Frequently Asked Questions on Electronic Cheques and Truncated Cheques   (From RBI Website)

 

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.