QA Series 2025 - S No 09 - Legal Points - Part 1

 

The Banking Tutor

Question Answer Series 2025

S No 09                                                                    17-06-2025

Legal Points – Part 01

 

01. Which Act is the fundamental law governing Banking in India ?

The Banking Regulation Act 1949 (BR Act) is the fundamental law governing banking activity and Banks in India.

2. Which Act authorise RBI to  stipulates Cash Reserve Ratio ?

 Section 18 of BR Act deals with Cash reserves to be maintained by Banks. 

03. Which Act deals with restrictions on loans and advances ? 

Section 20 of BR Act deals with the Restrictions on loans and advances. 

04. Which Act deals with Nomination in Deposit Accounts ? 

Section 45ZA of BR Act deals with Nomination in Deposit Accounts. 

05. Which Act deals with Nomination for Safe Custody Articles ? 

Section 45ZC of BR Act deals with the Nomination for Safe Custody Articles. 

06. During British Rule, which Bank was established to perform Central Bank functions and in which year ? 

In 1921, the Imperial Bank of India was established to perform as central bank of India by the British Government. 

07. Who has recommended formation of Central Bank (India) ? 

Hilton Young Commission recommended formation of a Central Bank (RBI). 

08. By which Act, RBI was established ? 

RBI was established by Reserve Bank of India Act, 1934 to take over the management of the currency from the Central Government and of carrying on the business of banking. 

09. Who was the First Governor of RBI ? 

First Governor of RBI - Osborne Smith (April 1, 1935, to June 30, 1937), a Banker. 

10. When the RBI was established ? 

The Reserve Bank of India (RBI) was established on April 1, 1935. 

11. In which place RBI is situated ? 

The Reserve Bank is permanently situated in Mumbai since 1937. 

12. When the RBI was Nationalised ? 

In January, 1949, RBI was nationalized. 

13. Why RBI transact Government business ? 

Section 20 of RBI Act 1934 narrates obligation of the RBI to transact Government business. 

14. Which Act authorise RBI to issue currency ? 

Section 22 of RBI Act 1934 states that only the RBI has the exclusive rights to issue currency notes in India.

15. What is highest denomination of a Currency Note that RBI can issue ? 

Section 24 of RBI Act 1934 states that the maximum denomination a note can be is Rs 10,000. 

16. What is the importance of Certificate of Incorporation in case of Companies? 

In terms of Section 7(2) of Indian Companies Act 2013, Certificate of Incorporation is a conclusive evidence that all the requirements of the Act have been complied with and that the association is a company authorised to be registered and duly registered under the Act. 

17. What is Corporate Identification Number (CIN)  and who allocates it ? 

Corporate Identification Number (CIN),  21 digits alpha-numeric code, is a unique identification number that is assigned by the Registrar of Companies (ROC) to the companies registered in India. The ROC gives the CIN to the companies while issuing their Registration Certificate. 

18. What is the importance of Certificate of Commencement of Business (COB) ? 

A Certificate of Commencement of Business (COB) is a mandatory legal document required by  certain types of companies in India, as per the Companies Act 2013, before they can begin their business operations. This certificate, issued by the Registrar of Companies (ROC), essentially authorizes the company to start operations and borrow funds. 

19. Who needs a Certificate of Commencement of Business? 

Companies with share capital: All companies, irrespective of their business type, that operate with a share capital structure need to obtain a COB. 

Companies incorporated after November 2, 2018: This requirement applies to all companies registered after this date

20. What is Common Seal of a Company ? 

A company's common seal is a metallic seal that acts as its official signature. It signifies that a document has been formally executed by the company and is binding on the company. The seal is typically affixed with the approval of the Board of Directors. 

21. What is Corporate Veil ? 

The corporate veil is a legal concept that separates a company's identity from its owners (shareholders), protecting them from personal liability for the company's debts and actions. 

22. What is meant by Lifting or Piercing the Corporate Veil ? 

Lifting or Piercing the Corporate Veil means ignoring the separate identity of a company. It means disregarding the corporate personality and looking behind the real persons who are in the control of the company. Lifting is permissible only in exceptional cases. 

23. Whether Private company allows transfer of its shares ? 

No. it restricts the right to transfer its shares. 

24. Can a Private Company make invitation to public to subscribe for securities? 

The Private Company is prohibited from making any invitation to public to subscribe for any securities. 

25. What is minimum and maximum number of members required to form a Public Company ? 

Seven or more members are required to form the public company. There is no limit on the maximum numbers of members. Subsidiary of a public company is always a public company.

26. Whether Public  company allows transfer of its shares ? 

As per Sec 44 of the Companies Act 2013, the shares of any member in a public company are transferable. 

27. Can a Private Company make invitation to public to subscribe for securities? 

A Public Company  through prospectus; invite the general public to subscribe for its securities. 

28. What is a Prospectus in Company Law ? 

In company law, a prospectus is a formal document that a company issues to the public when offering securities for sale, like shares or debentures. It is an invitation to the public to invest in the company and contains detailed information about the company's operations, financial health, and the specific securities being offered. It serves as a crucial disclosure document, allowing potential investors to make informed decisions. 

29. What is Red Herring Prospectus ?

A Red Herring Prospectus (RHP) is a preliminary document, filed with regulatory bodies like SEBI in India, before a company goes public (IPO). It contains detailed information about the company, including financials, business operations, and risk factors, but lacks key details like the final price or number of shares offered. This document helps investors assess the IPO potential, while the company uses it to gauge investor interest and determine the final offer details. 

30. What is a Deemed  Prospectus ? 

Deemed prospectus has mentioned under Companies Act, 2013 Section 25 (1). When a company allows or agrees to allot any securities of the company, the document is considered as a deemed prospectus via which the offer is made to investors. Any document which offers the sale of securities to the public is deemed to be a prospectus by implication of law.

31. What is a Abridged Prospectus ? 

Abridged prospectus is a memorandum, containing all salient features of the prospectus as specified by SEBI. This type of prospectus includes all the information in brief, which gives a summary to the investor to make further decisions. A company cannot issue an application form for the purchase of securities unless an abridged prospectus accompanies such a form. 

32. What is a Shelf Prospectus ? 

A shelf prospectus allows a company to issue securities in multiple tranches over a period of time, without needing to file a new prospectus for each issuance. This streamlined approach, governed by the Companies Act, 2013, is particularly useful for companies seeking to raise capital efficiently and flexibly, while maintaining transparency. The validity of a shelf prospectus is generally limited to one year.

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Next Issue  will be shared on 19^th  June 2025.

Sekhar Pariti

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