Q. Which one of the following statements correctly describes the meaning of legal tender money? (UPSC Prelims 2018)
Answer: The money which a creditor is under compulsion to accept in settlement of his claims
Notes: The correct answer is [B] The money which a creditor is under compulsion to accept in settlement of his claims. Legal tender is a form of payment recognized by the legal system that must be accepted for the discharge of debt or financial obligations.

• Mandatory Acceptance (Statement B – Correct): Legal tender is backed by the law of the land. A creditor cannot refuse to accept it for the settlement of a debt. In India, RBI notes (currency notes) and coins are legal tender.
• Court Fees (Statement A – Incorrect): While money is used to pay court fees, "legal tender" is a broader monetary concept and not specifically restricted to or defined by judicial payments.
• Bank Money (Statement C – Incorrect): Cheques, drafts, and bills of exchange are known as Optional Money or Fiduciary Money. They are not legal tender because a creditor can legally refuse to accept a cheque and demand cash instead.
• Metallic Money (Statement D – Incorrect): While coins are legal tender, the term is not limited to metallic money; it includes paper currency notes as well.

Types of Legal Tender

• Limited Legal Tender: Coins in India (under the Coinage Act, 2011) are limited legal tender. For example, coins of 50 paise can be used to pay a maximum of 10 Rupees, and 1 Rupee coins up to 1,000 Rupees.
• Unlimited Legal Tender: Currency notes are unlimited legal tender, meaning they can be used to settle debts of any amount.

Historically, the status of legal tender can be revoked by the government, as seen during the Demonetisation of 2016 when 500 and 1,000 Rupee notes ceased to be legal tender.