Absence of adequate legal framework for e-cheques
The electronic form of cheques (e-cheques) and the system of cheque truncation are prevalent in most of the countries in the world. E-cheques and the system of cheque truncation have been introduced to reduce the physical movement of cheques and ensure safe and secure payments. These processes are harbinger of replacing paper-based cheques. In early 1980, Denmark and Sweden introduced the complete system of cheque truncation. Besides, to enhance efficiency and to avoid delay, banks in the United States (US) and the United Kingdom (UK) introduced electronic processing of cheques, making it unnecessary for cheques to be physically transported to and presented for payment to the drawee bank.
In the UK, section 74B of the Bills of Exchange Act 1882, which has been inserted in the statute in 1996, permits a bank to present cheque to the drawee bank for payment by notifying it of the essential features of the cheque electronically or otherwise instead of presenting it physically. It needs to be mentioned that the Bill of Exchange Act of the UK does not use the term ‘truncated’. On the other hand, the United States Congress enacted the Check 21 Act in 2003 to allow truncated cheques by the conversion of an original paper-cheque into an electronic image for presentation through the clearing process.
The security of the banking transaction system has acquired prime importance with the advent of technology and the digital era. No doubt, the banking sectors are providing services faster than ever before. To provide more customer-friendly service in the competitive market, some local banks are planning to introduce e-cheques and truncated cheques.
In Bangladesh, the only statutory law regarding cheques is the Negotiable Instrument Act 1881 (NI Act). Section 6 of NI Act defines that a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. Unfortunately, there is no provision in the NI Act which can define e-cheques or truncated cheques. Most of the banks have automated digital systems with updated equipment and are ready to originate the e-cheque system, but our legal system is not ready to adopt the new version of cheques. In case any bank uses e-cheques or truncated cheques, it will create a question of legal regulation of such cheques.
Our neighbouring country India has already included two modern definitions of cheques in their Negotiable Instrument Act. Clause (a) of Explanation 1 to section 6 of the Negotiable Instrument Act of India defines ‘cheque in electronic form’ (e-cheque), and clause (b) defines ‘truncated cheque’. India has amended the necessary provisions of the Negotiable Instrument Act to accommodate new requirements and policies regarding the modern version of cheques. The amendments done by India in their NI Act in respect of the definition of ‘cheque’ have opened up avenues for commencing new methods of processing paper-based payment instruments. Contemporaneous amendment to the Information Technology Act 2000 of India, making it applicable to NI Act, has conferred legal status to the practice of electronic payment systems in the banking sector of India.
The objective of imaging, image exchange, and the transmission of electronic information between and among banking sectors is to improve the effectiveness of cheque clearing in Bangladesh. There is no doubt that the requirement for e-cheques and truncated cheques have increased after the establishment of agent banking in our country. In the context of Bangladesh, NI Act, Information and Communication Technology Act 2006 and Bankers’ Book Evidence Act 1891 are interrelated in the sector of banking. It is unfortunate that the only definition of cheque provided in the NI Act includes only paper-based cheques.
Now, if our government shows their intention to include the modern definition of cheques in the existing Acts of the banking sector, then all the laws related to banking should need to be amended accordingly. To encourage digital and modern banking systems, Bangladesh Government should amend the existing acts, rules, procedures, guidelines, and operating directives so that they can adequately govern paper-based payment items and other instruments that are eligible for truncation and electronic cheque image presentment.
The writer is an Associate Lawyer of Corporate & Commercial Practice, Rahman & Rabbi Legal.