With the advent of online channels of conducting financial transactions such as internet banking, mobile banking, credit cards, debit cards, e-wallets etc., the entire ecosystem of the banking system has undergone a sea change. In fact, the outbreak of coronavirus pandemic gave a huge impetus to online financial transactions and we witnessed millions of people first-time boarding the digital platforms to conduct even small financial transactions. The unprecedented surge in online transactions during the last two years has forced the banks to have a separate digital bank within the bank to meet the aspirations of their customers on the digital platform. Amid this growing use of technology driven services, the use of most of the traditional banking practices which are usually handled manually, has witnessed sharp decline.
However, there are certain banking instruments which have not been consigned to history. And one such instrument is the cheque, which has long been a reliable payment method for both businesses and consumers worldwide. Although usage of the cheque as a payment instrument has fallen dramatically over the last decade, there are consumers and businesses in particular who are still in no rush to shred their cheque books just yet. However, at the same time, they also graze on the convenience of digital platforms. Incredibly, mounting ‘out of box’ online frauds where fraudsters have remained untraced have pushed many people on blackfoot and they are not yet ready to fully trust new technologies in financial transactions.
As far as cheque is concerned, it is not a mere piece of paper. It is one of the oldest banking instruments which has so far successfully negotiated the information technology revolution. In other words, this piece of paper continues to infuse a kind of empowerment to its holder that holds its worthiness beyond being a mere piece of paper. The way it has survived in the modern banking system makes us believe that the cheque is going to remain an inevitable part of the banking system.
However, cheque too has been grossly misused by the fraudsters. The criminals fraudulently alter a beneficiary’s name or amount on a genuine cheque before it is paid. Counterfeit and forged cheque frauds are other common examples of misuse of this piece of valuable paper. In the backdrop of this changing scenario when digital modes of transactions are dominating the scene, let’s revisit the system of payment through cheques. It also makes sense to have a look at certain regulatory changes governing the use of cheque in the modern banking system.
How do we define a cheque?
Cheque is an instrument of credibility. It is a written order of an account holder upon a bank to pay to or to the order of a designated party or to bearer, a specified sum of money on demand. The person who draws the cheque is called drawer, the bank on which the cheque is drawn is called drawee and the person to whom payment is to be made is called payee. It is an order of the account holder (customer) without condition. The banker has to pay it on demand. Precisely, it is payable to a certain person or to his nominee or to the bearer of the instrument.
The parties involved in a financial transaction through cheque are governed by certain rules to uphold its image as an instrument of credibility. The first and foremost thing is that a cheque should not bounce once issued by a drawer in favour of a payee. This means, the account holder who issues a cheque must have sufficient balance in the account to meet the liability of the cheque. On the dishonour of a cheque, one can file a suit for recovery of the cheque amount along with the cost and interest and can also file a Criminal Complaint u/s 138 of Negotiable Instrument Act for punishment to the signatory of the cheque for having committed an offence. Precisely, it’s a criminal offence.
What are the most important directions regarding the use of cheque?
Reserve Bank of India (RBI) has asked the banks to take certain steps while dealing with incidents of frequent dishonour of cheques. The banks have been told to make it clear to its customers that in the event of frequent dishonour of a cheque for want of sufficient funds in the account, no fresh cheque book would be issued. In case of current account holders, the bank has the discretion to close the account. Meanwhile, if cheques drawn on a particular account are dishonoured four times during a financial year for want of sufficient funds, banks are allowed to deny a fresh cheque book to the customer.
Another important thing to note is that the validity of the cheque is only three months. The banks are under regulatory directions not to accept cheques having age beyond three months. After the stipulated period, the cheque loses value and remains a mere piece of paper.
There’s also a regulatory direction on writing on the cheque. No alteration or modification in cheques is allowed even if an authorized signature has been made at the place of alteration. The banks will dishonour any kind of altered cheques. So, if a drawer makes some mistake in writing a cheque, he should simply cancel the cheque leaf and write a new one. Otherwise, the banks will only dishonour the cheque.
What is the Positive Pay System for high-value cheques?
This is a recent system introduced by the RBI to safeguard against cheque frauds The system stands implemented from January 1, 2021. It is a process of reconfirming the key details of cheques for amounts of Rs.50,000 and above. Under this system, a person issuing the high-value cheque submits certain essential details of that cheque like date, name of the beneficiary/payee amount etc. to the drawee bank. The details can be submitted through electronic means such as SMS, mobile app, internet banking, ATM etc. The details are cross-checked while issuing the cheque and any discrepancy is flagged.
While availing of the facility is at the discretion of the account holder, banks may consider making it mandatory in case of cheque values of Rs.5 lakh and above.
So, it is important for the customers to ensure details of high value cheques are provided within the time frame prescribed by the banks for hassle-free clearance. The details of the cheque to be submitted include account number, cheque number, date of cheque, amount, transaction code, beneficiary name, MICR CODE.
Notably, Positive Pay confirmation has to be given at least one day prior to the date of cheque to Drawee bank.
The system will increase safety in cheque payment and will reduce instances of fraud. In a way, it is a fraud detection tool to protect customers against forged, altered or counterfeit cheques.
Who is responsible for the loss of cheque during transit in the clearing process?
As per the rules, in respect of cheques lost in transit or at the paying bank’s branch, banks have to immediately bring it to the notice of the account holder so that he can issue a stop payment instruction. The onus for such a loss is on the collecting banker, not on the account holder. Customers are not only expected to be reimbursed for any ensuing expenses, but are also entitled to the interest for the time taken to obtain the duplicate cheque.
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author. The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK