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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? Let’s 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, don’t 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.
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The author can be reached at :
prashant@legalserviceindia.com |
Virtual Cheques - A Distant Reality
