What is meant by an electronic cheque?
An electronic cheque is a cheque in electronic form
(as against the usual paper instrument in writing). A
cheque in electronic form is defined in Explanation 1
to Section 6 of the Negotiable Instruments Act as a
cheque which contains the exact mirror image of a
paper cheque and is generated, written and signed in a
secured system ensuring the minimum safety standards
with the use of digital signature (with or without
biometric signature and asymmetric crypto system).
Are electronic cheques valid and binding in law like
paper instruments?
The Negotiable Instruments Act, 1881 has been amended
by the Negotiable Instruments (Amendment and
Miscellaneous Provisions) Act, 2002 to include a
cheque in electronic form within the definition of
cheque in Section 6 of the Negotiable Instruments Act.
Hence, cheques in electronic form are valid and
binding in law like the paper instruments (cheques in
writing on paper).
Does the Information Technology Act apply to cheques?
What about other negotiable instruments?
The Information Technology Act was not originally
applicable to Negotiable Instruments in terms of
Section 1(4) of that Act. The Information Technology
Act was amended by the Negotiable Instruments
(Amendments and Miscellaneous Provisions) Act, 2002
modifying Section 1(4) and inserting Section 81A
making the Act applicable to electronic cheques. This
is, however, subject to such modifications and
amendments as may be necessary for carrying out the
purposes of Negotiable Instruments Act by the Central
Government, in consultation with the Reserve Bank of
India by notification in the Official Gazette. The
Act, however, does not apply to other negotiable
instruments,namely promissory notes and bills of
exchange.
What is meant by truncation of cheques?
In truncation of cheques, cheques will be scanned and
the electronic image, instead of the physical cheque,
will be transmitted in the clearing cycle. A truncated
cheque is defined in Section 6 (Explanation 1) of the
Negotiable Instruments Act as a cheque which is
truncated during the course of a clearing cycle either
by the clearing house or by the bank whether paying or
receiving payment, immediately on generation of an
electronic image for transmission, substituting the
further physical movement of the cheque in writing.
Can the presentment of an electronic image of a
truncated cheque to the paying bank be treated as a
valid 'presentment' within the meaning of section 64
of the NI Act?
Under Section 64 of the Negotiable Instruments Act, a
cheque must be presented for payment on behalf of the
holder. The definition of 'cheque' under section 6 of
the Negotiable Instruments Act as amended by the
Negotiable Instruments (Amendments and Miscellaneous
Provisions) Act, 2002 includes an electronic image of
a truncated cheque. Hence, the presentment of an
electronic image of a truncated cheque would amount to
presentment of cheque for the purpose of section 64 .
What is the advantage of truncation of cheques?
Cheques are truncated for the purpose of avoiding the
physical movement of the paper instruments and instead
transmitting the electronic image of the truncated
instruments thereby ensuring faster clearing of the
instruments and reduction in the cost of processing.
It is, however, open to the drawee bank to demand
further information regarding a truncated cheque from
the bank holding the truncated cheque in case of any
reasonable suspicion about the genuineness of the
apparent tenor of the instrument. Only in the case of
suspicion of any fraud, forgery, tampering or
destruction of the instrument, the drawee/paying bank
is entitled to demand the presentment of the truncated
cheque itself for verification.
Who will have the custody of the truncated cheques?
The collecting bank who receives the payment shall be
entitled to retain the truncated cheque. However, on
suspicion of any fraud, forgery, tampering or
destruction of the instrument , the drawee bank
demands the presentment of the truncated cheque itself
for verification and after verification makes payment,
the truncated cheque so demanded and paid shall be
retained by the drawee/paying bank.
In the case of a truncated cheque, will any difference
in apparent tenor of the electronic image with the
truncated cheque be a material alteration under
Section 87 of the Negotiable Instruments Act ? Who is
responsible to verify any difference in apparent tenor
of the electronic image with the truncated cheque?
In the case of an electronic image of a truncated
cheque, any difference in apparent tenor of such
electronic image with the truncated cheque shall be a
material alteration. It shall be the duty of the bank
or the clearing house, as the case may be, to ensure
the exactness of the apparent tenor of the electronic
image of the truncated cheque while truncating and
transmitting the image. Any bank or the clearing house
which receives a transmitted electronic image of
truncated cheque has a duty to verify from the party
who transmitted the image to it that the image so
transmitted to it and received by it is exactly the
same.
Who will verify the prima facie genuineness of the
cheque to be truncated?
The banker who wants to receive payment based on an
electronic image of a truncated cheque held with him
(collecting bank) has the duty to verify the prima
facie genuineness of the cheque to be truncated. Any
fraud, forgery or tampering apparent on the face of
the instrument which can be verified with due
diligence and ordinary care has to be so verified.
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