Despite Laws in Place, Centre, RBI Have Made No Special Efforts to Promote e-Cheques

Although the government amended the Negotiable Instrument Act of 1881 in 2015 to promote e-cheques, no bank has so far enabled its customers to use these.

New Delhi: Despite the parliament legalising e-cheques in India by amending the Negotiable Instrument Act, 1881 in 2015, no bank has so far enabled its customers to use these, responses to questions raised in the Lok Sabha and Right to Information (RTI) queries have revealed.

The Reserve Bank of India (RBI) has not issued any reminder or direction with regard to the e-cheques despite the fact that it was the central bank which had in the first place asked the government to bring such an amendment.

‘Paper cheques suffer from frauds, and face practical issues’

A Delhi-based activist, who had filed an RTI application with RBI on December 31, 2022, to learn about the status of e-cheques, said “despite paper cheques being extremely inefficient financial instruments (due to frauds, physical issue, transport, and deposit)”, they continue to be in great use. He added that a large number of cases pending in courts in India are related to cheque transactions.

Pointing out that the 2015 amendment of the Negotiable Instruments Act was an effort by the Indian government to remove all inefficiencies in the traditional cheques while still promoting their use for small businesses, the activist said, “This reform is of utmost importance for small businesses in India.”

No information on the legal status of e-cheques: RBI

According to the activist, in his RTI application filed with the RBI, he had asked about the “legal status of ‘e-cheques’ or ‘cheques in electronic form’ in India (drawn and signed digitally/electronically)”. To this, he said, the central bank responded that it “does not have information in the matter” and asked the applicant to refer to Section 6 (a) of the Negotiable Instruments Act, 1881.

To what steps the RBI has taken to discourage the use of traditional paper cheques with electronic alternatives in the last 10 years, the reply said, “RBI has not taken any specific steps to discourage the use of traditional paper cheques with electronic alternatives.”

The RBI, in response to another question, said it has not issued any instructions to banks for requesting or advising them to opt for or enable their users to issue e-cheques or cheques in electronic form.

Further, the bank said it also had no information on banks which currently issue or have previously enabled their customers to issue e-cheques/cheques in electronic form.

Likewise, it added that it has not issued any instructions to banks or the National Payments Corporation of India to encourage the usage of National Automated Clearing House debit instead of traditional paper cheques.

Government on e-cheques

Meanwhile, a question on e-cheques was also raised by Bharatiya Janata Party (BJP) MP Dushyant Singh and YSR Congress MP Lavu Sri Krishna Devarayalu in Lok Sabha on March 27. They asked whether e-cheques are legally valid and sought details on the steps taken to discourage the use of the traditional paper cheque system and promote the use of electronic alternatives.

Without providing a direct answer to the queries, the minister of state for finance, Bhagwat Karad, in his written reply, provided an explanation of what the expressions “a cheque in the electronic form” and “a truncated cheque” meant. He said they are clarified through Explanation I to Section 6 of the NI Act.

The minister added that as per this explanation “a cheque in the electronic form” means a cheque drawn in electronic form by using any computer resource and signed in a secure system with a digital signature (with or without biometrics signature) and asymmetric crypto system or with electronic signature, as the case may be”.

He added that “a truncated cheque” means a cheque that 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 the generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

To the query on curbing the use of physical paper cheques system, the reply added that “the Cheque Truncation System (CTS) for clearing cheques, which was introduced by the Reserve Bank of India (RBI), is operational pan-India. Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en route to the paying bank branch. In its place, an electronic image of the cheque is transmitted to the paying branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc”.

Therefore, the minister said, “cheque truncation thus obviates the need to move the physical instruments across bank branches. This eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.”

To another query from the MPs on whether the opinion of RBI was sought by the government to amend the Negotiable Instruments Act, 1881 in 2015 to include ‘e-cheques’, the minister replied that  “the new Explanation of the expression ‘a cheque in the electronic form’ was substituted for the prior existing Explanation as per the opinion of RBI. RBI had recommended an amendment to the earlier Explanation in the interests of legal certainty”.

The reply added that RBI’s directives and circulars are applicable to all Scheduled Commercial Banks including Regional Rural Banks (RRBs) as well as Cooperative Banks.

Reacting to the response of the ministry and the RBI in the matter, the RTI activist said they were “not doing anything substantial and just dodging the issue.”

Note: An earlier version of this article carried the name of the activist who filed the RTI application. It has been removed at their request.