Cheque Truncation System

Lawyersclubindia phrase check mark brusqueness in the Indian Scenario scallywag 1 of 3 halt truncation in the Indian Scenario During the persist two decades or so the positioning and lifestyle of the consumers of vernacularing service get been influenced by the advancement in engineering. In blood with technological changes the assertsa delivery system has to change tremendous transformation. The financial reforms deal has enabled galore(postnominal) competitors to enter the financial function market place with a higher degree of cleverness and customer friendly behaviour.The public welkin borders although reacted promptly to the unseasoned challenges, have non kept pace with the new entrants in the arna because of their inherent limitations. beneath the contact of engineering science, the buzzwords have been trying to innovate newer products and go to become much competitive in the ever demanding customer driven market. The technology has made it possible for the banks to come to fiscal value with the demands of customers. The system of halt truncation is preponderant in several foreign countries.Denmark and Belgium are the pioneers in the truncation system. They adopted fuck halt truncation system more than two decades ago. Sweden is the typical example for having achieved flesh out truncation where all the go overs burn be presented and encashed at any branch irrespective of the bank on which they are drawn. The performance of look into truncation is non nevertheless quick but also meets the requirements of next electronic transactions.In India the collection and earnings of check outs is governed by the provisions of the convertable Instruments behave, 1881 which requires that the instruments moldiness be in writing and have to be physically presented for payment in due course (before the amendment in the moveable Instruments Act). In visual sense of this requirement the fourth dimension interpreted for the processing of check-out procedures, etc. was commodious cleaveicularly for the outstation go overs. In a country like India, the time taken for collection of outstation cheques is rather tire for the customers.With the advent of technology, the Government of India and Reserve avow of India took initiative to improve the customer service. The works group constituted in 1982 to engage the feasibility of introduction of MICR/OCR technology for cheque processing recommended that India should join SWIFT (Society for ecumenic Interbank Financial Tele intercourse) Network for the transmission and answer of international financial messages as intimately as instil electronic forms of monetary transaction in the Indian economic transactions. The term a? hequea has been defined in instalment 6 of the Negotiable Instruments Act as a? bill of transfer drawn on a qualify banker and not expressed to be collectable otherwise than on demanda . As per comment it is essential that cheq ue should be presented for payment. still in truncation, the physical cheque is not presented but only its design shall be contagious to the paying branch. ** In reciprocal parlance the word a? sawn-offa core deformed, disfigured, mutilated, etc. As per the Negotiable Instruments Act, the sawed-off cheque path a cheque which is sawn-off during the course of a elucidation cycle.The process of truncation requires the banker to convert the cheque data into electronic form for the designing of safe keeping or to authorise the cheques at the request of the banker or to take into account study on cheques as and when requested. The cheque in the electronic form means a cheque which contains the exact reverberate throw of a paper cheque and is generated, written and signed in a secure system ensuring minimum prophylactic standards with the use of digital signatures (with or without biometric signature) and http//www. lawyersclubindia. com/articles/print_this_page. asp viper viper? rticle_id=250 7/24/2011 Lawyersclubindia Article impediment truncation in the Indian Scenario page 2 of 3 asymmetric crypto system. Features of sawed-off cheque system With the advent of technology and cyber era, security of the system has acquired prime importance. No doubt, the financial institutions have started providing fast services than ever before. but the technology has brought in its trail security problem also. Under the cheque truncation system, thitherfore, the image of the cheque is captured at the point of deposit where it is certain(a) and encrypted before its transmission.This renders it tamper proof. This is done rigorously as per international standards. The transmission amidst the presenting, paying and payee bank is authenticated by a certificate authority as part of the public key infrastructure. The process of image certification at the banks is restricted by an independent auditor to reckon that it conforms to the requirements of the laws of e vidence of that country. Under the cheque truncation system all cheques are transmitted electronically.The original cheques are refrained by the hive away banker. Indian scenario Truncation of cheques stack be done by the glade house or the bank which collects the truncated version of the cheque. As per Section 81 of the Negotiable Instruments Act, the banker who receives the payment, is also supposed to retain the copy of the cheque even by and by payment has been done. Section 89 of the Negotiable Instruments Act says that any distinction in the midst of the original cheque and the truncated image should be construed as poppycock alteration.In such suit of clothess it is obligatory on the part of the clearing house or the bank to ensure the correctness of the truncated image while transmitting the image. An explanation has been added to Section 131 of the Negotiable Instruments Act vide the Negotiable Instruments (Amendment and sundry(prenominal) Provisions) Act, 2002. It says that it shall be the duty of the banker who receives payment ground on an electronic image of a truncated cheque to ensure that there is no fraud, forgery or tampering likely on the face of the instrument.It would be seen that after the amendment the responsibility of the collecting bank has increased manifold. Earlier it was the position that if he collects any instrument in legal faith and without negligence he was not liable for any fraud, etc. But after the amendment it is obligatory upon the collecting bank to verify the genuineness of the cheque with greater degree i. e. due diligence. Hence the cheque truncation system has burdened the collecting banker with a greater degree of responsibility.As per deputize section (2) of Section 64 of the Negotiable Instruments Act, where an electronic image of a truncated cheque is presented for payment, the drawee bank is authorize to demand any further information regarding the truncated cheque from the bank memory the trunc ated cheque in human face of any reasonable suspicion. Two new sub-sections have been added to Section 89. As per these sub sections any difference in spare tenor of electronic image and the truncated cheque shall be a material alteration and it shall be the duty of the bank or the clearing ouse, as the case may be, to ensure the exactness of the apparent tenor of electronic image of the truncated cheque while truncating and transmitting the image. In spite of the advantages, the truncation system has its have got drawbacks. The truncated cheques are vulnerable to fraudsters who can hack into this system and change the circumscribe of the cheques. So the security of the system mustiness be ensured. RBI has taken upon itself setting up of a safe, secure and http//www. lawyersclubindia. com/articles/print_this_page. asp? article_id=250 7/24/2011 Lawyersclubindia Article Cheque truncation in the Indian ScenarioPage 3 of 3 efficient communication intercommunicate for the exclusi ve use of the banking area known as INFINET (Indian Financial Network). This network is already being used by a large number of banks for transfer of funds. INFINET uses the latest technology and security called PKI (Public appoint Infrastructure) which is within the legal requirements of the Information applied science Act, 2000. Source http//www. ebc-india. com/practicallawyer/index. php? option=com_content&038task=view&038id=8047&038Itemid=54 http//www. lawyersclubindia. com/articles/print_this_page. asp? article_id=250 7/24/2011