ITA-2000 stands amended through NI Act Amendment



The passage of the Negotiable Instruments Amendment Act 2002 (NIAA 2002) in the Parliament has also brought in a significant change to the Information Technology Act 2000 (ITA-2000) bringing Cheques within its purview.

The amendment  has brought in two concepts of digital cheques. One is a "mirror image" of a cheque digitally signed. Second is the concept of "truncated cheque" where the physical cheque carrying a physical signature of the drawer is killed and replaced with an image of the signed cheque. Power to create a truncated cheque lies with the clearing house or by the paying or collecting banks.

The  NIAA 2002, replaces the original section 6 of the parent Act (NIA)  to read as follows.

A "Cheque" is a Bill of Exchange drawn on a specified banker and not expressed otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form.

Explanation I: For the purpose of this section, the expression-

a) "a cheque in the electronic form" means a cheque which contains the exact mirror image of a paper cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature (with or without biometrics signature) and asymmetric cryptosystem; 

b) "a truncated cheque" means a cheque which 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 generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing.

Explanation II- For the purpose of this section, the expression "clearing house" means the clearing house managed by the reserve bank of India or a clearing house recognized as such by the Reserve Bank of India.

Readers of recall the earlier article Virtual Negotiable Instruments…A Fantasy? written on 22nd November 2001 highlighting the problems that creation of a virtual negotiable instrument would create. Some of these problems relating to the protection available to the paying and collecting bankers have been addressed by further amendments to the NIA.

Accordingly, when a cheque is truncated, the paying banker is entitled to demand further information in case of a reasonable suspicion (section 64 of NIA), the Collecting Banker can retain the truncated cheque even after receiving the payment (Section 81 of NIA), the difference if any between the image and the truncated cheque will  be considered a "Material Alteration" (Section 89 of NIA), and the Collecting Banker is responsible to verify that the truncated cheque is prima-facie genuine (Sec 131 of NIA).

While the operational aspects involving the Bankers arising out of the introduction of the "Electronic Cheque"  has thus  been addressed, there may still be certain legal issues where the electronic cheques may still be found inferior. One such aspect is in creating a "Holder in Due Course".

Further the insistence of a "Mirror Image" of a cheque to constitute a valid electronic cheque means that a special application is required to be used by a customer if he wants to issue an "electronic cheque" on his Banker. Just as a Banker issues a physical cheque book, he may have to issue an  "Electronic Cheque book" which produces blank electronic images of cheques which can be completed by the customer and digitally signed. Hopefully this would be addressed at the individual Bank level.

With the changes made to the NIA, the NIAA-2002 has also made consequential amendments to the ITA-2002.

Accordingly, Section 1 and Section 81  of the ITA-2000 has been amended as follows.

Amendment 1: Section 1 (4) (a) will now read

(Nothing in this Act will apply to...)

" a negotiable instrument (Other than a cheque) as defined in section 13 of the Negotiable Instruments Act,1881 (26 of 1881)

Amendment 2:

After Section 81, the following has been inserted:

81-A, Application of the Act to electronic cheque and truncated cheque-

(1) The provisions of this Act, for the time being in force, shall apply to, or in relation to, electronic cheques and the truncated cheques subject to such modifications and amendments as may be necessary for carrying out the purposes of the Negotiable Instruments Act, 1881 (26 of 1881) by the Central Government, in consultation with the Reserve Bank of India, by notification in the Official Gazette.

(2) Every notification made by the Central Government under subsection (1) shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both houses  agree in making any modification in the notification or both houses agree that the notification should not be made, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under the notification.

Explanation: For the purpose of this Act, the expression "electronic cheque" and "truncated cheque" shall have the same meaning as assigned to them in section 6 of the Negotiable Instruments Act 1881 (26 of 1881).

(P.S. Copy of the ITA-2000 available on this site will be modified shortly after the Presidential Assent is given to the NIAA-2002).


December 6 , 2002

Related Articles:

ITA-2000 and Negotiable Instruments Act-2/11/00

Virtual Negotiable Instruments…A Fantasy?-22/2/2001


Send Your Views if any to Naavi

For Structured Online Courses in Cyber laws, Visit Cyber Law


Back To