It was reported in Economic times on the 20 th
of this month 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
It may be recalled that the Information Technology
Act-2000 (ITA-2000) has excluded Negotiable Instruments from the provisions
of the Act.
Is it feasible to recognize Virtual Negotiable
Instruments under the NI Act? Or Is it only a fantasy?.. Let’s briefly
Negotiable Instruments consist of three types
of instruments namely, the Promissory Note, The Bill of Exchange and the
Cheque. RBI ‘s jurisdiction is mainly limited to the “Cheque” since it
is an instrument drawn payable on a Bank by a Customer.
By definition, (Sec 6 of NI Act), a “Cheque” 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”? 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
2. System of Crossing and its implications
3. Creation of a Holder in Due Course
4. Protection to a Collecting Banker
5. Wrongful dishonour by the Paying Bank
6. Rights of recovery under Section 138
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:
Crossing by definition is again an act of “Writing”.
Unless this is redefined, it cannot be applied by extension.
3. Holder in Due Course:
The very essence of a “Negotiable Instrument”
is its ability to create a “Holder in Due Course”. Whatever attempt is
made to redefine the law and introduce “Virtual Negotiable Instruments”
will have to accommodate this feature. Without this, the “Virtual Cheque”
can only be another type of a “Quasi Negotiable Instrument”
4:Rights and Liabilities of Bankers ;
The rights and liabilities of the Collecting and
Paying Bankers have been well established in the banking Law and practice
and they cannot be extended automatically to the field of Virtual Cheques.
Similarly the provisions regarding the recovery proceedings in respect
of dishonour of cheques would also need to be redefined in the virtual
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 attempt to provide recognition to Virtual
instruments is commendable. But is it to improve the lot of Netizens? Or
Is it to provide more powers to RBI to control the Virtual world? ..remains
to be seen. 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 Netizens are aware. The
lawmakers in India are unfortunately not so conversant with such “Practices”
and unless the so-called “Task Force” is of the Netizens, 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 fantasy.
February 22, 2001
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