CAIIB Paper 4 Module B Quiz 7

An authorised dealer must comply with FEMA and RBI directions. Missing documentation or a potentially restricted purpose requires clarification and lawful handling, not misclassification or approval solely on customer insistence.

FEMA rules and RBI directions evolve. Staff should verify the current position, including amendments, supersession and transaction-specific conditions. Outdated guidance can result in unauthorised transactions or reporting errors.

Operational resilience requires incident response, business continuity, accurate reconciliation and applicable reporting. Suppressing logs or resuming without reconciliation can amplify settlement and customer harm.

A legal opinion supports assessment of title and enforceability and can identify defects or additional steps. It does not guarantee market value or replace document verification, searches, valuation and other due diligence.

Contract law provides rules for appropriation where the debtor gives no direction, including creditor appropriation and a default rule where neither appropriates. The bank should apply the law and facts rather than assume payment is void or discharges all debts.

A rejected filing can leave the charge unregistered. The bank and company should promptly correct the issue and use the lawful resubmission or rectification route, observing applicable timelines and preserving evidence.

Customer due diligence builds a reliable customer profile; ongoing monitoring checks actual activity against it. Both are complementary controls and neither generally replaces the other.

Accurate identity records support reliable customer identification and monitoring, and help authorities trace transactions where required. They do not establish that all activity is lawful or eliminate transaction-record obligations.

Payment in due course involves payment according to the instrument‘s apparent tenor, in good faith and without negligence. The bank must examine relevant terms and irregularities, not merely the customer relationship or commercial target.

Negotiability supports transferability and the ability of a qualifying holder to enforce the instrument. It does not make the instrument legal tender or remove statutory requirements relating to signatures, title and defences.

Foreign borrowing can be subject to detailed FEMA and RBI conditions, including eligible borrowers/lenders, limits, end-use restrictions, pricing, maturity and reporting. The transaction should be assessed against current rules before execution.

Foreign investment rules may depend on sector, route, caps, investor eligibility, instrument, pricing and reporting. Banks and parties should verify the current NDI/FEMA framework and relevant approvals.

Settlement disputes should be handled under the applicable system rules and legal framework. Settlement/netting provisions support certainty; a dispute does not automatically nullify settlement or justify changing records.

A company charge over hypothecated assets may require registration with the ROC, and other perfection requirements may apply. The bank should identify the chargor, assets, relevant statutes and filing timelines.

Set-off commonly depends on a due debt and mutual credit, along with contract and law. The bank should assess maturity, capacity, account terms, statutory restrictions and any notice requirements before applying it.

The bank should verify the official ROC record and prescribed evidence of registration, along with filed particulars. Internal notes and verbal assurances are not substitutes for checking the public statutory record.

Customer due diligence builds a reliable customer profile; ongoing monitoring checks actual activity against it. Both are complementary controls and neither generally replaces the other.

Accurate identity records support reliable customer identification and monitoring, and help authorities trace transactions where required. They do not establish that all activity is lawful or eliminate transaction-record obligations.

Payment in due course involves payment according to the instrument‘s apparent tenor, in good faith and without negligence. The bank must examine relevant terms and irregularities, not merely the customer relationship or commercial target.

Negotiability supports transferability and the ability of a qualifying holder to enforce the instrument. It does not make the instrument legal tender or remove statutory requirements relating to signatures, title and defences.