Chapter 26: Different Modes of Charging Securities (JAIIB – Paper 2)

1. Which of the following is an essential element of a valid contract?

• A. Only offer is required
• B. Offer, acceptance, and consideration
• C. Only acceptance is required
• D. Consideration is optional

A valid contract requires offer, acceptance, and consideration along with free consent, lawful object, and capacity of parties.

2. Which of the following is necessary for a contract to be enforceable by law?

• A. Oral agreement only
• B. Agreement without consideration
• C. Agreement with uncertain terms
• D. Lawful agreement with free consent

For enforceability, a contract must be a lawful agreement made with free consent of parties competent to contract.

3. In banking, a contract relating to charging securities is primarily:

• A. Only a verbal understanding
• B. Informal arrangement
• C. A legally enforceable agreement
• D. An internal memorandum

Charging securities requires a valid contract, making it a legally enforceable agreement between the bank and the borrower.

4. Consideration in a contract means:

• A. Something in return for which the contract is made
• B. Only the offer of a bank
• C. A verbal promise
• D. The bank’s internal approval

Consideration is the value or benefit received by each party to a contract, which makes the contract valid and enforceable.

5. A contract is said to be voidable when:

• A. It is illegal from the beginning
• B. It is executed properly by all parties
• C. One party has the right to enforce or cancel it due to coercion, fraud, or undue influence
• D. It is supported by lawful consideration

A voidable contract allows one party to either enforce it or cancel it, typically in cases of coercion, fraud, misrepresentation, or undue influence.

6. In a contract of agency, the person who authorizes another to act on his behalf is called:

• A. Agent
• B. Principal
• C. Third party
• D. Guarantor

In an agency, the principal is the person who authorizes the agent to act on his behalf in dealings with third parties.

7. The person who acts on behalf of another in a contract of agency is called:

• A. Principal
• B. Guarantor
• C. Agent
• D. Trustee

The agent is authorized to act on behalf of the principal and bind the principal legally in contracts with third parties.

8. Which of the following is required for a valid contract of agency?

• A. Consent of both principal and agent
• B. Only principal’s consent
• C. Only agent’s consent
• D. Written agreement only

A contract of agency requires mutual consent; both the principal and agent must agree to the arrangement.

9. In banking, a power of attorney given to a bank for operating a customer’s account is an example of:

• A. Loan agreement
• B. Hypothecation
• C. Mortgage
• D. Contract of agency

When a customer authorizes the bank to operate his account via power of attorney, the bank acts as an agent of the customer under a contract of agency.

10. Which of the following duties is **not** typically required of an agent?

• A. Follow principal’s instructions
• B. Act against principal’s interest for personal gain
• C. Exercise reasonable care and skill
• D. Account for transactions conducted on behalf of the principal

An agent must act in good faith and in the interest of the principal; acting against the principal’s interest for personal gain is a breach of duty.

11. Which of the following can terminate a contract of agency?

• A. Only mutual agreement
• B. Only completion of contract purpose
• C. Death, incapacity, mutual agreement, or completion of purpose
• D. Only principal’s decision

A contract of agency can terminate due to death or incapacity of either party, mutual agreement, or once the purpose of the agency is completed.

12. An agent can delegate his authority to another person:

• A. In all cases without restriction
• B. Only if principal objects
• C. Only after getting bank approval
• D. Only if authorized by the principal

An agent cannot generally delegate his authority unless the principal has expressly authorized him to do so.

13. In a contract of bailment, the person delivering goods is called:

• A. Bailee
• B. Principal
• C. Bailor
• D. Agent

The bailor is the person who delivers goods to another (bailee) for a specific purpose under a contract of bailment.

14. The person receiving goods under a contract of bailment is called:

• A. Bailor
• B. Bailee
• C. Principal
• D. Trustee

The bailee is the person to whom goods are delivered under a contract of bailment and is responsible for taking care of the goods.

15. Which of the following is an essential element of a valid bailment?

• A. Delivery of goods only
• B. Written agreement only
• C. Consideration only
• D. Delivery of goods for a specific purpose with consent

Bailment requires delivery of goods by the bailor to the bailee for a specific purpose, with the bailee’s consent.

16. In a gratuitous bailment, who benefits from the arrangement?

• A. Only one party (either bailor or bailee)
• B. Both parties
• C. Third party
• D. Bank

In a gratuitous bailment, only one party (bailor or bailee) benefits without any consideration, e.g., lending goods for free.

17. The bailee’s primary duty in a bailment is to:

• A. Transfer ownership of goods
• B. Return goods only if sold
• C. Take reasonable care of goods and return them as agreed
• D. Use goods for personal gain without consent

The bailee must take reasonable care of the goods and return or deliver them according to the terms of the bailment contract.

18. Which of the following contracts is an example of bailment in banking?

• A. Loan agreement
• B. Hypothecation agreement
• C. Contract of agency
• D. Safe deposit locker agreement

Safe deposit locker agreements are a form of bailment where the bank (bailee) takes care of goods deposited by the customer (bailor).

19. Which of the following is a primary mode of charging securities in banking?

• A. Pledge
• B. Assignment
• C. Hypothecation
• D. Lien

Pledge is a primary mode of charging where goods or securities are delivered to the bank as security for a loan.

20. In which type of charge does the borrower retain possession of the goods?

• A. Pledge
• B. Lien
• C. Hypothecation
• D. Mortgage

In hypothecation, the borrower retains possession of goods, while the bank has a charge over them as security for the loan.

21. A charge where the bank has the right to retain goods until debt is paid is called:

• A. Pledge
• B. Lien
• C. Mortgage
• D. Hypothecation

Lien is a charge where the bank retains possession of the goods until the debt or obligation is discharged by the customer.

22. In a mortgage, which of the following is true?

• A. Borrower retains full possession of property
• B. Ownership of property is transferred permanently to the bank
• C. Interest in property is transferred to secure a debt
• D. It is always a gratuitous arrangement

In a mortgage, the borrower transfers an interest in property to the bank as security for a loan, while retaining possession in some types (like equitable mortgage).

23. Which type of charge is typically used for movable goods and is document-based?

• A. Mortgage
• B. Lien
• C. Hypothecation
• D. Pledge

Pledge involves delivery of movable goods or documents to the bank as security for a loan and is document-based.

24. Which of the following is true about hypothecation?

• A. Borrower retains possession of goods but bank has a charge
• B. Goods are delivered to the bank physically
• C. It involves only immovable property
• D. It transfers ownership permanently to the bank

Hypothecation allows the borrower to retain possession of movable goods while giving the bank a charge over them as security.

25. Which type of mortgage involves no delivery of title deeds to the bank?

• A. Simple mortgage
• B. Equitable mortgage
• C. Usufructuary mortgage
• D. English mortgage

In an equitable mortgage, there is no delivery of title deeds; the mortgage is created by deposit of documents or a memorandum of deposit.

26. Under which act are charges created by companies required to be registered?

• A. Indian Contract Act, 1872
• B. Negotiable Instruments Act, 1881
• C. Companies Act, 2013
• D. Banking Regulation Act, 1949

Charges created by companies on their assets must be registered with the Registrar of Companies under the Companies Act, 2013 to be valid against third parties.

27. Which of the following is the **time limit** for registering a charge with the Registrar of Companies?

• A. 30 days from creation
• B. 45 days from creation
• C. 60 days from creation
• D. 30 days from the date of creation or modification

As per the Companies Act, 2013, a charge created by a company must be registered within 30 days from its creation or modification.

28. What happens if a charge is not registered within the prescribed time?

• A. Charge is automatically valid
• B. Charge is void against liquidators, creditors, and other third parties
• C. Charge is valid for movable assets only
• D. No effect on enforceability

If a charge is not registered within the prescribed period, it is void against liquidators, creditors, and other third parties even though it may be valid between the parties.

29. Which authority maintains the register of charges for companies?

• A. Registrar of Companies (ROC)
• B. Reserve Bank of India (RBI)
• C. Securities and Exchange Board of India (SEBI)
• D. Ministry of Finance

The Registrar of Companies (ROC) maintains the register of charges for all companies, ensuring transparency and legal enforceability.

30. Which of the following charges **must always be registered**?

• A. Small loans below ₹1 lakh
• B. Personal loans to employees
• C. Charges on company’s assets or property
• D. Any oral contract

Charges created on a company’s assets or property, whether movable or immovable, must be registered with the ROC to be enforceable against third parties.

31. Which document is commonly used to create a charge in favor of the bank?

• A. Promissory note
• B. Cheque
• C. Loan sanction letter
• D. Charge creation document / deed

Banks typically create a charge through a formal charge creation document or deed, which is then registered with the ROC.

32. Registration of charges provides which of the following benefits?

• A. Guarantees loan repayment automatically
• B. Protects the bank’s interest against third parties
• C. Removes need for security documentation
• D. Ensures tax benefits

Registration makes the charge enforceable against third parties and protects the bank’s interest in case of company default or liquidation.