Professional Knowledge: Banking and Financial Law
Scope
Banking and Financial Law tests the legal framework of banking transactions: the Banking Regulation Act, 1949, the RBI Act, 1934, the Negotiable Instruments Act, 1881, SARFAESI, the DRT Act and related recovery and payment laws. Expect questions on banker-customer duties, cheque dishonour, secured lending and recovery.
Core rules
- A banker must honour cheques paid in due course, maintain secrecy and follow the mandate. It may refuse payment for insufficient funds, stop-payment instructions, or defective endorsement.
- Under Section 138 of the NI Act, dishonour of a cheque for insufficiency of funds is an offence if the drawer fails to pay within 15 days of a written demand notice. The payee must send the notice within 30 days of receiving information of dishonour and file the complaint within one month after the cause of action.
- SARFAESI allows secured creditors to enforce security without court intervention, subject to statutory notices and exceptions such as agricultural land.
Worked example
A cheque for Rs 2,00,000 is returned unpaid for insufficient funds on 1 March. The payee must send a demand notice within 30 days, i.e. by 31 March. If the drawer does not pay within 15 days of receiving the notice, the cause of action arises and the complaint must be filed within one month thereafter.
Traps
Missing the 30-day and 15-day windows; treating every dishonour as an offence (stop-payment and closed accounts require different analysis); and assuming SARFAESI applies to all property.