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Securitization and reconstruction of financial Assets and Enforcement

of Security Interest (SARFAESI ACT 2002)

1. The definition of the term hypothecation is available as per:

A. SARFAESI Act 2002

B. Indian Contract Act 1872
C. General Clauses Act
D. Not available

Answer: A-Till enactment of SARFAESI Act 2002, no definition of Hypothecation was available. But
hypothecation is now defined u/s 2 of this Act.

2. The basic objective of enactment of SARFAESI Act was:

A. to improve the quality of bank lending

B. to enable banks and FIs to recover bad loans by laying hands on the security without court
intervention
C. to sell the assets of the borrower without going to a court of law
D. to reduce the NPAs

Answer: B-The basic objective was to provide a tool to banks and FIs to recover bad loans by laying
hands on the security without court intervention.

3. Which of the following is not correct regarding SARFAESI Act?

A. it extends to entire India including J & K

B. it came into effect wef June 21, 2002
C. it is applicable to housing finance companies
D. those assets of the borrower can also be sold on which the bank did not create any charge

Answer:Under SARFAESI Act only those securities can be sold on which the borrower has created some
charge, say hypothecation,assignment or mortgage.

4. Which particular provision was suggested by Supreme Court to be removed from the SARFAESI
Act, in case of Mardia Chemicals vs Union of India and others:

A. Deposit of 75% of amount of loan if the borrower wants to approach DRT against possession of security.
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B. Deposit of 50% of amount of loan if the borrower wants to approach DRT against possession of security.
C. Deposit of 50% of amount of loan if the borrower wants to appeal to DRAT against DRT.
D. Deposit of 75% of amount of loan if the borrower wants to appeal to DRAT against DRT.

Answer: B-New provisions under 17(2) borrower can approach DRT without depositing any amount but
to approach DRAT against decision of DRT he has to deposit 50% of the due amount.

5. On the request of the secured creditor (bank or FI), who can take possession of the security to
handover it to the secured creditor under provisions of SARFAESI Act:

A. Distt. magistrate or the Chief Metropolitan Magistrate

B. Distt. Police Chief or the Chief Judicial Magistrate
C. Distt. magistrate or the Distt. Police Chief
D. any of the above

Answer:. A-On the request of the secured creditor (bank or FI), Distt. magistrate or the Chief
Metropolitan Magistrate can take possession of the security to handover it to the secured creditor.

6. Before taking possession of a security under SARFAESI Act, the bank is required to issue notice
to the borrower under provisions of:

A. Section 10 (3) of SARFAESI Act

B. Section 13 (2) of SARFAESI Act
C. Section 14 (1) of SARFAESI Act
D. Section 17 (2) of SARFAESI Act

Answer:B-The notice giving 60 days time to the borrower is required before taking possession of the
security under section 13(2)

7. Under SARFAESI Act, which of the following courts can take cognizance of the issues relating to
dispute between the borrower and the secured creditor (bank or FI)

A. A distt. court
B. High Court
C. DRT or DRAT
D. any of the above

Answer: C-Under SARFAESI Act, only DRT or DRAT can take cognizance of the issues relating to dispute.

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8. In case of consortium advances, the action under SARFAESI Act can be initiated if there is consent
of banks:

A. 75% banks by value and 60% by number

B. 75% banks by value
C. 60% banks by value
D. 75% banks by number and 60% banks by value

Ans: In case of consortium advances, the action under SARFAESI Act can be initiated if there is consent
of 75% banks by value.

9. Under SARFAESI Act, the action on behalf of the bank or FI can be initiated by an authorised
officer, who can be:

A. An officer authorised by the competent authority

B. An officer in Scale IV only
C. An officer authorised by the Board of the bank only
D. An officer in Scale IV or above or authorised by the Board of the bank

Answer:D- Under SARFAESI Act, the action on behalf of the bank or FI can be initiated by an authorised
officer, who should be an officer in Scale IV or above or authorised by the Board of the bank.

10. If the borrower wants to approach DRT against the possession of the security by the bank, he can
do so within :

A. one week
B. one month
C. 45 days
D. 60 days

Answer: C-If the borrower wants to approach DRT against the possession of the security by the bank, he
can do so within 45 days.SARFAESI ACT 2002

11. If the borrower wants to appeal DRAT against the decree of DRT for possession of the security by
the bank, he can do so within :

A. one week
B. 30 days
C. 45 days
D. 60 days

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Answer: B-If the borrower wants to appeal to DRAT against DRT decision for the possession of the
security by the bank, he can do so within 30 days.

12. If the borrower wants to appeal to DRAT against DRT decree for the possession of the security by
the bank, he can do so by depositing:

A. 75% of the amount due which can be reduced to 25% by DRAT

B. 50% of the amount due which can be reduced to NIL by DRAT
C. 50% of the amount due that can be reduced to 25% by DRAT
D. no amount is required to be deposited.

Answer: If the borrower wants to appeal to DRAT against DRT decision for the possession of the
security by the bank, he can do so by depositing 50% of the amount which can be reduced to 25% by
DRAT.

13. Before sale of a security, a days notice is required to be given to the borrowers as per SARFAESI
Act.

A. one week
B. 30 days
C. 45 days
D. 60 days

Answer: B-Before sale of a security, a 30 days notice is required to be given to the borrowers as per
SARFAESI Act.

14. The buyer of the assets sold by the bank under SARFAESI Act is required to pay %at the time of
sale to confirm the sale:

A. 10%
B. 15%
C. 20%
D. 25%

Answer: D-The buyer of the assets sold by the bank under SARFAESI Act is required to pay 25% of the
purchase price, at the time of sale to confirm the sale.

15. The buyer of the assets sold by the bank under SARFAESI Act is given time to make payment of
the balance amount.

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A. one week
B. 10 days
C. 15 days
D. 25 days

Answer: C- The buyer of the assets sold by the bank under SARFAESI Act is given 15 days time to make
payment of the balance amount.

NEGOTIABLE INSTRUMENT ACT MCQ

1. Under which of the following, a protection is not available to the paying bank:

A. Section 10 of NI Act

B. Section 85 of NI Act

C. Section 89 of NI Act

D. Section 131 of NI Act

Answer: D - U/s 131, the protection is available to the collecting bank and not to the paying bank. In
other sections, the protection is available to the paying bank.

2. Which of the following, relating to protection, does not match:

A. Section 10 NI Act - payment in due course

B. Section 85 (1) NI Act - payment of an endorsed cheque payable to order

C. Section 85A NI Act - payment of an endorsed demand draft payable to order

D. Section 89 NI Act - payment of bearer cheque

Answer: D - U/s 89, NI Act, the protection is available to the paying bank in case of materially altered
cheque.

3. If a bank refuses to make payment of a cheque wrongfully, the bank is liable to compensate the, in
case he suffers any loss:

A. holder

B. payee

C. endorsee
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D. Drawer

Answer: D - If the cheque is dishonoured wrongfully, the bank is liable to compensate the drawer (and
no one else) for loss if any.

4. Protection is available to bank u/s of NI Act, for making payment of a cheque, which is materially
altered, if the alteration is not apparent:

A. Section 10

B. Section 85

C. Section 89

D. Section 128

Answer: C - t is Section 89 of NI Act which provides protection.

5. In a joint account of X and Y, a cheque is presented in clearing and paid. Later on it is found that
signatures of X are genuine but that of Y are forged.

A. the bank cannot debit the account of the customer. Hence the bank is liable

B. the bank cannot debit the account but if the forgery is in the knowledge of the customer, bank is not liable

C. the bank is liable for forgery, even if the payment of the cheque has not been made

D. the bank is not liable if the forgery is done in connivance with the drawer

Answer: A forged cheque is not a mandate of the customer. Hence bank cannot debit the account of the
customer. If account is debited, the debited amount has to be restored by the bank. (Supreme Court
judgement in Bihta coop Development and Cane Marketing Union vs Bank of Bihar).

6. A collecting bank gets protection for collecting a demand draft subject to certain conditions, u/s
of :

A. Section 131, NI Act

B. Section 31, NI Act

C. Section 31, RBI Act

D. Section131A, NI Act

Answer: Protection to collecting bank is available against conversion, in the process of collection of a
cheque u/s 131 of NI Act and for collection of DD u/s 131A of NI Act.

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7. The bill of exchange is defined as unconditional order of the drawer to pay a certain sum of
money to or to the order of a particular person. This definition is as per:

A. Section 13 of NI Act

B. Section 5 of NI Act

C. Section 5 of Indian Contract Act

D. Section 22 of B R Act

Answer:Bill is negotiable instrument and it is defined u/s 5 of NI Act.

8. Electronic cheque is defined under sec......

A. 5(a)

B. 5(b)

C. 6(a)

D. 6(b)

Answer: C - 6(a)

9. As per the provisions of NI Act,1881 a banker gets protection for payment of a cheque only if it
is a ......

A Holder in due course

B Payment in due course

C Holder for value

D All of the above

Answer: B - Payment in due course

10. Definition of the term ‘banking’ is as per Section 5 (b) of the which of the following ......

A. Banking Companies (Acquisition and transfer of Undertakings) Act

B. Banking Regulation Act

C. RBI Act

D. NI Act

Answer: D - NI Act
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11. If holder of a cheque wants to file complaint in a court u/s 138 NI Act and other related
provisions of NI Act, he can do so ......

A. Within one month from date of cause of a action

B. Within one month from date of returning of the cheque by the collecting bank

C. Within one month of date of receipt of the information about dishonor by the holder from the bank

D. Within one month of date of dishonor of the cheque

Answer: Within one month of date of receipt of the information about dishonor by the holder from the
bank

BR ACT 1949-MCQ

1. Which of the following is not correct regarding the purpose for which RBI was created under
Reserve Bank of India Act 1934:
A. To regulate the issue of bank notes
B. To directly undertake regulation of banking system
C. To keep reserves for securing monetary stability in India
D. To operate the currency and credit system of India
Ans: B - RBI does not directly deal with regulation of banking system under Reserve Bank of India Act
except u/s 42 that deals with CRR. RBI regulates the banks under provisions of Banking Regulation Act.

2. Which of the following powers are not available with Central Govt. as per provisions of Banking
Regulation Act 1949:
A. Issue of licence for formation of banks u/s 22
B. Approval to banks for formation of subsidiary for certain business u/s 19
C. Power to acquire undertaking of bank.
D. Suspension of business and amalgamation of banks u/s 45
Ans: A - Explanation:The power to issue licence for formation of banks, is used by RBI not by Central
Govt.

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3. A banking company requires from………to undertake banking business as per provision of

Section…………..of Banking Regulation Act:
A. Registration, RBI, 23
B. Licence, RBI, 22
C. Registration, Registrar of Companies, 24
D. Certificate of commencement of business, Registrar of Companies, 24
Ans: B - U/s 22 of Banking Regulation Act, banks are required to obtain licence from RBI to carry on
banking business

4. If a bank has to shift its branch in(area), it requires RBI permission u/s 23 of Banking Regulation
Act:
A. Same district
B. Same city
C. Same town
D. Same village
Ans: A - Shifting of branch outside the same city, same town or same village does not require RBI
permission.

5. Under Section 11 of Banking Regulation Act, the foreign banks have to deposit arising out of
their business in India with, RBI:
A. 10% of their deposits
B. 20% of their deposits
C. 20% of their profit for each year
D. 20% of their net demand and time liabilities
Ans:C - Foreign banks have to deposit 20% of their profit every year with RBI

6. Bank companies can promote a subsidiary for the business activities mentioned :
A. In the Resolution passed by their Board of Directors
B. In their Articles of Association

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C. Section 6 (1) of Banking Regulation Act

D. Section 22 of Banking Regulation Act when issued licence by RBI.
Ans: C- Banks can promote a subsidiary for undertaking a business activity mentioned in section 6 (1) of
Banking Regulation Act, provided that activity is part of the Object as per Memorandum of Association,
if a banking company.

7. If a chairman of a bank is removed by RBI, he can appeal to _ within:

A. Governor RBI, 30 days
B. SEBI, 30 day
C. Central Govt., 30 days
D. Central govt., 2 months
Ans: C - The appeal can be made by the chairman of a bank, who is removed by RBI, to Central Govt.
within a period of 30 days of date of order.

8. U/s 21 of Banking Regulation Act, RBI issues directions to banks in respect of:
A. Loans and advances
B. Audit and inspection
C. Capital structure of banks
D. Corporate governance
Ans: A - U/s 21 of Banking Regulation Act, RBI issues directions to banks in respect of loans and
advances relating to margin, rate of interest and other restrictions including selective credit control
directives.

9. RBI can regulate acceptance of deposits including rate of interest on deposits by banks, under
section of:
A. 35, Banking Regulation Act
B. 35-A, Banking Regulation Act
C. 35, Reserve Bank of India Act
D. 45, Reserve Bank of India Act

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Ans: B - U/s 35A of Banking Regulation Act, RBI issues various directions in public interest, to banks.
These guidelines include the guidelines on deposits, customer service, KYC etc.

10. Which of the following provides that a transaction between a banking company and its borrower
cannot be reopened by courts on the ground that the rate of interest is excessive:
A. Section 12, Usurious Loans Act
B. Section 46, Reserve Bank of India Act
C. Section 21A, Banking Regulation Act
D. Section 21, Banking Regulation Act
Ans: C - Section 21A of Banking Regulation Act provides that a transaction between a banking company
and its borrower cannot be reopened by courts on the ground that the rate of interest is excessive.

11. Every banking company has to maintain assets in India, equal to…….. % of u/s 25 of Banking
Regulation Act as at last Friday of each quarter :
A. 75% of demand and time liabilities
B. 75% of net demand and time liabilities
C. 50% of net demand and time liabilities
D. 25% of demand and time liabilities
Ans: A - Such assets equal to 75% of demand and time liabilities are to be maintained on a quarterly
basis i.e. last Friday of each year.

12. If a bank fails to pay penalty imposed by RBI for non-maintenance of liquid assets u/s 24 of
Banking Regulation Act, it can be recovered:
A. By way of an appeal to Govt.
B. By filing suit in a civil court
C. By filing suit in a court not less than High Court
D. If it is a banking company, by filing appeal with Registrar of Company
Ans: B - If a bank fails to pay penalty imposed by RBI and RBI has to recover through legal measure. RBI
can file suit in a civil court.

13. Which category of banks maintain cash reserve ratio u/s 18 of Banking Regulation Act:
A. Nationalized banks
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B. Banking companies that are not scheduled banks

C. Scheduled banks
D. Cooperative banks
Ans: B - Banking companies that are not scheduled banks have to maintain cash reserve ratio prescribe
by RBI u/s 18 of Banking Regulation Act.Other banks maintain CRR as per Section 42 of Reserve Bank of
India Act.

14. Which of the following provision of Banking Regulation Act is not properly matched:
A. Section 26 - Unclaimed deposits
B. Section 21 - RBI authority to give directions to banks on loans and advances
C. Section 24 - maintenance of cash reserve
D. Section 17 - creation of reserve fund by bank from profits
Ans: C - Section 24 of Banking Regulation Act deals with maintaining liquid assets i.e. SLR by banks and
not cash reserve (CRR).

15. U/s 11 (2) of Banking Regulation Act, foreign banks are required to………… 20% of their profits
for each year in respect of all their business conducted in India:
A. Maintain as reserve fund
B. Maintain as special deposit
C. Maintain as deposit with RBI
D. Maintain as additional cash reserve
Ans: C - Foreign banks are required to deposit with RBI and maintain the deposit, which should be equal
to 20% of the profit for each year.

16. Which of the following provision does match in the context of nomination :
A. For deposit accounts - Section 45ZA of Banking Regulation Act
B. For safe custody of articles accounts - Section 45ZE of Banking Regulation Act
C. For safe deposit vault (locker) accounts - Section 45ZC of Banking Regulation Act
D. all the above match

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Ans: A - Section 45ZA relates to nomination in case of deposits, 45ZC to safe deposit of articles and
45ZE to safety lockers.

17. RBI can carry inspection of banks by exercising powers u/s _ of _:

A. Section 21, Banking Regulation Act
B. Section 35, Banking Regulation Act
C. Section 21, Reserve Bank of India Act
D. Section 35, Reserve Bank of India Act
Ans: B - RBI can conduct inspection of banks by exercising powers u/s 35 of Banking Regulation Act.

18. The annual audit of a banking company, is to be carried by a person qualified to be auditor of a
company, as per provisions of:
A. Section 29, Banking Regulation Act
B. Section 30, Banking Regulation Act
C. Section 29, Reserve Bank of India Act
D. Section 29, Companies Act
Ans: B - The audit is to be carried u/s 30 of Banking Regulation Act

RBI ACT 1934 MCQs

1. RBI has the authority under Section 22 of Reserve Bank of India Act to issue bank notes with
a denomination of:
A. Minimum Rs 1 and maximum Rs.1000
B. Minimum Rs 2 and maximum Rs.1000
C. Minimum Rs 1 and maximum Rs.10000
D. Minimum Rs. 2 and maximum Rs.10000
Answer: D - RBI has powers to issue bank notes with a minimum Rs 2 and maximum Rs.10000,
as the Central Govt. may decide on recommendations of Central Board of RBI. RBI ACT -
Imp.Mcqs

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2 . Govt. of India can give directions to RBI (which one is not correct):
A. U/s 7 (1) of Reserve Bank of India Act
B. U/s 22 of Banking Regulation Act
C. After consultation with Governor RBI
D. The direction should be in public interest
Answer: A - Govt. can issue directions to RBI in public interest, under Reserve Bank of India Act
after consulting the Governor.

3 . If a bank fails to maintain cash reserve u/s 42 of Reserve Bank of India Act, it has to pay
penal interest to RBI for first day at:
A. Bank rate + 2%
B. Bank rate + 3%
C. Bank rate + 4%
D. Bank rate + 5%
Answer: B - The penal interest for the first day is bank rate + 3% and for 2nd and subsequent
days it is bank rate + 5%.
4.Which category of banks maintain cash reserve ratio u/s 18 of Banking Regulation Act:
A. Nationalized banks
B. Banking companies that are not scheduled banks
C. Scheduled banks
D. Cooperative banks
Answer: B - Banking companies that are not scheduled banks have to maintain cash reserve
ratio prescribe by RBI and u/s 18 of Banking Regulation Act. Other banks maintain CRR as per
Section 42 of Reserve Bank of India Act.

5.A scheduled cooperative bank has to maintain cash reserve (CRR):

A. As per Section 24 of Banking Regulation Act
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B. As per requirement of Societies Registration Act

C. As per Section 42 of Reserve Bank of India Act
D. As per rules framed by State govt. concerned.
Answer: C - The scheduled cooperative banks have also to maintain CRR as per Section 42 of
Reserve Bank of India Act.

6.RBI undertakes govt. business as per Reserve Bank of India Act Which of the following is not
correct regarding this:
A. U/s 20, it has obligation to undertake business of Central Govt.
B. In case of state governments, RBI undertakes banking business based on the agreement with
State Gov u/s 21 A.
C. RBI provides temporary advances to Govt. which are called liquidity adjustment facility
D. None of the above
Answer: D - RBI provides temporary advances to govt. called ways and means advances to
meet the gap between expenditure and flow of revenue.

7.Rupee coins are the legal tender in India under the provisions of?
A. The Reserve Bank of India Act, 1934
B. Negotiable Instrument Act, 1881
C. Banking Regulation Act, 1949
D. Indian Coinage Act, 1906
Answer: D - Indian Coinage Act 1906

8. Which of the following Sections deals with the powers of central Government to supersede
Central Board of RBI
A. Section 7
B. Section 30
C. Section 42
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D. Section 43
Answer: B - Section 30

Companies Act 2013 MCQ

1. What is the minimum number of persons required to form a public company?

A. 1
B. 2
C. 5
D. 7
Answer: D - Seven or more persons are required to form a public company

2. What is the minimum number of persons required to form a private company?

A. 1
B. 2
C. 5
D. 7
Answer: B - Two or more persons are required to form a private company

3. Which new type of company was introduced in Companies Act 2013?

A. One Person Company
B. Two Person Company
C. Limited Liability Partnership
D. Public Private Partnership
Answer: A - One Person Company is a private company which is one formed by one person by
subscribing their names or his name to a memorandum and complying with the requirements
of Companies Act

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4. What is the maximum number of persons required to form a public company?

A. 50
B. 100
C. 200
D. Unlimited
Answer: D - In order for a company to be public, it should have a minimum of 7 members
(maximum unlimited).

5. What is the maximum number of persons required to form a private company?

A. 50
B. 100
C. 200
D. Unlimited
Answer: C - Minimum of only 2 members (and maximum of 200) are required to form a private
company

6. What is the minimum paid up capital required to incorporate a private company?

A. Rs 1 lakh
B. Rs 5 lakh
C. Rs 10 lakh
D. No minimum paid-up capital requirements
Answer: D

7. What is the minimum paid up capital required to incorporate a public company?

A. Rs 1 lakh
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B. Rs 5 lakh
C. Rs 10 lakh
D. No minimum paid-up capital requirements
Answer: D - The minimum paid-up share capital requirement of INR 100,000 (in case of a
private company) and INR 500,000 (in case of a public company) under Companies Act 2013
has been done away with. Consequently, the definitions of private and public companies stand
amended in Companies Act Amendment 2015. Accordingly, no minimum paid-up capital
requirements will now apply for incorporating private as well as public companies in India.

8. What is the minimum of directors required in the case of a public company?

A. 1
B. 2
C. 3
D. 4
Answer: C - A minimum number of three directors in the case of a public company

9. What is the minimum of directors required in the case of a private company?

A. 1
B. 2
C. 3
D. 4
Answer: B - A minimum number of two directors in the case of a private company

10. A company proposing to issue a red herring prospectus shall file it with the Registrar at
least ______ days prior to the opening of the subscription list and the offer
A. 15
B. 10
C. 7
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D. 3
Answer: D - Such company proposing to issue a red herring prospectus shall file it with the
Registrar at least three days prior to the opening of the subscription list and the offer

11. Which among the following prospectus is issued by company prior to the issue of actual
prospectus?
A. Red herring prospectus
B. Deemed prospectus
C. Shelf prospectus
D. Abridged prospectus
Answer: A - A company proposing to make an offer of securities may issue a red herring
prospectus prior to the issue of a prospectus.

12. Which among the following prospectus contains salient features of a prospectus is a
brief version of the information contained in the prospectus?
A. Red herring prospectus
B. Deemed prospectus
C. Shelf prospectus
D. Abridged prospectus
Answer: D - Abridged Prospectus means a memorandum containing such salient features of a
prospectus. It is a brief version of the information contained in the ‘prospectus’ so that cost of
public issue of capital may be reduced.

13. Which section of Companies Act 2013 is related to issue of Red herring Prospectus?
A. Section 31
B. Section 32
C. Section 25
D. Section 20
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Answer: B - The Section 32 of Companies Act, 2013 states that a company proposing to make
an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.

14. Which among the following information is not included in Red herring prospectus?
A. Issue Price
B. Number of Share offered
C. Details of Company
D. Both 1 & 2
Answer: D - Red herring prospectus does not include complete particulars of
the quantum or price of the securities.

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