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Virtual Cheques - A Distant Reality

Ms Jayeeta Ray and Mr. Prashant Singh - 5th year Students -NUJS
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It was reported in Economic Times on the 20th February 2002 that the Reserve bank of India is setting up a task force to study and suggest an amendment to the Negotiable Instruments Act-1881 (NI Act) to make it feasible for issue of Negotiable Instruments on the Internet. The suitable amendment has also been passed and the required changes were also made under the Information Technology Act- 2000.

It may be recalled that the Information Technology Act-2000 (ITA-2000) has excluded Negotiable Instruments from the provisions of the Act, but it the Act specifically includes electronic cheques within its ambit.

Is it feasible to recognize Virtual Negotiable Instruments under the NI Act? Or Is it only a fantasy? Lets briefly explore.

Negotiable Instruments consist of three types of instruments namely, the Promissory Note, The Bill of Exchange and the Cheques. RBI s jurisdiction is mainly limited to the "Cheques" since it is an instrument drawn payable on a Bank by a Customer.

By definition, (Sec 6 of NI Act), a "Cheques" is a Bill of Exchange drawn on a specified Banker and expressed to be payable not otherwise on demand.
A Bill of Exchange (Sec 5) is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to and to the order of a certain person or to the bearer of the instrument.

If we look at the provisions of the ITA-2000, we observe that the requirement of Writing and Signing are easily satisfied by the recognition of electronic documents and digital signatures. The other aspects of the above definition are that the drawee should be a Banker and the sum payable and the person to whom it is payable should be Certain and the Order to pay should be unconditional. These are also possible to be satisfied by the existing provisions of the Act. But for the exclusion of the Negotiable Instruments by the ITA-2000, it appears that the system of virtual cheques would have become feasible now.
However, will a virtual Cheque be ever equivalent to a Real Cheque? This, depends on the many other hidden features that the Cheque as we know today and the family of Negotiable Instruments as we know today possess.

A few of such important features of the Cheque are:
1.Transferability
2.System of Crossing and its implications
3.Creation of a Holder in Due Course

1. Transferability:
A Cheque as any other Negotiable Instrument is transferable by Delivery in case it is drawn payable to a Bearer and by Endorsement  and Delivery when made payable to order. The word Bearer has been used in the NI Act as a person who is in the physical possession of the written instrument. This aspect of Delivery cannot be constructive or implied in case of Negotiable instruments. Hence it can be fulfilled only in respect of Written Negotiable Instruments. If the Virtual instruments are to be acceptable, perhaps this concept of Delivery and Bearer as applicable to them have to be redefined.

2.System Of Crossing:
The idea of crossing of cheques has always been recognized through the method of physically writing on the paper cheques. But after the introduction of electronic cheques, the method of physically crossing the cheques has not been suitable amended so that if a particular cheque has to be crossed or is required to be sent to a particular account, there are no complications. Nowhere has it been mentioned after the amendment that the system of crossing shall also be electronically completed. Crossing by definition is an act of Writing. Unless this is redefined, it cannot be applied by extension.

3. Holder in Due Course:
This aspect of negotiable instruments actually rests totally upon the fact that there has to be a physical existence of the cheque. Unless and until such existence is not there, it shall not be possible to have a Holder in Due Course for a cheque or any other negotiable instrument. There has not been an amendment which could give a full proof recognition to a holder in due course of an electronic cheque. The very essence of a Negotiable Instrument is its ability to create a Holder in Due Course. Whatever attempt has been made to redefine the law and introduce Virtual Negotiable Instruments it will have to accommodate this feature. Without this, the Virtual Cheques can only be another type of a Quasi Negotiable Instrument

4:Rights and Liabilities of Bankers;

The extent of liability of the Collecting and the Paying Banker has been very clearly laid down under the Banking law. It cannot be extended to the electronic cheques, simply by introducing the concept of e-cheques without providing for a suitable amendment, which would clarify as to rights and liabilities of the banks. It should be made clear as to when will the liability of the paying banker arise in case of a fraud with respect to electronic cheques, and what remedy does it have against the customer. It should also be mentioned regarding the Collecting Banker.

Conclusion
Thus the domain of Negotiable Instruments is too vast to be easily covered by the Bridging provisions of the ITA-2000. If any attempt is made in a halfhearted manner to bring virtual instruments under the ambit of RBI, we may end up with more confusion. The amendment of 2002, which provides due recognition to recognition to the concept of e-cheque, has not appealed to the characteristics, which are inherent to a cheque. The aspects of transferability, endorsements, holder-in-due-course of a cheque have totally been overlooked by the legislature. Therefore, there is a need of another amendment which gives due recognition to these.

Another drawback of this concept is that due regard has not been given to those customers who are not conversant with the online transactions of the cheques. The provision has been introduced to bring convenience to the customers and faster working of the banking system. But, what about these customers, dont they need this convenience and speed in their transactions? It is therefore suggested that, some kind of training program should also be conducted so that every kind of customer is able to take maximum advantage of any such development so that it appeals to the masses as a whole.

Nevertheless, a good initiative has been taken which needs due recognition, even though it has a few drawbacks. It is a very big step, which has been taken so as to bring in a very convenient, and user-friendly method of conducting cheque transaction. The customers as well as the bankers with full support have welcomed it. Certain amendments would though make it a perfect piece of legislation. Today, many banks allow customers to carry out transactions online, such as funds transfers and payments to public utilities or specified business establishments. In a sense, electronic cheques will be a means for electronic funds transfer. The legal issues that may arise in the handling of electronic cheques will become clear as experience is gained in their use. But, the basic question is, is the idea of electronic cheque, introduced to improve a lot of benefits to the citizens? Or is it to provide more powers to RBI to control the Virtual world? These questions remain to be answered. What is clear however is that amending the negotiable Instruments Act is not a simple task. The legal position in the Meta society is too deeply embedded in both law and practice. The Cyber Society however has a very brief history of Practice which only the citizens are aware. The lawmakers in India are unfortunately not so conversant with such Practices and unless the so-called Task Force is of the citizens, the law cannot be one that would be acceptable by a wide section of the Cyber Society. In that sense the attempt to amend the NI Act may only remain a distant reality.

The author can be reached at: prashant@legalserviceindia.com / Print This Article

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