RBI’s circular on cheques may clash with the Negotiable Instruments Act  

April 8, 2010

Banking regulator Reserve Bank of India’s (RBI) circular which stipulates that clearing bank branches can return a cheque if it contains any alterations (despite the issuer countersigning amendments) except the date, may end up in a legal tussle.

Yesterday, Moneylife had reported on how the RBI has issued a new circular which stipulates that banks can return cheques that alter anything other than the date. (See here).

In its circular dated 22 February 2010, RBI states, “No changes/corrections should be carried out on the cheques (other than for date validation purposes, if required). For any change in the payee’s name, courtesy amount (amount in figures) or legal amount (amount in words), etc., fresh cheque forms should be used by customers.” If there are any alterations on the cheque, except the date, customers will have to issue a fresh cheque. RBI believes that this move would help banks to identify and control fraudulent alterations.

But according to experts, the new circular possibly violates the Negotiable Instruments Act, 1881.

Legal experts say that in order to implement the circular, the Act has to be amended.

“RBI’s directions are contrary to Section 87 of the Negotiable Instruments Act. Amendments to the Act are necessary to enforce this notification of RBI. The notification cannot override the Act,” said a corporate lawyer, preferring anonymity.

If a cheque is presented to a bank with material alteration without the consent of the person who has issued it, the cheque can be dishonoured.

“If the cheque bounces despite the consent (of the issuer, if he makes any amendment attested with his signature) then it would be a violation of Section 138 of the Negotiable Instruments Act and bankers can face litigation. One cannot issue terms and conditions which contradict the law,” adds the lawyer. — Ravi Samalad