ARMY INSTITUTE OF LAW, MOHALI

“E-CHEQUES”

A Project submitted To

ARMY INSTITUTE OF LAW, MOHALI

Under the guidance of

Ms. Upagya Sharma

In partial fulfilment of the requirements for the award of degree of

B.A. LL. B

SUBMITTED TO: SUBMITTED BY:

Ms. Upagya Sharma Siddhi Porwal (2056)

PUNJABI UNIVERSITY, PATIALA (PUNJAB)

1|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

DECLARATION

It is certified that the project work presented in this report entitled “E-CHEQUE” is the results of
original research work carried out by me. All the ideas and reference have been duly acknowledged
and true to the facts.

Name - Siddhi Porwal Date – 27th October, 2023

Roll no - 2056 Place – AIL, Mohali

2|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

ACKNOWLEGEMENT

I would like to express my special thanks of gratitude to my teacher Ms. Upagya Sharma as well
as our principal Dr. Tejinder Kaur, who gave me the golden opportunity to do this wonderful
project on the topic “E-CHEQUE” which helped me in improving my research skills and I got an
opportunity to acquire knowledge as well. I am really thankful to them and also thanks to my
friends for special support for this project.

3|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

TABLE OF CONTENTS

Declaration……………………………………………………………………………………….2

Acknowledgement ……………………………………………………………………………….3

Table of contents …………………………………………………………………………………4

Introduction……………………………………………………………………………………….5

What are electronic cheques? …………………………………………………………………….6

How e-cheques work? ……………………………………………………………………………7

Advantages of e-cheques………………………………………………………………………….8

Disadvantages of e-cheques……………………………………………………………………...10

International scenario…………………………………………………………………………….11

Conclusion……………………………………………………………………………………….12

Bibliography……………………………………………………………………………………..13

4|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

INTRODUCTION

In the five decades since independence, banking in India has evolved through four different phases.
The Indian banking industry is in the midst of an IT revolution. Combinations of regulatory and
competitive reasons have led to the automation of the Banking Industry. The Reserve Bank of
India has made numerous reforms for a safe and efficient electronic mode of payment, along with
improved efficiency in the paper-based mode of payments. In order to foster faster cheque
processing the Central bank has implemented Cheque Truncation system in India on a test basis in
the National Capital Region, in February 2008. Amendments to the Negotiable Instruments Act
and the Informational Technology Act have been made to facilitate the smooth functioning of the
new technology. The introduction of the new technology does not change the method of writing
the cheques. Government Departments may have to re-engineer their Codes and Manuals
governing settlement of their cheques through legally valid electronic images instead of physical
cheques. India Countries such as Singapore have 4, 00,000 instruments daily. Our country is
performing very unique because it has a very large cheque volume. In India processes about 1.2
billion instruments annually. The National Capital Region alone processes 6, 00,000 cheques in a
day.

The concept of electronic cheques began to emerge in the late 20th century, as a response to the
growing need for faster, more convenient, and secure payment methods. Traditional paper cheques
were cumbersome, often requiring physical delivery and manual processing, which led to delays
in funds transfer. With the advent of the internet and technological advancements, the transition to
e-cheques became inevitable.

The first e-cheque systems were introduced in the early 2000s, allowing for the electronic creation,
transmission, and processing of cheque-like payments. These systems aimed to replicate the
features of paper cheques, such as the payee's name, amount, and digital signatures, in a secure
and efficient digital format. Over time, e-cheques evolved, and their usage expanded from
individual consumers to businesses, banks, and government agencies.

5|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

WHAT ARE ELECTRONIC CHEQUES?

An electronic cheque is an electronic copy or scanned image of a real cheque, which is then
transferred by email. In addition to the cheque's 'real' signature, the transfer must be digitally
signed using the sender's private key to authenticate the transfer. The electronic cheques are
modelled on paper cheques, except that they are initiated electronically. They use digital signatures
for signing and endorsing and require the use of digital certificates to authenticate the payer, the
payer’s bank and bank account. They are delivered either by direct transmission using telephone
lines or by public networks such as the Internet.

Electronic cheques are another form of electronic tokens. They are designed to accommodate the
many individuals and entities that might prefer to pay on credit or through some mechanism other
than cash. Once registered, a buyer can then contact sellers of goods and services. To complete a
transaction, the buyer sends a check to the seller for a certain amount of money. These checks may
be sent using Email or other Transport methods. When deposited, the cheque authorises the
transfer of account balances from the account against which the cheque was drawn to the account
to which the cheque was deposited.

After initial implementation in the national capital region, it will spread gradually across the
country, though the stipulated deadline for the phased commencement is December 31, 2006. In
2002, ‘e’ is for an e-cheque. An electronic cheque. A cheque that never expires. A cheque that
never bounces whether because of insufficient balance in the account or a faulty signature. A
cheque the creditor doesn’t have to present physically at his bank. A cheque that enables outstation
payments to be credited to the payee’s account within 2-3 days flat. A cheque that transfers money
at half the cost of a demand draft. Sections 6 and 1(4), coupled with the introduction of 81 A to
the Negotiable Instruments Act, 1881, ECT is now legalized.

E-cheques are already operational in the US, Australia has put them on trial since November 2001
and now they are here in India. Banking sector is considered the heart of an economy; integration
of the banking and the information technology industry has benefited the consumers in many
aspects with respect to time, cost and operational efficiency. Cheque is the most widely accepted
Negotiable Instrument to settle transactions in the world. Paper cheques provide consumers and
businesses critical alternative payments mechanism. Today billions of cheques are written and
processed each year, and consumers and businesses remain confident and satisfied with writing

6|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

cheques. However, cheque processing is experiencing a radical change as financial institutions and
their customers now have new, more efficient ways to process and clear cheques. Financial
institutions need to develop and implement a cheque image clearing strategy to remain competitive
in the future.

Negotiable Instruments consist of three types of instruments namely, the Promissory Note, The
Bill of Exchange and the Cheques. RBI‘s jurisdiction is mainly limited to the "Cheques" since it
is an instrument drawn payable on a Bank by a Customer. By definition, (Sec 6 of NI Act), a
"Cheques" is a bill of exchange drawn on a specified Banker and expressed to be payable not
otherwise on demand. A Bill of Exchange (Sec 5) is an instrument in writing, containing an
unconditional order, signed by the maker, directing a certain person to pay a certain sum of money
only to and to the order of certain person or to the bearer of the instrument.

The provisions of the ITA-2000, we observe that the requirement of Writing and Signing are easily
satisfied by the recognition of electronic documents and digital signatures. The other aspects of
the above definition are that the drawee should be a Banker and the sum payable and the person to
whom it is payable should be Certain and the Order to pay should be unconditional. These are also
possible to be satisfied by the existing provisions of the Act. But for the exclusion of the Negotiable
Instruments by the ITA-2000, it appears that the system of virtual cheques would have become
feasible now.

HOW E-CHQUES WORK

E-cheques function by utilizing digital technologies to mimic the essential characteristics of

traditional paper cheques. The process involves several steps:

1. Initiation: The payer, or the party making the payment, initiates the e-cheque. This
typically involves accessing their online banking portal or a dedicated e-cheque platform
provided by the bank.
2. Information Entry: The payer fills in the essential details, including the payee's name,
the payment amount, and the digital signature. In some systems, additional information
like the purpose of the payment and reference numbers can also be included.

7|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

3. Authentication and Authorization: The payer's identity and account details are
authenticated to ensure the validity of the transaction. Once authorized, the e-cheque is
generated.
4. Transmission: The e-cheque is sent to the payee electronically. This can be done through
email, a secure online portal, or a dedicated e-cheque platform, depending on the bank or
financial institution.
5. Payee's End: Upon receiving the e-cheque, the payee can either print it and deposit it
like a traditional cheque or use a digital banking interface to deposit it electronically.
6. Processing and Settlement: The payee's bank processes the e-cheque, and the funds are
transferred from the payer's account to the payee's account. This step involves the usual
financial clearing and settlement procedures.

ADVANTAGES OF E-CHEQUES

E-cheques, or electronic cheques, offer numerous advantages over traditional paper cheques.
These advantages stem from their digital nature, which enhances efficiency, security, and
convenience in the financial transaction process.

1. Speed and Efficiency: One of the primary advantages of e-cheques is their speed and
efficiency in processing financial transactions. Unlike traditional paper cheques, which
require physical handling, mailing, and manual processing, e-cheques are processed
electronically, often in a matter of seconds. This means that funds are transferred more
quickly, making e-cheques an excellent choice for time-sensitive payments, such as bill
payments, payroll, and urgent transactions.
2. Cost Savings: E-cheques lead to significant cost savings for both individuals and
businesses. The elimination of paper and associated expenses, such as printing, postage,
and storage, results in reduced operational costs. Financial institutions benefit from the
reduced need for check processing centers and manual labou r. This cost efficiency is not
only environmentally friendly but also contributes to enhanced profitability.
3. Reduced Errors: E-cheques minimize the risk of errors that are often associated with
paper cheques. In traditional paper-based systems, handwriting and manual data entry can
lead to mistakes in the payee's name, the payment amount, or other essential details. E-
cheques, on the other hand, often include pre-filled information, and electronic systems

8|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

validate the information automatically. This minimizes the occurrence of errors and
reduces the likelihood of payment disputes.
4. Enhanced Security: Security is a critical advantage of e-cheques. They employ advanced
security measures, including encryption and digital signatures, to protect the integrity of
the transaction. This makes e-cheques less susceptible to forgery, alteration, and fraud
compared to traditional paper cheques. Digital audit trails also enhance accountability,
providing a secure way to track the payment process from initiation to settlement.
5. Accessibility: E-cheques are accessible to a broader range of users, including individuals
with physical limitations. Users can initiate and receive e-cheques through digital devices
such as computers, smartphones, and tablets. This accessibility ensures that individuals
who may have difficulty writing and handling traditional paper cheques can participate in
digital financial transactions.
6. Convenience: The convenience of e-cheques cannot be overstated. Users can create and
send e-cheques from the comfort of their homes or offices through online banking
platforms or dedicated e-cheque systems provided by their financial institutions. This
eliminates the need to visit a bank or use physical paper cheques, streamlining the entire
payment process.
7. Remote Transactions: E-cheques enable transactions across great distances. Payers and
payees do not need to be geographically close to exchange funds. This capability is
particularly valuable for businesses engaged in international trade or individuals who need
to make payments to individuals or entities in different regions or countries. E-cheques
facilitate a seamless global payment ecosystem.
8. Environmental Impact: E-cheques contribute to environmental conservation by reducing
the reliance on paper. Traditional paper cheques have a significant ecological footprint due
to the consumption of trees for paper production and the energy and resources required for
printing and transportation. E-cheques save resources, reduce waste, and help combat
deforestation.
9. Record Keeping: E-cheques simplify record-keeping for both payers and payees.
Electronic transactions generate digital records that can be easily organized, searched, and
archived. This streamlines financial management and makes it simpler to track, review,
and reconcile past transactions.

9|Page
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

10. Integration with Other Digital Services: E-cheques are often integrated with other digital
banking services, such as online bill pay and account management. This integration allows
for a seamless financial experience, where users can initiate e-cheques, pay bills, monitor
their account balances, and review transaction history all in one place.

DISADVANTAGES OF E-CHEQUES

While e-cheques offer several advantages, they also come with certain disadvantages and
challenges.

1. Security Concerns: One of the primary disadvantages of e-cheques is the potential

security risks associated with electronic transactions. E-cheques, like other digital payment
methods, can be susceptible to hacking, fraud, and unauthorized access. Cybercriminals
can intercept e-cheques in transit or gain access to the payer's or payee's account
information, compromising the security of the transaction. While e-cheques incorporate
security features like encryption and digital signatures, they are not immune to evolving
cyber threats.
2. Legal and Regulatory Complexities: The legal and regulatory framework surrounding e-
cheques can be complex and may vary from one jurisdiction to another. Ensuring that e-
cheques are legally enforceable and recognized in different regions can be a challenge. This
legal ambiguity can create uncertainty for users and financial institutions, potentially
leading to disputes and complications.
3. Digital Literacy and Accessibility: Not all individuals or businesses may be digitally
literate or have access to the necessary technology and internet connectivity to use e-
cheques effectively. This can be a significant barrier, particularly for older or less
technologically savvy individuals. The transition to e-cheques may exclude certain
demographics, leading to financial exclusion.
4. Compatibility Issues: Different banks and financial institutions may use distinct e-cheque
systems and platforms. Ensuring compatibility and interoperability between these systems
can be a challenge. If e-cheque systems are not standardized, users may encounter
difficulties when sending or receiving e-cheques between institutions, potentially causing
delays and payment disruptions.

10 | P a g e
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

5. Infrastructure and Connectivity: E-cheques depend on a stable internet connection and

digital infrastructure. In regions with limited access to high-speed internet or reliable digital
resources, e-cheque adoption may be hindered. This can result in unequal access to modern
financial services.
6. Technical Glitches and Downtime: Just like any electronic system, e-cheque platforms
and services are susceptible to technical glitches, outages, and downtime. These issues can
disrupt the payment process, delay transactions, and cause frustration for users. While
traditional paper cheques are not immune to errors, electronic systems can introduce a new
set of technical challenges.
7. Limited Physical Verification: One of the advantages of traditional paper cheques is that
they can be physically verified. Bank tellers and businesses can visually inspect paper
cheques for authenticity, verifying signatures and the absence of alterations. E-cheques
lack this physical component, which may raise concerns about their legitimacy, especially
in cases where verification is required.
8. Payment Reversals: In some cases, e-cheques can be reversed or canceled by the payer
after they have been sent but before they are deposited by the payee. This introduces a level
of uncertainty for payees who may rely on e-cheques for immediate funds, and it can lead
to payment disputes.
9. Education and Awareness: Users may not be fully aware of the benefits and proper usage
of e-cheques. Without adequate education and awareness, they may not take full advantage
of the technology, potentially leading to inefficiencies or misuse of the system.
10. Dependence on Electronic Systems: E-cheques, like all digital payment methods, rely on
the continued functionality of electronic systems and the internet. In the event of system
failures, power outages, or other unforeseen disruptions, users may be unable to access or
process e-cheques, potentially causing inconvenience and financial complications.

INTERNATIONAL SCENERIO

In the United States of America the Federal Reserve and the banking industry sought to decrease
the banking system's dependence on the actual transport of paper cheques, as the 9/11 terrorist
attacks had brought transportation and cheque clearing to a halt leaving $47 billion worth of
cheques floating in financial limbo for days. Moreover banks, as well as vendors accepting a

11 | P a g e
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

customer's payment of goods and services by cheques, view the long-established paper process as
slow, costly and inefficient. This convinced the Federal Reserve Board to urge the creation of
Check 21 and finally October 28, 2004 marked the beginning of an evolution in cheque processing.
The Check Clearing for the 21st Century (Check 21 Act), federal legislation affecting all states,
changed the method by which cheques were processed in the United States, and also changed the
technology of cheque payment and acceptance. The Check 21 Act introduces new warranties,
indemnities and special refund system called the Expedited Recredit which protects the customers
from fraudulent presentation and processing of Substitute Cheques.

CONCLUSION

E-cheques have gained traction due to their speed, efficiency, cost savings, and enhanced security
features. The future will likely see continued growth in e-cheque adoption across various sectors.
Both individuals and businesses are recognizing the benefits of this digital payment method, and
as awareness spreads, more users will embrace e-cheques.

E-cheques, while offering several advantages, also come with notable disadvantages and
challenges. Security concerns, legal complexities, digital literacy issues, compatibility challenges,
and the need for a reliable digital infrastructure all need to be addressed for e-cheques to become
a seamless and universally accessible payment method. Careful consideration and mitigation of
these disadvantages are essential to ensure the successful adoption and use of e-cheques in the
modern financial landscape.

12 | P a g e
BANKING LAW
ARMY INSTITUTE OF LAW, MOHALI

BIBLIOGRAPHY

Websites

• https://www.investopedia.com/terms/e/electroniccheck.asp#:~:text=An%20electroni
c%20check%2C%20or%20e,be%20processed%20in%20fewer%20steps.
• https://unacademy.com/content/bank-exam/study-material/general-awareness/an-
introduction-to-the-advantages-of-e-cheques/
• https://thewire.in/banking/rbi-centre-e-cheques

13 | P a g e
BANKING LAW