic, marred woman, etc. enter in to valid contract is subject to certain legal restriction

1. Minor

  • a person who has not complete his 18th year age

  • A banker open saving bank account

  • Recoding the date of birth of a minor

2. Lunatic

  • All contract made by lunatic are valid those made during lucid interval

  • No banker would knowingly like to open account in name of a person of unsound mind because difficulty of choosing between the risk

3. Marred woman

4. Pardanshin woman

5. Illiterate person


1) Thumb impression

2) Identification mark

3) Photograph

4) General

  • Trustee

  • Executer and administrator

  • Customers attorney

  • Joint accounts

  • Joint Hindu family

  • Partnership firm - section 4 of partnership act define partnership as the relations between person who have agreed to share the profit of business carried on by all or any of them for all

  • Joint stock company

  1. · Explanation of document certification of incorporation

  2. · Certification of commencement of business memorandum of association

  3. · Article of association

  4. · Copies of annual account

  5. · Copy of boards resolution

  6. · Borrowing power of the company registration of change under the companies act

Clubs, societies, charitable institution:-

In case clubs, society, charitable, institution and religious institution school, college etc. not engaged in trading activity

  1. The society must be incorporated (the society registration Act 1860)

  2. Rule and by –laws of the society

  3. Resolution of the managing committee

  4. Death or registration

  5. Care to be exercised in case of personal account

Q 9 discussed the function commercial bank of India or different function of the bank.

Function of the commercial bank _ a bank is an institution which deals in money this earlier banks were goldsmith, merchant and money lander main three function of bank 1) receiving deposit 2) advancing loans and 3) discounting bills

A) Accepting deposits

  • Fixed deposit

  • Saving bank deposit

  • Current deposit

B) Giving loans and advancing money

  • Overdraft

  • Loans

  • Cash credits

  • Discounting bill

C) Agency services :- collect cheque ,dividend or interest on stock buy and sell security

D) Others services :- issue personal loan and commercial letters of credits ,transaction of foreign exchange ,supply trade ,information and statistics


Define banking :- banking is kind of business the banker deals in money or he accepted deposit from the members of the public agreeing to repay then either on demand or after the expiry of a fixed period of time surplus money of the public they deal on credit instrument and the wheel of progress


Function of bank or feature of bank

  • · Deal in money

  • · Deposits must be withdrawable

  • · Dealing with credit

  • · Commercial in nature

  • · Nature of agent

Commercial banking:-


Q10 what is cheque? What are its essential feature? Distinguish between cheque and bill of exchange

Define cheque: - according section 6 of the Act a cheque is a bill of the exchange drawn on a specified banker and payable on demand.

Essential feature

  • That it is always drown on a banker and

  • That it is always payable on demand all cheque are bill of exchange but all bill of exchange are not cheque .

Distinguish between cheque and bill of exchange

A cheque

  1. · A cheque is always draw on a bank or banker

  2. · A cheque does not required any acceptance

  3. · Payable immediately on demand

  4. · A cheque may be crossed


Bill of exchange

  1. · Drawn any person including a banker

  2. · Acceptance require before the drawer

  3. · 3 days of grace unless it pay able on demand

  4. · No such provision in case of bill of exchange


Q 11 crossing of cheque

Cheque are two type

1) open cheque and

2) crossed cheque


Open cheque – which are paid over the counter of the bank open cheque are liable to great risk in course of circulation in case lost or stolen and finder or theft .


Crossed cheque – protect the owner of the cheque a system of crossing was introduced crossing is a direction to the banker not to pay the cheque across the counter but to pay to a bank only or to a particular bank in an account with the bank.

Crossing provides a protection and safeguard to owner

Modes of crossing

Two modes of crossing a provided by the negotiable instrument Act

A) General crossing: - two parallel transverse line with or without word not negotiable

B) Special crossing :- a special crossing makes the cheque more safer than general crossing

Q12 what do you means by e-banking? State the e-banking services

· Information only system

· Electronic information transfer system

· Fully electronic transaction system

· Credit card /debet card

· Smart card

· Bill payment service

· Fund transfer

· Credit card customers

· Railway pass

· Investing through internet banking


Q13 Garnishee order

In case debtor failed to pay the money due to is creditor the latter may apply to court to issue a garnishee order on the debtor banker

· Result debtor account with the bank is frozen and the bank cannot make any payment out of the account

· Order is issued is called -judgement creditor

· Account is frozen is called –judgment debtor and banker who has customer account is called the garnishee

1. The amount attached

2. Banker claim to set off

3. Amount not covered by the garnishee order

4. Serving of garnishee order

Q14 the state bank of India 1955

The state bank of India came into existence when the three presidency bank the bank of Bombay the bank of madras the bank of Bengal were merged into imperial bank of India There after the same was nationalized in 1955 to become the state bank of India State bank Act 1955 are governed he Act and empowered to transact business on behalf of control center and state government and union territories SBI is the Agent of RBI state bank is premier Bank of the country due to size and large number of branches

IDBI 1964 (industrial development Bank of India)

· IDBI is the apex banking institution in field of long –term industrial finance .setup in 1964

· Reserve bank on 16th Feb 1976 when its entire share capital was transferred to the central government

· Function as the principal financial intuition for coordinating the function and activates of all India term –lending intuition and to some extent the public sector banks

·

The assistance provided by IDBI

Two broad categories

1. direct assistance to large and medium industries

IDBI provides soft loans for the modernization of all industries

In 1984 IDBI introduced Equipment finance scheme

Foreign currency loans are made available import of capital goods and equipment not related any specific project


2. indirect assistance to major portion of the direct assistance is provided in the form of Project loans to industries

Indirect assistance is provided by the bank to tiny small and medium enterprises

By the way refinance loans granted by state finance corporation (SFCs)

State industrial development corporation (SIDCs), commercial bank, co-operative bank, and reginal rural banks

IDBI also subscribes to share and bonds of SFC, and SIDC and national small industries corporation LTD

Exim Bank in March 1982 IDBI established (finance for exports

UTI (unit trust of India)

The unit trust of India (UTI) is statutory public sector investment institution set up 1964

Mobilized saving of the community through the sale of its units under its various unit schemes

Mobilized are invested by UTI mainly in the share and debenture bonds of the companies


The unit’s trust of India has introduced a number of schemes

  1. · The unit scheme 1964

  2. · United linked insurance planed 1971

  3. · United scheme of charitable and regional trust and registered societies 1981

  4. · The income unit scheme 1983

  5. · The monthly income unit scheme 1983

  6. · Growth and income unit scheme 1983

Mutual fund unit scheme

In September 1986 the unit trust of India introduced a new mutual fund unit scheme wherein master share of RS 10 each have been issued .




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