1. Which of the following statements regarding a "Banker's General Lien" is INCORRECT?
It is often described as an "Implied Pledge".
It is a statutory right provided under Section 171 of the Indian Contract Act, 1872.
It extends to all goods and securities entrusted to the banker as a bailee for a specific purpose.
It is not applicable to Safe Deposit Lockers.
Explanation:
General Lien does NOT apply when goods/securities are entrusted for a specific purpose (like safe custody or selling shares). In such cases, the banker acts as a Bailee/Trustee, and the specific purpose overrides the general right of lien.
2. When a customer deposits sealed boxes or valuables with the bank for "Safe Custody", the relationship between the bank and customer is:
Lessor and Lessee
Bailee and Bailor
Trustee and Beneficiary
Debtor and Creditor
Explanation:
In safe custody, the goods are entrusted to the bank for a specific purpose (safety) to be returned later. The customer is the Bailor (owner), and the bank is the Bailee (custodian). This differs from a Locker where the bank is a Lessor.
3. When a bank collects a cheque and the proceeds are held pending instructions from the customer for investment, the bank stands in the capacity of:
Agent
Debtor
Trustee
Creditor
Explanation:
Normally, a bank collecting a cheque is an Agent. However, if the money is collected and held specifically *in trust* for a specific purpose (like investment) and not just credited to the general account, the relationship shifts to Trustee-Beneficiary.
4. The Banker-Customer relationship is terminated in all of the following cases EXCEPT:
Insanity of the customer.
Garnishee Order served on the account.
Closure of the account by the customer.
Death of the customer.
Explanation:
A Garnishee Order suspends the operation of the account (freezes it) but does not terminate the relationship. The account can become active again if the order is revoked or satisfied. Death, closure, or insanity typically end the active contract.
5. The Rule in Clayton's Case relates to:
Right of Lien.
Safe custody of articles.
Secrecy of customer accounts.
Appropriation of payments in a running account (like Cash Credit).
Explanation:
Clayton's Rule states that in a running account, the first debit is discharged by the first credit (FIFO - First In, First Out), unless there is a contrary intention. This is vital for determining liability in overdrafts when guarantees are revoked.
6. Under the revised RBI guidelines for Safe Deposit Lockers, if the contents of a locker are lost due to fire, theft, or building collapse (negligence of bank), the bank's liability is limited to:
10 times the annual rent of the locker.
Value of the contents declared by the customer.
100 times the annual rent of the locker.
No liability as it is a Lessor-Lessee relationship.
Explanation:
The revised guidelines (2021) state that in case of incidents like fire, theft, burglary, or building collapse attributable to the bank's deficiency, the liability shall be 100 times the prevailing annual rent of the locker.
7. According to the rule of appropriation (Section 60-61 Contract Act), if a debtor makes a payment without specifying the debt to be discharged, and there are multiple debts:
It must be returned to the debtor.
It must be applied to the most recent debt.
The creditor must apply it to the principal first.
The creditor can apply it to any lawful debt, including time-barred debt.
Explanation:
If the debtor doesn't intimate, the creditor has the discretion to appropriate the payment to any lawful debt actually due, even if it is barred by the law of limitation.
8. In a "Jointly" operated account of A and B, if A dies, can the bank pay the balance to B (Survivor)?
Yes, if the account opening form had a Survivorship clause (E or S).
Yes, B is the owner.
No, the money belongs to the survivor and the legal heirs of the deceased jointly.
No, the rule of survivorship does not apply to Jointly operated accounts.
Explanation:
Unless there is a specific survivorship mandate (like Either or Survivor), a simple "Jointly" operated account implies joint ownership. Upon death, the contract ends, and the balance is payable jointly to the Survivor (B) and the Legal Heirs of A.
9. Clayton's Rule is particularly significant for banks in the case of:
Fixed Deposits nearing maturity.
Safe Deposit Lockers with overdue rent.
Running accounts (like Cash Credit) where a guarantee or partnership is terminated.
Term Loans with fixed EMIs.
Explanation:
Clayton's Rule (First-In-First-Out for appropriation) implies that subsequent credits into a running account discharge the earliest debits. If a guarantee is revoked or a partner dies (terminating liability), the bank must break the account (stop operations) immediately. If they continue the account, new credits will pay off the old "guaranteed" debt, while new debits will create a new "unsecured" debt, leaving the bank exposed.
10. What is the Limitation Period for a customer to file a suit for the recovery of money deposited in a Savings Bank Account?
3 years from the date of deposit.
12 years from the date of last transaction.
There is no limitation period for deposits.
3 years from the date of demand and refusal by the bank.
Explanation:
Under Article 22 of the Limitation Act, 1963, the period is 3 years. Crucially, time starts running NOT from the deposit date, but from the date the customer makes a demand for payment and the bank refuses it. Until a demand is made, the limitation does not expire.
11. Section 148 of the Indian Contract Act defines "Bailment". In the context of a bank, which transaction creates a bailment?
Safe Deposit Locker.
Safe Custody of Articles.
Fixed Deposit.
Demand Draft issuance.
Explanation:
Bailment involves the delivery of goods from one person to another for a specific purpose. In Safe Custody, the customer delivers the goods to the bank. In a Locker, there is no delivery of goods (the customer retains control), so it is Lease, not Bailment. FD is a debt.
12. In which of the following scenarios is Clayton's Rule (First-In-First-Out appropriation) NOT applicable?
A Current Account with an overdraft limit.
A running Cash Credit account where a partner retires.
A Term Loan account.
An Overdraft account where the guarantor revokes the guarantee.
Explanation:
Clayton's Rule applies specifically to running accounts (like Cash Credit, Overdraft) where debits and credits are continuous. In a Term Loan, the account is not a running account; payments are appropriated towards interest first and then principal, not based on FIFO of debits.
13. A customer deposits money with a bank with specific instructions to use it for buying government bonds. If the bank fails to buy the bonds and the bank goes into liquidation, the customer is a:
Secured Creditor.
Preferential Creditor (Trustee relationship).
Debtor.
General Creditor.
Explanation:
Since the money was entrusted for a specific purpose, the bank holds it as a Trustee. In liquidation, trust money does not form part of the bank's general assets, so the customer has a preferential claim over general creditors.
14. Can a minor be appointed as an Agent to operate a bank account on behalf of a Principal (Adult)?
No, banks do not allow minors as agents.
No, a minor cannot contract.
Yes, but only for deposit transactions.
Yes, a minor can be an agent, but the Principal is liable for the minor's acts.
Explanation:
Under Section 184 of the Contract Act, a minor can be an agent between the principal and third parties. The minor is not personally liable, but their acts bind the Principal. Banks usually discourage this due to risk.
15. In a "Simple Mortgage", the possession of the property remains with:
The Mortgagee (Bank)
A third-party Trustee
The Court
The Mortgagor (Borrower)
Explanation:
In a Simple Mortgage (Section 58(b) of Transfer of Property Act), the mortgagor binds himself personally to pay the debt but does NOT deliver possession of the property to the mortgagee.
16. If neither the debtor nor the creditor makes an appropriation of payment, the rule in Clayton’s case applies to running accounts. For distinct debts, Section 61 of the Contract Act says the payment shall be applied to:
The debt with the highest interest rate.
Proportionately to all debts.
The debts in order of time, excluding time-barred debts.
The debts in order of time (Oldest first), including time-barred debts.
Explanation:
Where neither party appropriates, the law applies the payment to discharge debts in chronological order (oldest first), irrespective of whether they are time-barred or not.
17. For an Overdraft or Cash Credit account, the limitation period of 3 years is calculated from:
Date of sanction of the limit.
Date of each individual debit.
Date of the last operation/transaction on the account (revival).
Date of default notice.
Explanation:
Every deposit (credit) by the borrower or debit (withdrawal) acts as an acknowledgment of the continuing relationship, resetting the limitation clock. Thus, it is 3 years from the last operation.