Explain the terms 'Cheque', 'A cheque in the electronic form' and 'a truncated cheque'. Discuss the difference between cheque and Bill of Exchange.

The Cheque: Foundational Meaning

Section 6 of the Act, as it stands today after the amendments of 2002 and 2015, defines a cheque as "a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand," and expressly includes within its embrace the electronic image of a truncated cheque and a cheque in the electronic form.

The definition, read carefully, reveals that a cheque is not a creature unto itself — it is a species of the genus "bill of exchange." Every cheque must first satisfy all five conditions of a valid bill of exchange under Section 5: it must be in writing, contain an unconditional order, be signed by the maker, direct a certain person to pay a certain sum, and be payable to a specific person or bearer. Only when those conditions are met, and when two additional elements are present — the drawee being a specified banker, and payment being expressly demanded — does the instrument graduate to the status of a cheque. The Delhi High Court crystallised this in Shree Tyres v State (Cr. Revision No. 742/2019, decided on 24 July 2020) when it held that to qualify as a cheque, the instrument must first fulfil all conditions of a bill of exchange, and then pass the additional test of being addressed to a specified banker.

The necessary parties to a cheque correspond precisely to those of a bill of exchange, save that the drawee must always be a banker. The banker, however, does not become the acceptor of the cheque. His obligation to pay flows not from acceptance but from a contractual relationship with the drawer — an implied duty to honour the customer's cheques up to the extent of funds available, or the overdraft limit agreed upon. As the House of Lords declared in London Joint Stock Bank Ltd v MacMillan Arthur (1918 AC 777), the relation between banker and customer is that of debtor and creditor, with a superadded obligation on the part of the banker to honour the customer's cheques if the account is in credit.

A Cheque in the Electronic Form

The dramatic expansion of the cheque's definition owes much to the Negotiable Instruments Amendment Act, 2002, which first gave statutory recognition to the electronic cheque, and the further refinement brought by the Amendment Act of 2015. As it stands today, Explanation I(a) of Section 6 defines a cheque in the electronic form as "a cheque drawn in electronic form by using any computer resource and signed in a secure system with digital signature with or without biometrics signature and asymmetric crypto system or with electronic signature, as the case may be."

To understand this, one need not be a technologist. An electronic cheque is simply an ordinary cheque — containing all the essential elements of Section 6 — but generated, written, and signed through a computer system using a digital signature in place of a hand-written signature. The "asymmetric crypto system" referred to in the definition is a system of encryption in which two different keys — one public and one private — are used to secure the transaction, making it virtually impossible to forge the digital signature. The terms used in Section 6's Explanation III — including "asymmetric crypto system," "computer resource," "digital signature," and "electronic signature" — all carry the meanings assigned to them under the Information Technology Act, 2000.

The advantage of the electronic cheque lies in its precision. Where a paper cheque may be forged, altered, or left blank to be filled in by unscrupulous hands, the secured digital signature eliminates most of those vulnerabilities. The 2002 amendment made the electronic cheque co-equal in legal standing with its paper counterpart, ensuring that the entire regime of the Negotiable Instruments Act — including the penal provisions for dishonour under Section 138 — applies to it with equal force.

A Truncated Cheque

The concept of the truncated cheque is perhaps the most practically significant innovation introduced by the 2002 amendment. Explanation I(b) of Section 6 defines it as "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."

The word "truncate" means to cut short or stop. A truncated cheque is therefore a paper cheque whose physical journey is stopped mid-way — the moment an electronic image of it is generated during the clearing process, the cheque itself no longer needs to travel to the drawee bank. The electronic image travels in its place, and the payment is processed on the basis of that image. The clearing house in this context means the clearing house managed by the Reserve Bank of India or any clearing house recognised by the RBI.

To appreciate the significance of this, one must understand the traditional clearing system: when a customer deposited a cheque, the collecting bank would physically present it to the drawee bank through a clearing house, and the cheque leaf itself would travel from bank to bank. With the volume of cheques running into millions per day across India's banking system, this physical movement became a significant bottleneck. Cheque truncation eliminates that bottleneck entirely. The original paper cheque is retained by the collecting bank or clearing house; only its digital image is transmitted to the drawee bank for payment processing.

The legislature was alive to the risk of fraud in this system — that electronic images might be manipulated or tampered with. Section 64(2), inserted by the same 2002 amendment, specifically addresses this. It entitles the drawee bank, in case of any reasonable suspicion about the genuineness of the apparent tenor of the truncated cheque's image, to demand further information from the bank holding the truncated cheque. If the suspicion runs to fraud, forgery, tampering, or destruction, the drawee bank may even demand that the original truncated cheque be physically produced for verification. Crucially, where such a demand is made and payment is subsequently made, the drawee bank shall retain the original cheque. Further, Section 81 provides that a certificate issued on the foot of the printout of the electronic image of a truncated cheque by the paying banker shall be accepted as prima facie proof of payment.

An important duty also falls on the transmitting bank or clearing house. Under the amended Section 89, any bank or clearing house that receives a transmitted electronic image of a truncated cheque must verify from the transmitting party that the image received is exactly the same as the image transmitted. Any difference in the apparent tenor of the electronic image and the truncated cheque shall be treated as a material alteration, making the bank liable if it processes payment without catching the discrepancy.

Cheque Distinguished from a Bill of Exchange

Every cheque is a bill of exchange, but not every bill of exchange is a cheque. The distinction is not merely academic — it carries significant practical consequences in matters of acceptance, presentment, liability, statutory protection, and stamp duty.

The reason why a cheque does not require acceptance was stated with elegance by Parke B in the celebrated Privy Council ruling in Ramchurn Mullick v Lachmeechand Radakissen (1854 9 Moo PC 46): "A banker's cheque is a peculiar sort of instrument, in many respects resembling a bill of exchange, but in some entirely different. A cheque does not require acceptance; in the ordinary course it is never accepted; it is not intended for circulation; it is given for immediate payment... It is more like an appropriation of what is treated as ready money in the hands of the banker." This observation captures in a sentence why the cheque, despite being a species of bill, has acquired an independent identity in banking law.

The Supreme Court, in Anil Kumar Sawhney v Gulshan Rai (1993 4 SCC 424), added an important rider on the subject of post-dated cheques. A post-dated cheque, when drawn, is only a bill of exchange. It becomes a cheque only on the date it bears — because only then is it an instrument payable on demand. Before that date, it lacks the essential characteristic of a cheque. For purposes of Section 138 — the penal provision for dishonour — the six-month period stipulated in the proviso begins to run from the date mentioned on the cheque, not the date of its physical drawing.