NEGOTIABLE INSTRUMENTS ACT

DEFINITION  AND MEANING OF 

NEGOTIABLE INSTRUMENTS 

1.  ABOUT THE ACT

• The negotiable Instruments Act, came into force w.e.f. 1st March, 1982.
• It has 147 sections and 17 chapters.
• Section 138 to 142 were added to the Act in 1988 and these sections came into effect from 1st April, 1989.
• This Act extends to whole of India including J & K and Sikkim (Sec. 1)

II.  MEANING OF NEGOTIABLE INSTRUMENT

• .Negotiable instrument is defined in Section 13 of the Act. It means promissory note, bill of exchange and cheque payable to order or bearer.
• These three instruments are negotiable instruments as per statute. There are some other instruments which are classified as negotiable instruments (because they satisfy the features of a promissory note/bill of exchange/cheque) 
• Example of Negotiable instruments are  :

           i)  Bank Draft                                          (because it is a bill of exchange)

          ii)  Certificate of Deposit                           ( because it is a promissory of note)

         iii)  Commercial Paper                               ( because it is a promissory note)

         iv)   Treasury Bill                                       ( because it is a promissory note)

         v)   Share warrant                                      ( because it is a cheque)

        vi)    Dividend warrant                                 ( because it is a cheque)

• Share Warrants and Dividend Warrants are also impressed with negotiability by Companies Act, 1956.

III.  CHARACTERISTIC FEATURES OF NEGOTIABLE INSTRUMENT

       

     Negotiability 

• A negotiable instrument possesses a unique characteristic called " Negotiability".
• Negotiability means (i) the instrument is freely transferable by delivery if it is payable to bearer and by endorsement and delivery if it is payable to order and (ii) A person (i.e. transferee) taking the instrument bonfire for value (known as a holder in due course) gets an absolute title to instrument notwithstanding and defect in the title of the transferor or any prior party.
• An instrument which does not posses these two features can not be called a negotiable instrument.
• Railway Receipt, Bill of Lading, Ware House Receipts, can not be called a negotiable instruments; because they satisfy the first feature of negotiability but not the second. Such instruments are called Quasi Negotiable Instruments.
• Some of the instruments which can not lbe called negotiable instrument because they do not satisfy lthe very first feature of negotiability are : (i) Motor Transport Receipt,  (ii)  Mate's Receipt, (iii) Dock Warrant, (iv) Wharfinger's Certificate, (v) Document of Title to immovable property, (vi)  Airways Bill, (vii) Stock cheque, (viii) Share certificate,(ix) LIC  Policy, (x) Fixed Deposit Receipt,  etc. 
• Withdrawal  slips used for drawing money from Savings A/c. are not negotiable instruments (Reason : As there is a condition that it must be accompany the pass book).
• Currency Note : Currency Note is not a promissory note as this itself is  money. Hence, it is not a negotiable instrument.

IV. RESERVE BANK OF INDIA ACT & NEGOTIABLE INSTRUMENT PAYABLE TO BEAR

• As per section 31 of Reserve Bank of India Act.1934, no person other than Reserve Bank  or Central Government and draw,  accept, make or issue any bill of exchange or promissory note payable to bearer on demand.
• Further, as  per section 31(2) no person, other than Reserve Bank or Central Government, can issue or make a promissory note payable to bearer (whether payable on demand or not).
• The effect of section 31 is that it gives monopoly to RBI/Central Govt. to issue paper currency (Note: Currency Notes do have all features of promissory notes payable to bearer).
• The effect of section 31(2) is that a demand promissory o9te or a usance promissory note can not issued payable to bearer (Note : A usance bill of exchange can be issued payable to bearer.
• The section renders the word, " to bearer" in the definition of promissory note in section 4 of N.I.Act inoperative as section 31 and 32 of RBI Act override the provisions  of N.I. Act.

V. PROMISSORY NOTE 

•  Promissory note is defined in section 4 of the Act.
•  It is an instrument (i) in writing, (ii) signed by the maker, (iii) containing an unconditional undertaking to pay, (iv) a certain sum of money only, (v) to or to order of a ; certain person or to the bearer of the instrument.
• Promissory Notes payable on demand (immediately) are called Demand Promissory Note (DPN) and those payable after a definite period of time called Promissory Notes (UPN).
• Both demand and usance promissory notes need be stamped. Stamp duty on promissory note is same throughout India.
• Promissory Note containing an undertaking to pay the amount in instalments are valid if it provides that on default in payment of one instalment the entire amount will become due.
• General  Public is prohibited from issuing demand or usance promissory notes payable to bearer.
• Bank Note/Currency note can not be called promissory notes since this itself is money.

VI.  BILL OF EXCHANGE (SECTION 5)

• Bill of Exchange is defined in section 5 of N.I. Act.
• It is an instrument (i) in writing, (ii)  signed by the maker, (iii) containing an unconditional order, (iv) directing a certain person to pay, (v) a certain sum of money only, (vi) to or to the order of a certain person or to the bearer of the instrument.
• Note : (1) A bill of exchange is an order to pay money while a promissory note is a promise /undertaking to pay money, (2) Demand Draft issued by Banks fall in the category of bill of exchange. A cheque is also a bill of exchange, (3) Bill of exchange drawn in vernacular language as per local use are locally called "Hundis".

VII.  CHEQUE (SECTION 6)

• Cheque is defined in Section 6 of N.I. Act.
• A cheque is a (i) Bill of exchange, (ii) drawn on a specified banker and (iii) payable on demand.
• A cheque is a bill of exchange and should satisfy all the requirements of a bill of exchange except that :

          i)  It can not be drawn on any person other than a bank

         ii)  It can not be  drawn payable so many days after date or after sight as is the case with a bill of 

              exchange. It is always payable on demand.

• N.I. Act. does not provide any standard format for a cheque.
• Since a cheque is not a legal tender nobody can be compelled to accept cheque towards settlement of his debt.

1.  DIFFERENCE BETWEEN  BILL OF EXCHANGE AND CHEQUE

                         Bill of exchange                                                     Cheque

1.  Can not be drawn payable to bearer on demand                            Can be done

2.  Drawee of a bill can be any one                                                     Only a baner

3.  Can be made payable on demand or after sometime                       Only on demand

4. Provisions of crossing not applicable                                               Cheque can be crossed 

5.  Usance bill need be accepted                                                        Cheque require no acceptance

6.  Usance bill qualify for 3 days' grace                                               Not applicable to cheque

2.  PRESUMPTIONS AS TO A NEGOTIABLE INSTRUMENT (Section 118)

Unless proved to the contrary, law presumes the following in case of every negotiable instrument

i)   It is drawn/accepted, endorsed or negotiated for consideration.

ii)  It is drawn/made on the date mentioned.

iii) It is transferred before its maturity.

iv) The endorsement appearing upon it are in the order in which they appear.

v)  Every holder is a holder in due course.

vi) If it is a bill of exchange, which has been accepted, such acceptance is done before maturity.

 The onus of proving that the instrument is contrary to these presumption lies with the person who challenges the the same.

B.  PARTIES TO NEGOTIABLE INSTRUMENT

PARTIES TO A PROMISSORY NOTE

There are two parties to a promissory note  (i)  Drawer (i.e. the person who promises to pay), (ii) Payee (i.e. the person to whom the payment is to be made). When a borrower executes a promissory note in favour of the bank,  he becomes the maker and bank becomes the payee.

Acceptor

 All usance bill need be accepted by the drawee and to be paid by him on due date. The drawee All becomes acceptor after he accepts the bill.Te accept a bill,  the drawee has to write on the bill "accepted" and put his signature. After accepting a bill, the drawee becomes primarily liable to pay (honour) the bill on due date.

Drawee in case of need

He is the person who should be approached in case drawee fails to accept or pay the bill. A bill of exchange cannot be said to have been dishonoured unless and untill it is also dishonoured by the drawee in case of need.

The name of the drawee in case of need is to be mentioned on the bill. Either the drawer or any endorser can give this name.

Accept for honour

When a bill of exchange has been noted or protested for non-acceptance, any person who accepts if ( after it is protested) for the honour of drawer or any of the endorsers is called the Acceptor for Honour even if his name is not mentioned in the bill.

PARTIES TO CHEQUE

Since cheque is a bill of exchange, it has also three parties i) Drawer (i.e. the account holder  who draws the cheque), (ii) Drawee (i.e. bank), (iii)  Payee (person in whose favour the cheque is drawn).

The drawee of the cheque cannot lbe other than a bank.

HOLDER (Section 8)

The "Holder" of a promissory note, bill of exchange or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties therto.

In order to become a holder

1.  He should have acquired title to the instrument lawfully and in a proper manner i.e. not through fraud, coercion, undue influence or by any such illegal method.

2.  He should not have stolen or found the instrument, which is lost.

3.  He should be the payee or endorsee (if it is an order instrument) and bearer (if it is a bearer instrument)

RIGHT OF A HOLDER

1.  A holder is entitled to receive or recover the amount of a cheque/bill/promissory note and give a good discharge to the person making the payment.

2.  He can negotiate the instrument.

3.  He can file a suit in his sown name against parties liable to pay.

4.  He can complete an inchoate stamped instrument.

5.  He can claim a duplicate copy of a lost cheque.

Who is a holder ? 

Order Cheque  : In case of an order cheque, the payee, or the last endorsee (if any) is the holder.
Bearer Cheque : In case of a bearer cheque any person to whom  the cheque is validly negotiated is the holder.

• In case of an instrument is stolen the person who was the holder continues to be its holder. A thief cannot  acquire title to the cheque.
• However, if the thief of a bearer instrument transfers it to a person who becomes its holder in due course , the letter gets a good title to the instrument. All subsequent parties deriving title through him also get good title.
• Where an instrument is lost, the person entitled for the payment at the time of loss continues to be its holder. The finder of the cheque even though he is in actual possession cannot be the holder.
• However, if the finder of a bearer cheque transfers the same to a person who becomes its holder in due course, the latter gets a good title to the cheque.
• But if the hinder of an order cheque, forges the signature of the holder (true owner) and transfers it to another person, the latter cannot become a holder in due course and accordingly cannot get a good title to the cheque.
• The holder of a lost instrument is entitled to get duplicate of the instrument from the drawer. In case the drawer does not comply to his request he can be compelled to give the duplicate (Section 45-A).
• For an instrument, which is destroyed, the person who is entitled to receive the payment at the time of destruction remains as the holder. 
• In case of death of as holder, his legal heir will automatically become holder of the instrument.
• There cannot be a holder in case of cheque drawn under the forged signature of the drawer as the instrument is itself a  nullity. There cannot be also a holder in due course in case of such an instrument.
• In case signature of the endorser is forged, the endorsee cannot claim a good title to the instrument even if he is a holder for value.
• The Drawee/acceptor of a bill or the maker of a note continues to be liable to the lture owner even f they make payment to a wrong person under forged endorsement.
• However, as per Section 85 of N.I. Act a paying banker is given statutory protection in case of payment of cheques is made having forged endorsement.

Who cannot be holder  ?

a)  A thief in possession of instrument,

b) A finder of an Endorsee who is prohibited by Court order from receiving the amount due.

Who else (other than a holder) can sue ?

a)  A assignee of the instrument,

b) Unregistered firm can only sue as endorsee but not as payee.

HOLDER IN DUE COURSE

• Holder-in-due-course is defined in Section 9 of N.I. Act.
• It is one of the very important concepts in N.I. Act. as the second test of Negotiability (i.e. the transferee getting a better title than the transferor) is applicable only if the transferee proves that he  holder-in-due -course.
• A person who is not a holder-in-due course cannot get a title to the instrument better than that of its transferor. If the transferor had a defective title, the transferee also gets defective title. However, if he is a holder-in-due course, he gets a good title over the instrument notwithstanding any defective title of the transferor.
• Where a cheque is marked "not negotiable " nobody can get a better title than that of the transferor as these words expressly take away the second feature of negotiability., For this reason there can not be a holder in due course in respect of a cheque marked " not negotiable.

Who is  a holder-in-due course ?

Where the payee/endorsee of an order cheque or the possessor of a bearer cheque satisfies the following  three conditions, he can claim himself as holder-in-due course.

i)  Consideration  : He should have got the instrument for adequate and lawful consideration, and not by way of gift or no consideration.

ii)  Before maturity  : He should have become holder of the instrument before its maturity. This condition is applicable to usance bills and promissory notes and not a cheque which is always payable on demand. (A person taking an instrument after it is due has right only against his immediate transferor (Section-59).

iii) Good faith  : He should have become holder of the instrument without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

Forged Endorsement :  Any person who derives his title through a forged endorsement cannot claim himself as a holder in due course. 

Passes better title   : Any person who derives his title through a holder in due course also gets title free of defects (Section 53).

DIFFERENCE TYPES OF NEGOTIABLE INSTRUMENTS

INLAND AND FOREIGN INSTRUMENT (Section 11 & 12)

Inland Bill :

• A bill which is drawn in India and made payable in India.
• A Bill, which is drawn in India and drawee is a person resident in India (may be payable outside India).
• The essential condition for classifying an instrument as Inland instrument is that it must have been drawn in India.
• An Inland instrument can be made payable / accepted/endorsed accepted outside  India
• Example  :  i) A bill drawn in India and payable in Kolkata is an inland bill.                                                           (ii) A bill drawn outside India and payable in India is a foreign bill..

Foreign Bill

A Bill, which is not an inland bill, is a foreign bill. These are bills drawn in India but are payable by a person residing outside India or bills drawn outside India and payable in India.

Example :

i)  A bill drawn in India and payable outside India is a foreign bill

ii) A bill drawn outside India and payable in India is a foreign Bill

DIFFERENT TYPES OF BILLS

Accommodation Bill  : Bill drawn, accepted or endorsed without consideration.
Usance Bill                :  Bill which is payable after (a) a fixed period, (b) after sight, or (c) on a specified day is called a usance bill.
Demand Bill  : is one which is payable on demand or at sight or for which no time for payment is mentioned.
Bill in sets     : Foreign bills are drawn in sets. The bill of exchange is drawn in two/three/four copies subject to the condition that whole set constitutes one bill and any one can be paid so long as others remain unpaid.

AMBIGUOUS INSTRUMENT (Section 17)
Where an instrument, due to faulty drafting, is drawn in such  a manner that it can be construed as a promissory note or a bill of exchange, it is called an ambiguous instrument.

INCHOATE INSTRUMENT (Section 20)
Inchoate means incomplete  or imperfect. An inchoate instrument is an incomplete instrument. Where one person signs and delivers to another a paper stamped in accordance with law relating to negotiable instrument either blank or partially written such a document is called a stamped inchoate instrument.

Holder of such an instrument has a right to complete it not exceeding the amount covered by the stamp.
In case the instrument is filled up for an amount in excess of the amount for which it was intended, no person other than a holder in due course,can recover the excess amount from the drawer.

MATURITY OF BILLS

• A Bill payable " at sight "/" on presentment" means it is payable on demand.
• A bill payable " after  sight" implies that it is payable after acceptance.
• The maturity of a bill is the date on which it falls due for payment.
• If it is not payable on demand, the date of maturity will be on the 3rd day after the day on which it is due for payment (Section 22 of NI Act.)
• If the promissory note / bill of exchange is payable 3 months after date (say, 25.05.13)/sight (accepted on 15.07.13) then the due date for payment will be 28.07.13/18.10.13.
• If the due date falls on the last date of the month, if does not exist, will be that last day of the month. For example, if the due date is calculated as 30.02.13. it should be treated as 28.02.13.
• If the promissory note/bill of exchange is payable 30 days after date (say 25.05.13)/accepted on 15.07.13) than the due date for payment will be 27.06.13/17.10.13.
• If the due date is a public holiday, the instrument shall be deemed to be due on the next preceding business day.
• The expression public holiday includes Sunday or any other day declared by the Central /State Government.

ESCROW     :
When a negotiable instrument is delivered conditionally, or for a special purpose as a collateral security or for  safe custody only and not for the purpose of transferring absolutely the property there in, it is called an escrow.

HUNDIS   :
Hundis are bill of exchange written in vernacular language governed by local usage and practice.

Different types of Hundis are :-

    i) Darshan Hundis are similar to demand bills and are payable at sight.

   ii)  Miadi  Hundis are similar to usance bill and are payable after a specific period.

  iii)  Namjog Hundis are similar to order instrument and are payable to the person whose name is          mentioned         or his order.  

ENDORSEMENT

• Endorsement is defined in Section 15 of NI Act. as "Where the maker or holder of a negotiable instrument signs the same, otherwise than as such maker, for the purpose of negotiation, on the back or thereof, or on a slip of paper annexed thereto. He is said to endorse the same, and is called the endorser".
• According to Section 6 of the Indian Securities Act.1886 an endorsement made on a document, elsewhere than the back itself is not valid.
• If the space available on the back has been fully covered, a piece of paper may safely be attached to the instrument and subsequent endorsement maybe made on such paper. The paper so attached is known as "ALLONGE".
• The endorser of a negotiable instrument,by act of endorsing, signifies the following to his endorsee and any subsequent holder, that, when the instrument left his hands-

1. He had a good title to it.
2. It was genuine in all its particulars at the time of his endorsement.
3. All the previous endorsements were genuine. Thus Section 122 of the NI Act provides that : No endorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be permitted to deny signature or capacity to tract of any prior party to instrument".
4. Further the endorser, by his act of endorsing, promises to indemnify the endorsee or any subsequent holder for any loss suffered by them on the dishonour of the instrument, provided, the procedure necessary on dishonour has been duly followed.
5. An endorsement carries with it a right of further negotiation  endorsee, along with the right of ownership.

• Section 85(2) of NI Act states " where a cheque is originally expressed to be payable to bearer, the drawee is discharged by payment in due course to the bearer thereof, not withstanding any endorsement, whether in full or in blank appearing thereon, and notwithstanding that any such endorsement purports to restrict or exclude further  negotiation:. This section implies " once a bearer always a bearer".
• Cheques payable to an illiterate person should be endorsed with his left hand thumb impression, which should be witnessed by an individual well known to both the parties.
• A cheque in the name of the deceased person must be endorsed by his legal representative.
• Endorsement in the case of firms can be either in the name of the firm itself , or , it may be byam authorised agent or by a legally authorised person on behalf of the firm. But the name of the firm must be mentioned in full. The omission of the word :Company" in the endorsement amounts to an irregular endorsement.
• A cheque payable to impersonal payees, e.g. income tax, must be endorsed by the authority in relation to the impersonal payee.
• All endorsement must be done in ink only. Even though, endorsement in pencil is not prohibited by law, the possibility of alteration/obliteration can not be avoided in case of endorsement in pencil.
• As per Section 35 of NI Act. every endorser is liable to subsequent holder, in case of.dishonour of the instrument.

CHEQUES ' MARKED GOOD FOR PAYMENT '

• The NI Act does not provide for marking a cheque good for payment. It has developed as a matter of practice.
• When the drawee banker marks a cheque good for payment, it undertakes to honour the same when presented for payment.
• Except in very exceptional circumstances a bank should avoid marking cheques good for payment.

DISHONOUR OF CHEQUES - SOME IMPORTANT FEATURES

The proviso regarding dishonour of cheques is contained u/s 138 to 142 of NI Act. The object of this is to inculcate faith in the efficacy of banking operations and creditability in transacting business  of negotiable instrument.

Section  138 : Essential ingredient -

• Cheque is drawn on a bank for the discharge of any legally enforceable debt or other liability.
• A cheque is returned unpaid.
• The cheque is returned unpaid because the amount available in the account is insufficient for making the  payment of the cheque.
• The payee gives the notice to the drawer claiming the amount within 30 days for the receipt of the information from the bank, and the drawer fails to make payment within 15 days of the receipt of notice.
• Court has been given the power to condone the delay if the complainant satisfies the court that he had sufficient cause for not making a complaint within the prescribed period.
• The cause of action for filing complaints can not be said to arise merely on the cheque being dishonoured but will arise only after the giving of notice of demand of the amount of the cheque by the payee or holder in due course to the drawer of the cheque coupled with failure of the drawer of the cheque to pay the amount within 15 days of the date of service/receipt of notice.
• The suit can be filed within one month fro m the date of cause of action. The cause starts from expiry of 15 days from the date of service of notice to the accused. One month to be calculated from the date of expiry of 15 days from the date of service of notice. For example - notice served on   01.02.2014-15 days time expires on 17.02.2014. Complaint should be filed within one month from 17.02.2014.
• It is not necessary to file in a court within the jurisdiction of which - a) cheque has been drawn , b) place where the cheque is presented for collection, c) where received endorsement of dishonour or d) place where cheque  is dishonoured.
• Issue of notice is a must/mandatory. It may be by a ordinary post or even by other.
• In case of firm, the receipt of notice by any of the partners who is usually transacting business on the  behalf of the firm, the notice shall deemed to have been given.
• Drawing of cheque does not constitute any offence in itself. It is when the cheque is presented within time and dishonoured for want of funds.
• Payment stopped by drawer can not obviate the liability of the drawer.
• Punjab & Haryana  Court held that the action  be taken against a sleeping partner of the firm.
• Proprietor of a proprietary firm cannot escape of his liability even if the cheque has been drawn on behalf of the concern.
• When a cheque is issued for the party who was liable to meet the liability shall be responsible for having committed the offence (due to dishonour of cheque) even though there is no liability of issuing firm.
• Dishonoured cheque cannot be endorsed to any person since it lost negotiability.
• Post dated cheque carries the features of "Bill of exchange" prior to the date it is appearing on the cheque. The period of validity i8sto be reckoned from date mentioned on the cheque.

THE NEGOTIABLE INSTRUMENTS (AMENDMENT & MISC. PROV.)ACT 2002

INTRODUCTION OF TRUNCATED CHEQUE AND CHEQUE IN ELECTRONIC FORM

The Act makes following amendments in the Negotiable Instrument Act 1881

BOUNCING OF CHEQUE

 Some of the implications of the amendment relating to bouncing of cheque are -

1. The maximum imprisonment has been extended to a term of 2 years.
2. Time forgiving notice by the payee or the holder in due course of the cheque to its drawer has been increased to 30 days ( from existing 15 days) from the receipt of information by him from the bank regarding the return of the cheque as unpaid (Section 138).
3. In case of offence by companies, the person who has been nominated by virtue of his holding an office or employment in the Central or state government shall not be liable for prosecution (Section 141).
4. Court has been given the power to condone the delay if the complainant satisfies the court that he had sufficient cause for not making a complaint within prescribed period (Section 142).
5. The court has been given power to try cases summarily, and in any such summary Trial,Magistrate shall have the power to pass the sentence  of imprisonment  for a  term not exceeding one year and fine not exceeding Rs.5000/- . It has also been provided that so far as practicable, the trial of the cases shall be continued from  day to day until conclusion (Section 143)
6. The services of can be made by speed post or by courier services as are appro ed by Court of Session (Section 144).
7. Evidence of the complainant can be made on affidavit (Section 145)
8. Bank's slip or memo bearing official mark denoting that cheque has been dishonoured shall be prima-facie evidence for such dishonour (Section 146). So, Bank's official will not be disturbed for evidence unless absolutely necessary.
9. The offences under this Act have been made compoundable (Section 147).

Section 6 (Definition of 'cheque')

The electronic image of a truncated cheque' and' a cheque in the electronic  form' have been included in the definition of' 'cheque'.

What is e-cheque or cheque in electronic form ?

The electronic cheque is just what its name implies and is an electronic substitute for the paper cheque.Like paper cheques, e-cheques are legally binding promises to pay. They are having the same legal treatment as perper cheque, e-cheque uses digital signature that can be automatically verified. The digital signature given a lot more authenticity and  security than the normal hand-written signature. On the computer screen,  the e-cheque looks just like the paper cheque and is filled out in the same way. It has details about the payee's name, drawer's account information, amount, date, drawee bank etc.

The e-cheque is being developed by the Financial Services Technology Consortium (FSTC) of the USA. The FSTC consists of a group of banks, technology providers, universities and Government agencies and was formed in 1993 in the US to perform research and development for the benefit of financial services industry.

The FSRC has developed and is pioneering the e-cheque project as a secure payment mechanism. In this system, the e-cheque can be transferred from the drawer to the payee to his bank and onwards using the internet and e-cheque totally eliminate physical movement of cheque.

A truncated cheque  is defined by the new Section 6 (b) as " a cheque which is truncated during the course of a clearing cycle, either  by the 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."

Thus the characteristics of a ' truncated cheque' can be summed up as below :

• It is an electronic image of a paper cheque.
• Only the Bank's involved and the Clearing House can truncate a cheque (i.e. create an electronic image of a cheque). The drawer/holder of a cheque cannot truncate a cheque.
• The electronic image of the 'truncated cheque' will substitute the physical cheque from the point and time of truncation onwards.
• Truncation is to be done only during the course of a clearing cycle to reduce the time taken for realization.
• The paper cheque, after truncation is to be kept in the custody of the Bank/Clearing House that truncated the cheque.
• Addition of digital signature of the truncating Bank/Clearing house to the electronic image of the truncated cheque is optional.

Under the concept of truncation, the electronic image will replace the physical cheque.

                                                ooooooooooooooooooooooo