The working group has
discussed three specific Indian Laws namely the NI Act, PMLA and ITA
2008 in its deliberations besides some international laws on data
protection.
Commenting on the NI Act
and the amendments of 2002 regarding "Cheques in Electronic Form", the
GGWG states
"A cheque in the
electronic form has been defined as "a mirror image" of a paper
cheque. The expression 'mirror image' is not appropriate. It is
perhaps not even the intention that a cheque in the electronic form
should look like a paper cheque as seen in the mirror. Further,
requiring a paper cheque being written first and then its mirror
image or electronic image being generated does not appear to have
been contemplated as the definition requires generation, writing and
signature in a secure system etc. The expression, "mirror image of"
may be substituted by the expression, "electronic graphic which
looks like" or any other expression that captures the intention
adequately.
The definition of a cheque in electronic form contemplates digital
signature with or without biometric signature and asymmetric crypto
system. Since the definition was inserted in the year 2002, it is
understandable that it has captured only digital signature and
asymmetric crypto system dealt with under Section 3 of IT Act, 2000.
Since IT Act,2000 has been amended in the year 2008 to make
provision for electronic signature also, suitable amendment in this
regard may be required in NI Act so that electronic signature may be
used on cheques in electronic form"
It is noted that the
GGWG is averse to the concept of "Mirror Image" and the use of
"Digital Signature" as part of the definition of "Cheques in
Electronic Form".
It is essential to
appreciate that Negotiable Instruments have a special status in law
by virtue of Section 9 of NI Act according to which in certain
circumstances, a holder of a cheque on which he himself has a
defective title can pass on a title free from defects to the
transferee who is a "holder in due course". This status is available
only for three kinds of instruments namely "Promissory Notes", "Bill
of Exchange" and "Cheques" as defined in sections 4, 5 and 6 of NI
Act. While amending the NI act in 2002 and trying to introduce the
concept of "Cheques in Electronic Form", there was an option
available to either make "Cheques in Electronic Form" as a part of
the definition of "Cheque" under Section 6 of NI Act or describe it
as a new instrument other than the three negotiable instruments
already covered under the Act.
It must be
recognized that the amendments to NI act was handled almost entirely
by RBI in consultation with IBA and without involving any Cyber Law
experts. As a result the committee which worked on the amendments
came up with some suggestions which in its wisdom at that point of
time was a best solution.
The solution adopted
was to use "Electronic Form" as only a part of "Constructive
Delivery" and leave the existing provisions of NI Act untouched.
Hence both the definitions of "Cheque in Electronic Form" and
"Truncated Cheque" presumed the existence of a "Cheque" as
defined under section 6 and tinkered with only the legal aspects of
how the title in the cheque could be transferred to the next person.
Even here, the form of "Endorsement" was not tampered with and only
the "Delivery" was addressed. For a valid transfer of a title in a
cheque, the cheque needs to be "Endorsed" (except for for
"bearer" or previously "blank endorsed" cheque) and delivered.
The definition of "Cheque
in Electronic Form" and "Truncated Cheque" implies that the delivery
of the cheque happens through "Constructive Delivery" and such
constructive delivery happens through a transfer of a "Mirror Image"
of the cheque. A "Mirror Image" cannot be created without the
existence of the original cheque and hence the existence of a
negotiable instrument in the form of the original cheque was a
pre-requisite. If there is no original cheque, there is no "mirror
image". The need for the use of the term "Mirror Image" is therefore
well recognized.
From the GGWG
report, it appears that the group did not fully understand the
requirements of NI act before suggesting that "The expression,
"mirror image of" may be substituted by the expression, "electronic
graphic which looks like" or any other expression that captures the
intention adequately. "
If this
recommendation is adopted then "Cheque in Electronic Form" will
cease to be a "Cheque" as per Section 6 of NI Act and cannot create
a "Holder in Due Course". It will be an instrument which has no
place in the NI Act or it will be a "Not a Negotiable Instrument but
covered under NI Act". I.O.W. a "Cheque in Electronic Form" will be
like a "Cheque" carrying "Not Negotiable" crossing.
RBI has so far
introduced the "Truncated Cheque" system at least on trial basis but
has not figured out how the system of "Cheques in Electronic Form"
can be introduced.
The undersigned
would be happy to provide a suitable solution for this purpose as he
has already discussed in some Banker's forums long time back. This
would be a hardware-software solution and meet the requirements of
the amended NI act and also the practical requirement of the users.
The inability of RBI
to find a solution to the suggested instrument since 2003 is
indicative that RBI lacked the resources to scout for an appropriate
Techno Legal solution which also met the requirements of a practical
Banker.
It is therefore not
necessary at this point of time to tinker with the concept of
"Mirror Image".
(... To Be continued)
