CS Final :: Banking and Insurance - law and Practice : December 2003

A Bank granted and disbursed a loan of Rs.7 lakh to Honest and Co. Ltd. on 25th May, 1998 against hypothecation of its movable assets. The loan was repayable in 12 equal monthly instalments commencing from 25th June, 1998. The company paid an amount of Rs.2 lakh on 20th May, 2001 towards the loan. It was observed in April, 2003 that the loan account of the company was irregular.
The company secretary appointed by the bank, after conducting search in the office of Registrar of Companies (ROC), in his report submitted that there was no charge in favour of the bank registered with the ROC. Honest and Co. Ltd. has filed duly audited and signed balance sheet(s), etc., upto the year 2002-03 and the loan of bank is shown as loan secured against hypothecation of its movable assets in the balance sheet(s) and there is no other loan taken by the company till 31st March, 2003.
The bank visited the company and noticed that manufacturing activities were carried on and the managing director of the company informed that the company is a going concern and not under liquidation/winding-up and has not taken loan from any other person/bank, but refused to give confirm commitment for repayment of loan.
Honest and Co. Ltd. filed the following reply and submitted for dismissal of the recovery case on the basis—

(i)	DRT has no jurisdiction to entertain recovery case as the amount of loan disbursed by the bank is Rs.7 lakh only, which is below the pecuniary limit of Rs.10 lakh fixed by law; and
(ii)	Bank had failed to file Forms Nos. 8 and 13 for registration of its hypothecation charge with the ROC and thus the bank should not be allowed to enforce its charge of hypothecation on movable assets against the company through DRT. Give your decision along with reasons, after considering the facts, legal provisions and submissions made by the parties.

On 19th May, 2003, Godhra branch of Nav Yug Bank Ltd. received a Garnishee Order attaching all sums owned by the bank to their customer named Rahul. At the time of the receipt of the order, Rahul has got the following accounts

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A taxi, hypothecated to a bank, was involved in an accident. Some passengers of the other vehicle were injured. These victims claimed compensation from the Bank. Is the bank liable to pay compensation ? Give reasons

Attempt any three of the following :

(i)	Banks are under obligation to maintain secrecy of their customers’ accounts with certain exceptions. State these exceptions with examples.
(ii)	“A banker should not honour post dated cheques.” Do you agree ? State the reasons
(iii)	State with reasons whether a bank can issue a demand draft payable to a bearer.
(iv)	Distinguish between ‘clean’ and ‘documentary’ bills of exchange. What is an accommodation bill ?

Attempt the following :

(i)	Explain the various credit control methods employed by the Reserve Bank of India.
(ii)	Distinguish between ‘gross NPA’ and ‘net NPA’. What measures have been undertaken in the recent past by the Reserve Bank of India and the Government of India to contain the problem of ‘non-performing assets’ (NPAs) ?
(iii)	How does proper ‘asset-liability management’ (ALM) help banks in increasing their profitability ?

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Write notes on the following :

(i) (ii) (iii) (iv) (v)

‘Prime lending rate’ (PLR) ‘Tier-I’ and ‘Tier-II’ capital CAMELS Call/notice money market Asset reconstruction company.

A drunken driver jumped a red light and smashed into Krishnan’s car. The cost of repair of the car is Rs.5,000. He has an insurance for his car with Rs.250 deductible.

(i)	Is Krishnan eligible to be compensated both from the negligent driver’s insurer and his own insurer to escape deductible amount ? Explain.
(ii)	Explain how subrogation supports the principle of indemnity.

Suchitra Ltd. took a life insurance policy on 1st December, 1999 for Vimal, its General Manager who is holding 20% of the shares in the company. Annual premium on the policy is payable in December each year. Vimal resigned from the company on 25th February, 2002. He sold his shareholding in the company on 15th March, 2002. Vimal died on 28th April, 2002. Suchitra Ltd. filed a claim for insurance amount. Legal heirs of Vimal also claimed proceeds of the insurance policy. As a manager of the insurance company, decide to whom the insurance claim is payable and why ?

State, with reasons, whether the following statements are true or false :

(i)	The principle of indemnity requires that an insurance contract should be a contract of indemnity only and nothing more.
(ii)	Salvage charges are those that are recoverable under maritime law by a salver independent of contract.
(iii)	In the educational annuity plan the sum assured is paid in full.

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Explain —

Explain briefly the difference between ‘insurance management’ and ‘risk management’ and elucidate the risk management process.

Describe the role and functions of ‘Insurance Regulatory Development Authority’ (IRDA) in insurance sector.