[2003] 47 SCL 123 (MAG.

)
 
An Overview of Amendments Introduced by Negotiable Instruments (Amendment
and Miscellaneous Provisions) Act, 2002
 
ASHOK K. SAXENA
The author is a Company Secretary.
 
The author has taken pains in the article to give in a nutshell, the various amendments carried out in the Negotiable Instruments Act, 1881
introduced by the Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, which came into effect from December
17, 2002. The author has also outlined the corresponding amendments carried out to the Information Technology Act, 2000 and the
Bankers’ Books Evidence Act, 1891. In order to facilitate quick reference, the author has also summarised the amendments Actwise -
EDITOR
Introduction
1. The Negotiable Instruments (Amendment and Miscellaneous Provisions) Act, 2002, which has amended the Negotiable Instruments Act,
1881 (‘the Act’), the Bankers’ Books Evidence Act, 1891 and the Information Technology Act, 2000 received the assent of the President on
December 17, 2002. The amendments shall come into force on such date as the Central Government may, by notification in the Official
Gazette, appoint and different dates may be appointed for different provisions of this Act. This Amendment Act, inter alia, redefines the
term ‘cheque’, further tightens the law relating to dishonour of cheques, makes the Information Technology Act, 2000 applicable to the
Negotiable Instruments Act, in certain respects and seeks to amend definitions of ‘Bankers’ Books’ and ‘Certified Copy’ as given in the
Bankers’ Books Evidence Act, 1891. In this article, an attempt has been made to describe the impact of these amendments.
Widening of the Definition of ‘Cheque’
2. By substituting earlier section 6 the definition of ‘cheque’ has been widened to include the electronic image of a truncated cheque and a
cheque in the electronic form.
2.1 Meaning of the ‘cheque in the electronic form’ - This expression means a cheque which contains the exact mirror image of a paper
cheque, and is generated, written and signed in a secure system ensuring the minimum safety standards with the use of digital signature
(with or without biometrics signature) and asymmetric crypto system [Explanation I(a) to section 6].
2.2 Meaning of the ‘truncated cheque’ - This expression means a cheque which is truncated during the course of a clearing cycle, either by
the clearing house or by the bank whether paying or receiving payment, immediately on generation of an electronic image for transmission,
substituting the further physical movement of the cheque in writing [Explanation I(b ) to section 6].
2.3 Rights of Drawee Bank regarding Payment of ‘Electronic Image of a Truncated Cheque’ - Sub-section (2) has been inserted in section
64, to entitle the drawee bank, in case an electronic image of a truncated cheque is presented for payment, to demand any further
information regarding the truncated cheque from the bank holding truncated cheque. This demand can be raised in case there is any
reasonable suspicion about the genuineness of the apparent tenor of instrument. If the suspicion is that of any fraud, forgery, tampering or
destruction of the instrument, the drawee bank is also entitled to further demand the presentment of the truncated cheque itself for
verification. The drawee bank is authorised to retain the truncated cheque so demanded by it, if the payment is made, accordingly.
Rights of Collecting Banker
3. Sub-sections (2) and (3) have been added to section 81 to produce the following effects :
The effect of sub-section (2) is that even after the payment of the electronic image of a truncated cheque, the banker who received the
payment (i.e., collecting banker) shall be entitled to retain the truncated cheque.
The effect of sub-section (3) is that the paying banker, when issues a certificate on the foot of the print-out of the electronic image of a
truncated cheque while making payment of the instrument, it shall be prima facie proof of such payment.
Material Alteration
4. Sub-sections (2) and (3) have been added to section 89 to produce the following effects :
According to sub-section (2), it shall be the duty of the bank or the clearing house to ensure the exactness of the apparent tenor of electronic
image of the truncated cheque while truncating and transmitting the cheque. If there is any difference in apparent tenor of such electronic
image and the truncated cheque, it shall be treated as a material alteration.
According to sub-section (3), any bank or a clearing house which receives a transmitted electronic image of a truncated cheque, shall verify
from the party who transmitted the image to it, that the image so transmitted to it and received by it, is exactly the same.
Liability of Banker Receiving Payment
5. According to section 131, the banker receiving payment shall not incur any liability in case he receives payment in good faith and
without negligence, of a cheque crossed generally or specially to himself. However, Explanation II has been added to section 131 stating
that it shall be the duty of the banker receiving payment based on an electronic image of a truncated cheque held with him, to verify :
    (i)   the prima facie genuineness of the cheque to be truncated; and
   (ii)   any fraud, forgery or tampering apparent on the face of the instrument that can be verified with due diligence and ordinary care.
Dishonour of Cheque for Insufficiency of Funds
6. Section 138 was inserted with effect from April 1, 1989 to provide for penalties in case of dishonour of cheque due to insufficiency of
funds in the account of the drawer of such cheque. However, section 138 has been amended to produce the following effects :
    (i)   to increase the punishment of imprisonment from one year to two years;
   (ii)   to increase the period of issue of notice by the payee to the drawer from 15 days to 30 days.
Immunity from Prosecution to the Nominated Person
7. Section 141(1) states that in case an offence under section 138 (i.e., dishonour of cheque due to insufficient balance in the account) is
committed by a company, every person, in charge of and responsible to the company for conduct of its business at the time when the
offence was committed, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly,
until and unless he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the
commission of such offence.
However, second proviso inserted to section 141(1) grants immunity from prosecution to a nominated person in case of an offence
committed by a company under section 138. Such nominated person must be nominated as a director by the Central Government or the
State Government or a financial corporation owned or controlled by the Central Government or the State Government.
Extension of Period for taking Cognizance of Offence
8. According to section 142, cognizance of any offence punishable under section 138 can be taken upon a complaint and such complaint
can be made by the payee/holder in due course within one month of the date on which the cause of action arises. With the addition of
proviso to section 142(b), the cognizance of a complaint may be taken by the Court after the prescribed period (i.e., after the period of one
month), if the complainant satisfies the Court that he had sufficient cause for not making a complaint within such period.
Insertion of New Sections (after section 142) in Chapter XVII
9. Sections 143 to 147 have been inserted after section 142 to produce the following effects :
9.1 Section 143 : Power of Court to try cases summarily - Summary trial of case - According to section 143(1), notwithstanding anything
contained in the Code of Criminal Procedure, 1973, all offences under Chapter XVII (i.e., those relating to dishonour of certain cheques for
insufficiency of funds in the accounts) shall be tried summarily by a Judicial Magistrate of the first class or by a Metropolitan Magistrate
and the provisions of sections 262 to 265 (both inclusive) of the Code of Criminal Procedure, shall, as far as may be, apply to such trials.
Passing of sentence not exceeding one year. First proviso to section 143(1) states that in the case of any conviction in a summary trial, it
shall be lawful for the Magistrate to pass a sentence of imprisonment for a term not exceeding one year and an amount of fine not
exceeding five thousand rupees.
Trial of case as per the Code. Second proviso to section 143(1) states that when at the commencement of, or in the course of, a summary
trial, it appears to the Magistrate that the nature of the case is such that :
    (i)   a sentence of imprisonment for a term exceeding one year may have to be passed; or
   (ii)   it is, for any other reason, undesirable to try the case summarily;
the Magistrate shall, after hearing the parties, record an order to that effect and thereafter recall any witness who may have been examined
and proceed to hear or rehear the case in the manner provided by the Code of Criminal Procedure.
Trial of case on day-to-day basis. According to section 143(2), the trial of case shall, so far as practicable, consistently with the interest of
justice, be continued from day-to-day until its conclusion. The adjournment of the trial beyond the following day shall be done only when
the Court finds it to be necessary. The reasons for such adjournment shall be recorded in writing.
Conclusion of trial within six months. According to section 143(3), every trial shall be conducted as expeditiously as possible and an
endeavour shall be made to conclude the trial within six months from the date of filing of the complaint.
9.2 Section 144 : Mode of Service of Summons - Service of summons by speed post or by approved courier service : According to section
144(1) notwithstanding anything contained in the Code of Criminal Procedure, and for the purposes of Chapter XVII, a Magistrate issuing
a summons to an accused or a witness may direct a copy of summons to be served at the place where such accused or witness ordinarily
resides or carries on business or personally works for gain, by speed post or by such courier services as are approved by a Court of Session.
Cases where summons to be taken as served : According to section 144(2), where the following has been received :
    (i)   an acknowledgement purported to be signed by the accused or the witness; or
   (ii)   an endorsement purported to be made by any person authorised by the postal department or the courier services that the accused or
the witness refused to take delivery of summons;
the Court issuing the summons may declare that the summons has been duly served.
9.3 Section 145 : Evidence on Affidavit - Giving of evidence by the complainant. According to section 145(1), notwithstanding anything
contained in the Code of Criminal Procedure, the complainant may give his evidence on affidavit and further such evidence may, subject to
all just exceptions, be read in evidence in any enquiry, trial or other proceeding under the said Code of Criminal Procedure.
Examining of person giving evidence. According to section 145(2), the Court may, if it thinks fit, and shall, on the application of the
prosecution or the accused, summon and examine any person giving evidence on affidavit as to the facts contained therein.
9.4 Section 146 : Bank’s Slip prima facie Evidence of certain Facts - According to section 146 the Court shall, in respect of every
proceeding under Chapter XVII, on production of bank’s Slip or memo having thereon the official mark denoting that the cheque has been
dishonoured, presume the fact of dishonour of such cheque, unless and until such fact is disapproved.
9.5 Section 147 : Offences to be Compoundable - According to section 147, notwithstanding anything contained in the Code of Criminal
Procedure, every offence punishable under the Negotiable Instruments Act shall be compoundable.
10. Amendments to the Information Technology Act, 2000
10.1 Exclusion of Cheque - By substituting clause (a) in sub-section (4) of section 1, a cheque has been excluded from the definition of
‘negotiable instruments’ as defined in section 13.
10.2 Applicability of I.T. Act to the Electronic Cheque and Truncated Cheque - By inserting new section 81A it is provided that the
Information Technology Act shall be applicable to the Negotiable Instruments Act, in relation to electronic cheques and the truncated
cheques subject to such modifications and amendments as may be necessary for carrying out the purposes of the Negotiable Instruments
Act, by the Central Government, in consultation with the Reserve Bank of India, by notification in the Official Gazette.
Amendments to the Bankers’ Books Evidence Act, 1891
11. Section 2 of the Bankers’ Books Evidence Act has been amended to produce the following effects :
11.1 Widening of the Definition of ‘Bankers’ Books’ - According to the substituted clause (3) of section 2, ‘Bankers’ Books’ shall include
ledgers, day books, cash books, account books and all other records used in the ordinary business of the bank, whether these records are
kept in written form or stored in a micro film, magnetic tape or in any other form of mechanical or electronic data retrieval mechanism,
either onsite or at any offsite location including a back-up or disaster recovery site or both.
11.2 Change in the Definition of ‘Certified Copy’ - According to the newly inserted sub-clause (c) in clause (8) of section 2, a print-out of
any entry in the books of a bank stored in a micro film, magnetic tape or in any other form of mechanical or electronic data retrieval
mechanism obtained by mechanical or other process which in itself shall ensure the accuracy of such print-out as a copy of such entry and
such print-out, shall contain the certificate in accordance with the provisions of section 2A.
Overall changes in nutshell
12. To have a glimpse of the changes, these are reproduced in a nutshell as below :
12.1 Negotiable Instruments Act, 1881
    (i)   definition of ‘cheque’ has been widened by including the electronic image of a truncated cheque and a cheque in the electronic form;
   (ii)   the drawee bank is entitled to demand the presentment of the truncated cheque itself for verification in case of suspicion about fraud,
forgery, tampering or destruction of the truncated cheque;
  (iii)   any difference in the apparent tenor of electronic image and the truncated cheque shall be treated as material alteration;
  (iv)   punishment as prescribed under the Act has been increased from one year to two years;
    (v)   period for issue of notice by the payee to the drawer has been increased from 15 days to 30 days;
  (vi)   courts have been provided discretion to waive the period of one month, which has been prescribed for taking cognizance of the case
under the Act;
 (vii)   procedure for dispensing with preliminary evidence of the complaint has been provided in the Act;
(viii)   servicing of summons to the accused or witness by the Court through speed post or empanelled private couriers has been provided;
  (ix)   summary trial of the cases under the Act with a view to speeding up disposal of cases has been provided;
    (x)   offences under the Act have been made to be compoundable;
  (xi)   exemption has been provided to those directors from prosecution under section 141 of the Act who are nominated as directors of a
company by virtue of their 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;
 (xii)   provision has been made that the Magistrate trying an offence shall have power to pass sentence of imprisonment for a term
exceeding one year and amount of fine exceeding five thousand rupees.
12.2 Information Technology Act, 2000 - Information Technology Act has been made applicable to the Negotiable Instruments Act in
relation to electronic cheques and truncated cheques subject to such modifications and amendments as notified in the Official Gazette.
12.3 Bankers’ Books Evidence Act, 1891 - Definitions of ‘bankers books’ and ‘certified copy’ given in the Bankers’ Books Evidence Act
have been widened.
Conclusion
13. The above changes/amendments, more particularly those made in the Negotiable Instruments Act, shall, it is hoped, bring in desired
effects. The law relating to penalties in case of dishonour of certain cheques for insufficiency of funds, as contained in Chapter XVII, shall,
with these amendments, become more stringent so as to achieve the purpose of this Chapter more effectively.
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