Faq on cheque dishonour - Answers by RAGHU

Q1. What can I do when a cheque is dishonoured for the reason of insufficient funds. What legal action I can take to get the amount cleared?
A. On the dishonour of a cheque, one can file a suit for recovery of the cheque amount along with the cost & interest under order XXXVII of Code of Civil Procedure 1908 ( which is a summary procedure and) can also file a Criminal Complaint u/s 138 of Negotiable Instrument Act for punishment to the signatory of the cheque for haring committed an offence. However, before filing the said complaint a statutory notice is liable to be given to the other party.
Q2. I have got my cheque dishonoured few months back. It was issued by a Company. What can I do now?
A. On the dishonour of cheque by the company you can file a suit for recovery of the amount under Order XXXVII of CPC. As you have stated that cheques were dishonoured few months back and you have issued no notice to the company bringing to their knowledge the dishonour of cheques and the life of the cheque is still valid which is usually six months from the date of issue. You please present the cheque again and on receipt of the information about the dishonour of the cheque you immediately issue notice within 30 days from the receipt of the information of dishonour of cheque to the company. If the company does not pay the amount within 30 days from the receipt of the notice, you can file complaint under Section 138 of the Negotiatble Instrument Act. The said complaint is to be filed within one month on the expiry of 30 days period of notice.
Q3. Our is the software distribution co. During course of our business we had supplied software worth Rs.3 lacs. But our client dishonoured the cheque. We have filed court case on him after that he paid us Rs. 1 lac and then he has run away. We do not have any idea about his where about. Court has issued proclaimed offender notice, but we do not now how to trace him. He has closed his account and bankers are not cooperating with information like his other address. Please advice?
A. Let the proceedings of declaration of proclaimed Offender be completed. The accused will be declared Proclaimed Offender and can be arrested at any time. At this stage, you can not do anything else. However, simultaneously you can file Suit for Recovery with the last known address of the accused.
Q4. I have a cheque dishonoured. I have informed the person in writing, but no response, what should be done to register a case of cheating, and which place it should be filed? The place of the bank, where the cheque was dishonoured or the place where the cheque was handed?
A. When you have informed the person about the dishonour of the cheque, in case the information is given within 30 days from the dishonour of the cheque, you can file a Complaint under Section 138 of Negotiable Instrument Act within one month after the expiry of notice period of 30 days. The Complaint for cheating is not maintainable legally. However, in certain cases the police have been registering cases of cheating against the accused.
Q5. I have blank cheques given to me by a partnership firm. Since they owe me some money which I had given to them as a loan. Besides the cheques and the statement of accounts. I do not have anything else. Suppose one day, I suddenly get to know that they have closed the partnership firm and dissolved it, Can I deposit the cheques now and legally raise a claim on them and how?
A. You should fill the cheques and present for encashment. The Partnership Firm as well as partners are personally liable and even after dissolution also the firm and partners are liable. Once the cheques are dishonoured you have to file a suit for recovery of the said amount under the summary procedure provided in Order 37 of Code of Civil Procedure, 1908. You should also file a complaint under Section 138 of the Negotiable Instruments Act. For this you will have to first give a notice, within 30 days of the dishonouring of the cheques. Then if payment is not made within 30 days of receipt of notice a complaint has to be filed within 30 days thereafter.

Question :
The conditions that make dishonouring of a cheque an offence?
What is the penalty for such dishonoring?
In what circumstances the dishonouring of cheque is not an offence?
Answer: The main condition in such cases is that the cheque should be of a legally enforceable liability or debt and the same has been returned by the bank for the reason for insufficiency of funds in the account.
Further, it will become an offence under Section 138 of the Negotiable Instruments Act if proper notice in writing to the drawer of the cheque demanding payment is issued and failure on the part of the drawer to make payment within 30 days of receipt of the notice.
The drawer of the dishonoured cheque is liable to be punished under Section 138 of the Act laid with imprisonment for a term which may extend to two years or with fine upto twice the amount of cheque or both.
However, when a cheque is issued to a charitable trust as a gift or donation or for applying for shares, there is no offence if it is dishonoured, as it is not issued in discharge of legally enforceable debt or other liability.
Similarly, if a cheque is dishonoured because of certain reasons like difference in drawer’s signature or the disparity in amount stated in words and figures, alternations in cheques require attestation by the drawer.
If the cheque is found mutilated, the dishonouring is not an offence it is not dishonoured for want of funds.
Question : Company A, which had placed an Inter corporate deposit with company B against Demand promisory note, receipts and post dated cheques. The cheques were bounced and company A filed section 138 cases on company B and its directors. While the matter is being heard, now the company A has filed "company winding up petition" against company B for recovery of the same money. Now the issue is - Will both run in parallel or can company B pray for staying of section 138 cases, until the winding up petition is disposed off? - If so, what are the appropriate laws or precedences of any highcourt/supreme court judgements?

Answer: The legal position is such that civil and criminal proceedings regarding dishonour of same cheque can continue side by side. It is open to the aggrieved party to resort to either of the one or both.

There is no legal bar if civil and criminal proceedings continue simultaneously.

The position in case of winding up of company is such that mere filing of application for winding up of company will not act as a bar to proceedings under section 138 of the Negotiable Instruments Act against that company. The same has been held in 1999 (1) Bank CLR 687.

Question: I am partner of a Partnership firm, comprising of Seven partners. Two of the partners, are running the business and they are working partners taking care of the day to day affairs of the firm. Other five partners, including my self is not in station and is sleeping partners. The cheques can be signed and issued by the working partners. In case, a cheque bounces and legal action takes place under section 138, are all the seven directors liable for legal action, or only those who have signed the cheque ?
Answer: The law in case of offence by companies is such that If the person committing an offence u/s 138 of N.I.Act is a company, every person who, at the time the offence was committed, was in charge of and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

As such, Every director of the company is not automatically vicariously liable for the offence committed by the company, only such director or directors who were in charge of and responsible to the company for the conduct of the business of the company at the material time shall be deemed to be guilty.
And there must be a specific averment in the complaint that at the time the offence was committed, person accused was in charge of and responsible for the conduct of the business of the company.
Note: Company means: any corporate and includes a firm or other association of individuals. And Director in relation of firm means a partner in the firm.



1. What is a cheque?

A cheque is one form of a bill of exchange. However, all bills of exchange are not cheques. A cheque is always drawn on a bank or a banker. It is payable immediately on demand, without any days of grace.

If there is a discrepancy between the amount stated in words and that stated in figures, then the amount stated in words shall be the amount that is ordered to be paid.

As per the amendments, brought in by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, truncated cheques and electronic cheques also fall within the purview of the definition of cheques.

2. What is meant by dishonour of a cheque?

When any cheque, drawn by a person for the discharge of any liability is returned by the bank unpaid, because of insufficiency of the amount of money, standing to the credit of the account on which the cheque was drawn or, for the reason that it exceeds the arrangements made by the drawer of the cheque, the cheque is said to have been dishonoured.

3. What are remedies available for recovery?

1. To file a civil suit

2. To file a complaint u/s 138 of the N.I.Act, 1881

3. To file complaint u/s 420 for cheating under the I.P.C.

In case a person has filed suits for recovery,
he is not precluded from filing a complaint u/s 138 of N.I.Act & u/s 420 of I.P.C. Both remedies may be simultaneously possible.
A civil suit cannot debars the criminal prosecution.


4. Which is fastest remedy to recover amount of dishonoured cheque?
The amendment of Negotiable Instrument Act, 1881 in the year 1988 which incorporated provisions of Section 138 to 142 with the intentions for speedy legal action against defaulters.

5. What is the punishment prescribed under the act for dishonour of a cheque?

The N.I. (Amendment and Miscellaneous Provisions) Act, 2002 prescribes

imprisonment, which may extend to two years or
payment of a fine, which may extend to twice the amount of cheque or,
both for an offence under section 138.

6. What are pre-conditions to file case u/s. 138 of N.I. Act?

In order to proceed under Section 138, the following events should have occurred:

The cheque in question should have been issued in discharge of whole or part of a debt or liability otherwise the maker of the cheque is not liable for prosecution. For example if the cheque is given as a gift or present and if the bank dishonours it the maker of the cheque is not liable for prosecution

Cheque should have been presented to the bank within a period of six months of the date of on which it is drawn or within the period of its validity, which ever is earlier;

A dishonour of cheque due to certain defined reason

The payee or holder in due course of such cheque should have made a demand for the payment of the said amount of money by giving a notice, in writing, to the drawer of the cheque within thirty days of the receipt of the information by him from the bank regarding the return of the cheque unpaid; and

The drawer of such cheque should have failed to make the payment of the said amount of money to the payee or the holder in due course of the cheque within fifteen days of receipt of the said notice

The complaint can be made only by the payee or holder in due course within one month of the drawer failing to make payment after 15 days of receiving notice.

7. What precautions one must take for issue of Notice?

The requirement of giving of notice is mandatory.

If no notice making a demand for payment is served upon the drawer within 30 days from the date of dishonour of cheque, a complaint is not maintainable unless the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period.

Notice means a notice in writing.

A postal acknowledgement due containing the signature of the accused is proper proof of service of the notice on the addressee shown in the postal acknowledgement.

When a notice is returned by the sender as unclaimed such date would be the commencing date in reckoning the period of 15 days. Such reckoning would be without prejudice to the right of the drawer of the cheque to show that he had no knowledge that the notice was brought to his address.

The notice need not necessarily be by registered post only. It can be sent by a telegram, fax or by a letter as well. However it is preferable to send the notice by registered post, as that is clear evidence of service.

8. Where the complaint needs to be filed?

No court that is inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class can try any offence u/s 138.

All the following Courts will have jurisdiction:

The Court, situated at the place where the drawer of the cheque fails to make the payment of money;

The Court situated at the place where the bank through whom the cheque was issued, is located;

The Court situated at the place where the cheque was issued or delivered.


9. What precautions to be taken for filing of Complaint?

1. The payee or holder in due course of the cheque makes a complaint in writing.

2. The payee cannot lodge a complaint after the completion of one month from the date on which the cause of action arose.

3. A complaint can be filed through Power of Attorney, agents of the payee or holder in due course.

4. A complaint has to be filed in writing alongwith the list of witnesses and the list of documents.


10. What about Offences by Companies?

1. If the person committing the offence is a company, every person who, at the time offence was committed, was in charge of, and responsible to the company for the conduct of the business of the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.

2. If a person proves that the offence was committed without his knowledge, or that he had exercised due diligence to prevent the commission of such offence, he shall not be punishable.

3. Where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial Corporation owned or controlled by the Central Government or State Government, he shall not be liable for prosecution.

4. Where any offence has been committed by a Company and f it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of any director, manager, secretary, or other officer of the Company, such person shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
11. Can a person file a suit for recovery and also file a complaint under Section 138 of the Negotiable Instruments Act for dishonour of a cheque?

Answer: Yes. In case a person has filed suits for recovery, then he is not precluded from filing a complaint under Section 138 of the Negotiable Instruments Act and Section 420 of the Indian Penal Code. The pendency of criminal matters would not be an impediment to proceeding with the civil suits.

12. If a cheque is dishonoured on the grounds that the bank account has been closed by the drawer, will it constitute an offence under Section 138?

Yes. Dishonour of a cheque on the ground that the account has been closed by the drawer of the cheque does not constitute an offence under Section 138 as the said section, contemplate dishonour of a cheque either for want of funds or for exceeding the arrangements made.

However, now the Supreme Court has held that even if a cheque is dishonoured due to the bank account being closed by the drawer, it will amount to an offence u/s 138 of the N.I. Act.


13. If issue of notice gets delayed can I represent the cheque?

There is no embargo upon the payee to successively present a dishonoured cheque during the period of its validity.

There is no restriction regarding the no of times a cheque can be presented and that every subsequent representation and dishonour gives rise to fresh cause of action for filing complaint.

In the course of business transactions it is not uncommon for a cheque being returned due to insufficient funds or similar such reason and being presented again by the payee after sometime, on his own volition or at the request of the drawer, in expectation that it would be encashed.

For dishonour of one cheque there can be only one offence and such offence is committed by the drawer immediately on his failure to make the payment within 15 days of the receipt of the notice served.

On each presentation of the cheque and its dishonour, a fresh right and not cause of action accrues. Therefore the payee without taking pre-emptory action in exercise of his right may, go on presenting the cheque so as to enable him to exercise such right at any point of time during the validity of the cheque.

Cause of action would arise only on failure to pay after notice.

Once a notice for payment is given a fresh cause of action will not arise if the cheque is presented again and it is dishonoured.



14. What about Payment against Cheque STOPPED by drawer?

Stop payment instructions cannot obviate the offence.

Even if stop payment instructions are given and notice of the same is given to the payee or holder in due course liability cannot be avoided.

The position will not be different even if the drawer had instructed the bank to stop payment prior to the presentation of the cheque for encashment.

Once the cheque is issued there is a presumption, that the holder received the cheque for the discharge, of any debt or liability and merely because the drawer issues a notice to the drawee or to the bank for stoppage of the payment it will not preclude an action under the Act


15. What is the procedure in Magistrate's Court?

If the magistrate is of the opinion that there are sufficient grounds for proceeding he shall call the complainant for pre summoning evidence and the necessary documents are exhibited.

Thereafter summons are issued for the attendance of the accused and the witnesses.

If accused fail to appear, warrants are issued by which Police authority are instructed to make accused present in the Court.

The evidence of the witnesses is recorded.

The particulars of the offence are stated to the accused, and he shall be asked whether he pleads guilty or has any defence to make.

If he accused pleads guilty, the magistrate shall record the plea and convict him.

If the accused does not plead guilty the Magistrate shall proceed to hear the complainant and the accused and take all the evidence as may be produced by both.

On the hearing and evidence the Magistrate shall pass the order of conviction or acquittal.













1. What is Cheque Truncation ?
Truncation is the process of stopping the flow of the physical cheque issued by a drawer to the drawee branch. The physical instrument will be truncated at some point en-route to the drawee branch and an electronic image of the cheque would be sent to the drawee branch along with the relevant information like the MICR fields, date of presentation, presenting banks etc. Thus with the implementation of cheque truncation, the need to move the physical instruments across branches would not be required, except in exceptional circumstances. This would effectively reduce the time required for payment of cheques, the associated cost of transit and delay in processing, etc., thus speeding up the process of collection or realization of the cheques.


2. Why Cheque Truncation in India?
Cheque Truncation speeds up collection of cheques and therefore enhances customer service, reduces the scope for clearing related frauds, minimizes cost of collection of cheques, reduces reconciliation problems, eliminates logistics problems etc. With the other major product offering in the form of RTGS, the Reserve Bank created the capability to enable inter-bank payments online real time and facilitate corporate customer payments. The other product, National Electronic Funds Transfer, is an electronic credit transfer system. However, to wish away cheques is simply not possible and that is the reason why the Bank decided to focus on improving the efficiency of the Cheque Clearing Cycle. Cheque Truncation is the alternative. Moreover contrary to perceptions, Cheque Truncation is a more secure system than the current exchange of physical documents in which the cheque moves from one point to another, thus, not only creating delays but inconvenience to the customer in case the instrument is lost in transit
or manipulated during the clearing cycle.

In addition to operational efficiency, Cheque Truncation has several benefits to the banks and customers which includes introduction of new products, re-engineering the total receipts and payments mechanism of the customers, human resource rationalization, cost effectiveness etc., Cheque Truncation thus is an important efficiency enhancement initiative in the Payments Systems area, undertaken by RBI.


3. How the uniqueness of the cheque would be imparted to the image?
The images captured at the presenting bank level would be transmitted to the Clearing House and then to the drawee branches with digital signatures of the presenting bank. Thus each image would carry the digital signature, apart from the physical endorsement of the presenting bank, in a prescribed manner. In order to ensure only images of requisite quality reach the drawee branches, there will be a quality check process at the level of the Capture Systems and the Clearing House Interface. This would ensure only
images of requisite quality secured with the digital signatures of the presenting banks reach the drawee branches. In addition, drawers could consider using holograms, barcoding or such other features, which would add to the uniqueness of the images.


4. How RBI is proposing to implement Cheque truncation?
RBI is proposing to implement the project on a PILOT basis in the National Capital Region (NCR), New Delhi. Based on the experienced gathered, it would consider extending the coverage to other centres.
In the process of implementation, banks have been given the freedom to decide the point of truncation. RBI would be installing an interface with its system (CHI) at the service branches of banks, who are members of New-Delhi Bankers Clearing House.

Banks have to decide the point of truncation and have to ensure that the images are digitally signed after their capture. It would flow thereafter to the interface (CHI) provided by RBI, from where the images would flow to the clearing House with the digital signatures of the banks. These digitally signed images would reach the service branches of the drawee branches clearing house interface. The service branches have to ensure that these images are moved across their branches to ensure their processing.


5. What kind of services will RBI provide to facilitate cheque truncation?
RBI.s services include system development and installation at the clearing house, interfaces at the banks. end, network, handholding, awareness propagation and training.


6. Can you briefly explain the entire process flow envisaged in the CTS?
The CTS project envisages a safe, secured, faster and effective system for clearing of the cheques. In the CTS the presenting bank will capture the data & images of the cheques using their Capture System which is internal to them. They have to meet the specifications and standards prescribed for data and images. To ensure security, safety and non-repudiation the PKI (Public Key Infrastructure) is being implemented across the system. The banks will send the captured images and data to the central clearing house
for onward transmission to the payee/drawee banks. For that purpose RBI will be providing the banks software called the Clearing House Interface (CHI) that will enable them to connect and transmit data in a secure way and with non-repudiation to the Clearing House (CH). The Clearing House will process the data and arrive at the settlement figure for the banks and send the required data to payee/drawee banks for processing at their end. The drawee/payee banks will use the same CHI mentioned earlier for receiving the data and images from the Clearing House. It will be the responsibility of the drawee bank Capture System to process the inward data and images and generate the return file for unpaid instruments.


7. Who can participate in the Cheque truncation system?
The criteria for banks participating in the Cheque truncation system are:
i. Membership of the clearing house in the NCR.
ii. Membership of the Indian Financial Network (INFINET)


8. How the non-INFINET member banks can participate in the CTS?
In respect of banks who are not members of the INFINET, the following alternatives are available
(a) They may become the sub-members of the direct members or
(b) Such banks may use the infrastructure of the other banks having INFINET membership without being the INFINET members themselves and there clearing settlement can be done either directly or through the member through whom they are participating.


9. Is the infrastructure requirement same for all the banks?
The infrastructure required for CTS from bank.s end are connectivity from the bank gateway to the clearing house, hardware and software for the CTS applications.

RBI shall be providing member banks with the CHI and the banks have to procure other hardware and system software for the CHI and the application software for their capture systems on their own.

The hardware requirement is based on the volume of the cheques processed by the banks. Based on the volume the CHI is categorized into four types and the hardware requirement is different for each category.

The band width requirement for each bank is calculated based a number of factors like the peak inward and outward volume of the bank, average size of an image, efficiency factor of the network etc. In addition to that future requirement have been taken into consideration for calculating the band with requirement.


10. What are the image specifications in the CTS?
Imaging of cheques can be based on various technology options. The cheque images can be black and white, Grey Scale or coloured. Black and White images do not reveal all the subtle features that are there in the cheques. Coloured Images increase storage and network bandwidth requirements. So it was decided that the electronic images of truncated cheques will be in gray scale technology. There will be three images of the cheques i.e. front grey, front black & white and back black & white which will be made available to member banks. The image specifications are:
Image Type Minimum DPI Format Compression
Front GrayScale 100 DPI JFIF JPEG
Front Black & White 200 DPI TIFF CCITT G4
Reverse Black & White 200 DPI TIFF CCITT G4
The image quality of the Grey Scale image shall be 8 bits/pixel (256 levels).


11. What is a gray-scale image?
Scanners also function like photo-copiers by reflecting the light passed through narrow passage on to the document. Tiny sensors measure the reflection from each point along the strip of light. Reflectance measurements of each dot is called pixel. Images are classified as black and white, gray-scale or colour based on hoe the pixels are converted into digital values. For getting a gray scale image the pixels are mapped onto a range of
gray shades between black and white. The entire image of the original document gets mapped as some shade of gray, lighter or darker, depending on the colour of the source.

In the case of black and white images, such mapping is made only to two colours based on the range of values of contrasts. A black and white image is also called a binary image.


12. How the quality of the images will be ensured?
As the payments will be made on the basis of the images, it is essential to ensure the quality of the images. For that purpose the solution proposes Image Quality Audit (IQA) at different level. RBI will be specifying the image standards to the member banks. The presenting bank is required to perform the quality audit during the capture itself. Further quality audit will be done at the gateway before onward transmission to clearing house. Further the drawee bank can ask for the physical instrument if it is not satisfied that the image quality is not good enough for payment processing.

13. How the image and data transmitted over the network is secured?
The security, integrity, non-repudiation and authenticity of the data and image transmitted from the paying bank to payee bank will be ensured using the Public Key Infrastructure (PKI). The CTS is compliant to the requirement of the IT Act, 2000. It has been made mandatory for the presenting bank to sign the image & data from the point of origin itself. The image and data are secured using the PKI through out the entire cycle covering capture system, the presenting bank, the clearing house and the drawee bank.

The PKI standards used are in accordance with the appropriate Indian acts and practices of IDRBT which is the certifying authority for banks & financial institutions in India. The standards defined for the PKI are as followed:
• hash algorithm SHA-1
• padding algorithm pkcs#1
• RSA asymmetric encryption with 1024 bit key length
• Triple DES (3DES, TDES) symmetric encryption with 168 bit key length
• Certificates in x.509v3 format

14. What type of cheques can be presented in the CTS?
All the local cheques can be presented in the CTS. Banks may also present cheques on banks situated outside the NCR, but such banks have branches in the NCR region. The CTS also supports the intercity clearing and specialized clearing like high value clearing etc. The on-us instruments where both presenting and drawee banks are same are not allowed in the CTS. Images of such instruments would be stopped at the Clearing House Interface itself.

15. What are the precautions required to be taken by the bank customers to avoid
frauds?
Bank customers should use image friendly cheques. They should preferably use dark coloured ink while drawing the instruments. Care should be exercised in the use of rubber stamp, so that it would not interfere with the material portions of the cheque. The date of the cheque, payees name, amount and signature are the basic features which are essential in a cheque. The use of rubber stamps, etc, should not overshadow the clear appearance of these basic features in image. In order to ensure that all essential elements of a cheque are captured in an image during the scanning process, bank customers have to exercise appropriate care in this regard.

16. Will there be any change in the process for the customers?
There will be no change in the clearing process. Customers would continue to use cheques as at present, except in the use of image friendly coloured ink for making the instruments. Of course, such of those customers, who used to receive the paid instruments, like Government Departments, would only receive cheque images instead of the physical instruments. This will also facilitate in better processing at their end, as they will be able to access online images in addition to the data. As the images are going to be moved across, the time taken for the receipt of paid instruments at their end could
be reduced so that better and timely control could be exercised over payments. This will also give an early opportunity to the drawers or issuers of cheques to detect frauds or alterations in their cheques.
It is also possible for cheque issuers to consider newer techniques such as embedded verifiable features such as bar-codes or logos or watermarks, encrypted codes, holograms, etc., which would facilitate early interception of altered/forged instruments.

17. What would be benefit of cheque truncation to customers of banks?
Before we answer this question, we have to understand the present system of cheque clearance. The cheques presented by customers, today, are sent to the clearing house at the drawee centres by the beneficiaries. bank. The cheques at the bigger cities, in view of the large volume of paper instruments, are subjected encoding and then to mechanical sorting and thereafter reach the drawee branches. As per the existing banking practice, these instruments received at the counters of the drawee branches are paid or returned by them. The returned instruments are passed on to the presenting customers through the process of a return clearing. Only after the return clearing process gets over, banks release the credit to the customers. The beneficiaries. Account gets credited on the same day on which the drawees. account gets debited; however,
the beneficiary is permitted to use the proceeds only after the return clearing process.

With the introduction of the imaging and truncation, the physical movement of instruments would be stopped and the electronic movement of images of cheques would speed up the process of settlements and ultimately alter the clearing cycles. The clearing cycle could be shortened and it would be possible for customers to realize the proceeds of cheques early. Thus cheque truncation would reduce effectively the time of float, i.e. time from the point of issue of cheque to the point of time the actual debit takes place. In case such clearing is introduced across the cities, it would ensure the realisation of inter-city instruments faster thus ensuring early availability of funds to beneficiaries.

Thus the benefits could be summarized as:
a) Faster clearing cycle;
b) Better reconciliation/verification process
c) Better Customer Service . Enhanced Customer Window
d) T+0 for Local Clearing and T + 1 for inter-city clearing.
e) Elimination of Float . Incentive to shift to Credit Push payments.
f) The jurisdiction of Clearing House can be extended to the entire country
. No Geographical Dependence
g) Operational Efficiency will benefit the bottom lines of banks . Local
Clearing activity is a high cost no revenue activity.
h) Minimises Transaction Costs.
i) Reduces operational risk by securing the transmission route.

18. What is an IRD?
Under CTS, after the capture of the image, the physical cheque would be warehoused with the presenting bank. In case the beneficiary or any other connected persons require the instrument, the payee bank could issue a copy of the image, under its authentication, which is called Image Replacement document. It is a legally recognized replacement of the original cheque for re-presentment. The provisions of NI act (Section 81(3) of the NI
Act as amended) also permit the usage of such IRD.

19. If the customer wants to see the paper cheques for any reason, what are the options available to the customer?

The physical instruments are required to be stored for a statutory period. It would be obligatory for presenting bank to warehouse the physical instruments for that statutory period. In case a customer desires to get a paper instrument back, the instrument can be sourced from the presenting bank through the drawee bank.


... Thanq for information dear Raghu