In digital age, banks overlook 142-year-old rule for cheques – Times of India

by The Technical Blogs

MUMBAI: As banks and businesses continue to adopt efficient processes, they tend to forget that the law doesn’t evolve as quickly.
Despite legal requirements for banks to credit cheques that are endorsed to third-parties, the modern Cheque Truncation System (CTS), which replaced the physical clearing of cheques, is not well-equipped to meet all provisions of the Negotiable Instruments Act, 1881.
The Act provides for ownership of negotiable instruments like cheques to be transferred to another person by an endorsement by the payee on the back of the cheque. The rule applies to all kinds of instruments including promissory notes, bills of exchange, cheques and hundis. The objective is to provide liquidity to the beneficiary.
When Avinash Nunes, an insurance professional, presented an endorsed Saraswat Bank cheque to Bank of India, the clearing house of BOI returned the cheque. The cheque had been endorsed by the payee in Nunes’ favour — along with a signature verification from the other bank.
BOI officials cited that crossed cheques are non-transferable, contradicting the Act which allows such cheques to be endorsed in favour of a third party.
Upon Nunes’ complaint to RBI, BOI acknowledged the erroneous return of the cheque. In accordance with the investigating officer’s recommendation, the bank paid a compensation of Rs 1,000 to Nunes.
A senior banker told TOI that in practice, most branches do not receive requests for endorsements, even though the 142-year-old law remains in force.

Source link

Related Posts

Leave a Comment


Copyright @2020  All Right Reserved – Designed and Developed by DSF SEO COMPANY