Final Group 2
Banking and Insurance Law And Practice
Time allowed: 3 hours Maximum marks: 100
(Answer Question No. 1 which is COMPULSORY and any two of the rest from this part)
Attempt any four of the following:
(i) A bank disbursed a loan to one of its customers after obtaining from him a demand promissory note. Later on, it is noticed that the promissory note was not stamped. Bank wants your advice on the following available options:
— to affix necessary stamp duty on the promissory note which has already been executed; or
— to obtain a fresh promissory note duly stamped and executed from the customer.
(ii) A letter of credit is valid upto 10th April, 2005 for shipment and 25th April, 2005 for negotiation. Amendment is received extending the date of shipment upto 10th May, 2005. What will be the validity period of the letter of credit?
(iii) Prakash is the managing director of a limited company. In his capacity as the managing director, he is authorised to sign alone for operating the company’s bank account which is maintained with Kripa Bank Ltd. in Chennai. Prakash’s personal account is also with the same bank, where he has maintained an average credit balance of Rs. 15,000.
Prakash draws a cheque on the company’s account in favour of himself for
Rs. 1.85 lakh and deposits it with the Kripa Bank Ltd. for credit to his personal account. The cheque is duly collected by the Kripa Bank Ltd. and the proceeds credited to his account. Subsequently, the company goes into liquidation and the liquidator files a suit against the Kripa Bank Ltd. for recovery of the money on the ground that there had been fraudulent conversion. What is the position of the Kripa Bank Ltd.? Give reasons for your answer.
(iv) The Blessed Bank Ltd. had advanced a loan for purchasing a truck and deed of hypothecation was executed by the owners in favour of the bank under that agreement, the truck was pledged with the bank for due repayment of the loan advanced by the bank. The truck remained in the possession of the owners and was plied by the driver engaged by the owners. The truck collided with a passenger bus due to which some passengers of the bus were injured. The injured persons preferred separate claim applications. It was claimed that the bank along with owners of the truck should be held liable vicariously. Decide whether the hypothecating bank can be held liable for payment of compensation to the victims of the accident caused by the owners’ employee. What is the status of the hypothecating bank — only as a debtor or as a creditor?
(v) Raju has a current account with a bank. His clerk forged his signature to a cheque for Rs. 15,000 and encashed it at the bank. Raju, having come to know of this irregularity, claims the amount from the bank. Meanwhile, the banker claims that it has paid the cheque in due course. Can the banker escape from its liability? Give reasons. (5 marks each)
(a) “Financial sector reforms have changed the face of public sector banks in India.” Do you agree? Explain what should be the mission for banking sector in India. (8 marks)
(b) State briefly the procedure followed by the National Housing Bank (NHB) for securitisation of housing loans granted by housing finance companies. (7 marks)
(a) What precautions a bank should take before opening a letter of credit (L/C) limit for the use of importers? (5 marks)
(b) Write notes on any two of the following:
(i) ‘Treasury management’ in banks
(ii) ‘Approved’ and ‘non-approved’, securities for banks
(iii) ‘Credit Information Bureau of India Ltd.’ (CIBIL). (5 marks each)
Attempt any five of the following:
(i) “We should have small number of large banks rather than large number of small banks.” Comment.
(ii) “Rating for banks is based on ‘CAMELS’ approach.” Comment.
(iii) What is meant by ‘virtual distribution’ of bank products?
(iv) What is the amended definition of a ‘cheque’ under the Negotiable Instruments Act, 1881?
(v) Distinguish between ‘garnishee order nisi’ and ‘garnishee order absolute’.
(vi) Distinguish between ‘quantitative credit control’ and ‘qualitative credit control’.
(3 marks each)
(Answer Question No. 5 which is COMPULSORY and
any two of the rest from this part)
Attempt any four of the following:
(i) Manoj applied for a life insurance policy. He stated in the application that he had never smoked cigarettes. In fact, he had been smoking cigarettes for the last 13 years and during the months before he applied for insurance, he was smoking approximately 10 cigarettes daily. About 10 months later, Manoj died of reasons unrelated to smoking. The beneficiary filed a claim for the death proceeds. The insurer discovered that Manoj smoked cigarettes and denied payment because of a material misrepresentation. Can the insurer deny liability because of Manoj’s false statement? (5 marks)
(ii) Joseph Basker Raj applied for a life insruance policy on his life. Five months after the policy was issued, he died. The death certificate named the deceased as Joseph Prakash Raj,.his true name. The insurer denied payment on the ground that Joseph had concealed a material fact not revealing his real identity. Is it correct on the part of the insurer to deny payment? Give reasons. (5 marks)
(iii) Ganeshan assigned his policy to his minor son Kartik and appointed the mother as the guardian to receive the money till his son was a minor. After sometime, the family needed the money and decided to surrender the policy. Whether surrender of the policy is possible? Suggest any other alternative by which Ganeshan can take back the ownership over the policy? (5 marks)
(iv) Suresh takes out an endowment policy for 15 years for Rs. 15,000 and the premium payable is Rs. 1,200 per annum. He pays premium for 3 years and then stops. What is the surrender value of the policy assuming that surrender value of bonuses already accrued is Rs. 300? (5 marks)
(v) Identify the type of hazard in the following cases giving reasons therefor:
(a) Defective lock on a door.
(b) Leaving car keys in an unlocked car.
(c) Defective wiring.
(d) Inflating the amount of claim.
(e) Leaving the cheque book on the table. (1 mark each)
(a) Describe the role of the Export Credit Guarantee Corporation (ECGC) in risk management in international trade. (8 marks)
(b) Explain the concept of ‘subrogation’. How is the doctrine of subrogation applied on marine insurance policies, personal accident insurance policies and fire and miscellaneous insurance policies? (7 marks)
(a) State briefly the functions which are mandated for the Insurance Regulatory and Development Authority (IRDA).
(b) Narrate the salient features of licensing of surveyors and loss assessors.
(c) Explain different types of marine insurance policies generally being issued by insurance companies in India. (5 marks each)
Attempt any five of the following:
(i) Write short note on ‘solatium fund scheme’.
(ii) “Self-insurance is the same as insurance.” Comment.
(iii) Explain rural sector definition for insurance companies as per the Insurance Regulatory and Development Authority (IRDA) regulations.
(iv) Explain basic categories of risks.
(v) Explain ‘insured’s declared value’ (IDV) under the motor insurance.
(vi) What are the ‘captive insurers’? (3 marks each)