Question 20 from UPSC CSE 2018 - Economy

Question

Which one of the following statements correctly describes the meaning of legal tender money?

IASCODEX · Accepted Answer

Correct Option: B. The money which a creditor is under compulsion to accept in settlement of his claims.

Strategy: Focus on the compulsion element: legal tender is money a creditor cannot legally refuse for debt settlement. Reject options involving courts, cheques, or metallic money, as they don't imply this forced acceptance.

Key Info: Legal tender is currency that **must be accepted** by law for debt payment. It is defined by statutory compulsion, not voluntary acceptance.

Key points about legal tender:
- In India, notes issued by the Reserve Bank of India and coins issued by the Government of India are legal tender, meaning they are legally recognized for settling monetary obligations.
- Cheques, drafts, and bills of exchange are **not** legal tender; their acceptance is at the creditor's discretion.
- The legal tender status of currency and coins in India is governed by the Reserve Bank of India Act, 1934, and the Coinage Act, 2011.
- Money described in terms unrelated to legal acceptance--such as being used in courts, simply being metallic, or being a bank instrument--does not qualify as legal tender.

IASCODEX · Answer

Option A: The money which is tendered in courts of law to defray the fee of legal cases.

IASCODEX · Answer

Option C: The bank money in the form of cheques, drafts, bills of exchange, etc.

IASCODEX · Answer

Option D: The metallic money in circulation in a country.