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

1. The money which is tendered in courts of law to defray the fee of legal cases
2. The money which a creditor is under compulsion to accept in settlement of his claims
3. The bank money in the form of cheques, drafts, bills of exchange, etc.
4. The metallic money in circulation in a country

Explanation

Statement (b) is correct

• Legal tender money refers to the currency that must be accepted in payment of a debt when offered (or “tendered”). It is recognised by law as valid for the purpose of meeting financial obligations. In other words, a creditor is legally bound to accept legal tender as payment for a debt.
• In India, for example, Coins and banknotes issued by the Reserve Bank of India (RBI) and the Government of India are considered legal tender. Other forms of money, such as cheques, drafts, or bills of exchange, are not legal tender. A creditor may refuse to accept these forms of payment.

Answer: (b) The money which a creditor is under compulsion to accept in settlement of his claims; Difficulty Level: Easy