Which section of the Indian Contract Act, 1872 provides that the liability of the surety is coextensive with that of the principal debtor, unless the contract provides otherwise?

The correct answer is B, UCP 600. The Uniform Customs and Practice for Documentary Credits is the International Chamber of Commerce code that banks worldwide incorporate into their letters of credit. Its current version is ICC Publication 600, in force from 1 July 2007, with thirty-nine articles covering issuance, examination of documents, discrepancies and the duties of each bank in the chain.

Option A, Incoterms 2020, is also an ICC publication, but it allocates cost, risk and the duty to insure between seller and buyer in a sale contract; it says nothing about how a bank must examine documents. Option C, URDG 758, is the ICC's set of uniform rules for demand guarantees, which applies to bank guarantees rather than to documentary credits. Option D, Basel III, is the Basel Committee's framework on bank capital, leverage and liquidity, a prudential standard with no role in trade documentation. Remember the pairing: credits under UCP 600, guarantees under URDG 758, delivery terms under Incoterms.

The correct answer is B, the applicant or opener. The applicant is the importer or buyer, who approaches its own bank, asks it to issue a credit in favour of the overseas seller, agrees the terms and documents that will be required, and pays the issuing commission. The applicant also undertakes to reimburse the issuing bank whenever the bank pays a compliant presentation.

Option A, the beneficiary, is the opposite side of the transaction: the exporter in whose favour the credit is opened and who receives the money on presenting the documents. Option C, the advising bank, is a bank in the beneficiary's country that verifies the apparent authenticity of the credit and passes it on; it takes on no payment obligation of its own unless it also confirms the credit. Option D, the negotiating bank, examines the documents and pays or advances money to the beneficiary before the issuing bank reimburses it. A simple way to fix the pair: the applicant applies and pays, the beneficiary benefits.

The correct answer is B, five banking days following the day of presentation. Article 14(b) of UCP 600 gives the issuing bank, a confirming bank and any nominated bank a maximum of five banking days following the day of presentation to determine whether the presentation is complying. The day of presentation itself is not counted, and the period is not shortened or otherwise affected by an expiry date falling inside it.

Option A, three banking days, was the position aspirants often remember from the reasonable-time standard of the earlier UCP 500 practice and is wrong under the current rules. Option C and option D fail twice over: the UCP counts banking days, not calendar days, and neither seven nor fifteen is the figure in Article 14(b). The practical importance of the rule is that a bank which sits on discrepant documents beyond the five banking days loses the right to reject them and must honour the presentation, so the number is worth memorising exactly.

The correct answer is B, irrevocable even without any indication to that effect. Article 3 of UCP 600 states this in so many words, and Article 10 adds that an irrevocable credit can be amended or cancelled only with the agreement of the issuing bank, the confirming bank if any, and the beneficiary. The rule protects the exporter, who has to buy and ship goods on the strength of the credit.

Option A describes the older default under UCP 500, where a credit silent on the point could be revocable, so it is the most tempting distractor and the reason examiners ask the question. Option C is wrong because confirmation is never automatic: a bank adds its confirmation only when the credit asks it to and it agrees. Option D is wrong because a credit is transferable only if the issuing bank expressly states that it is transferable, as Article 38 requires. Learn the three defaults together: irrevocable by default, confirmed only on request, transferable only if so stated.

The correct answer is B, the Indian Contract Act, 1872. Section 126 of that Act defines a contract of guarantee as a contract to perform the promise or discharge the liability of a third person in case of his default, and names the three parties: the surety who gives the guarantee, the principal debtor whose default is covered, and the creditor to whom the guarantee is given. A bank guarantee is simply such a contract with a bank as surety.

Option A, the Negotiable Instruments Act, 1881, deals with promissory notes, bills of exchange and cheques, which are instruments of payment rather than contracts of guarantee. Option C, the SARFAESI Act, 2002, gives banks the power to enforce security interests and recover bad loans without going to court. Option D, FEMA 1999, governs dealings in foreign exchange and cross-border transactions, and a bank needs an authorised dealer licence under it to handle trade business, but the guarantee itself still rests on the Contract Act.