Cheques, Truncated and Electronic

In one line

A cheque is a bill of exchange drawn on a banker and payable on demand, and since 2002 it includes an electronic image of a truncated cheque and a cheque in electronic form.

In the wording a student can write in an exam: by section 6 of the Negotiable Instruments Act, 1881 a cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand, and it includes the electronic image of a truncated cheque and a cheque in the electronic form; the expressions "a cheque in the electronic form" and "a truncated cheque" are defined in the Explanations to that section, which were inserted by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002.

Why the cheque has a section of its own

A cheque is a species of bill of exchange, and section 6 could in principle have been left to section 5. It was not, for two reasons that shape everything about the instrument.

The drawee is always a banker. That single fact brings in the whole of the banker and customer relationship worked in chapters 300 to 370: the duty to honour under section 31, the duty of secrecy, the mandate, and the protections of the paying and collecting bankers in sections 85 and 131 which chapter 450 works. A bill drawn on an ordinary person carries none of that.

And it is always payable on demand, so it is an instrument of payment, not of credit. A bill of exchange is a way of granting time; a cheque is a way of paying now. From that follow three consequences: no acceptance is needed or possible in the ordinary sense, no days of grace are allowed, and the cheque must be presented within a reasonable time.

The provision

Section 6. "A 'cheque' is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand and it includes the electronic image of a truncated cheque and a cheque in the electronic form."

Read the definition in its two halves. The first half is the original 1881 definition: a bill of exchange, drawn on a specified banker, not expressed to be payable otherwise than on demand. The second half was inserted by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, and brings two electronic forms inside the word.

Explanation I to section 6 defines them.

"A cheque in the electronic form" means a cheque drawn in electronic form by using any computer resource, and signed in a secure system with a digital signature, with or without a biometric signature and asymmetric crypto system, or with an electronic signature, as the Explanation provides.