Opinion

Not so Positive Pay plan

S Kalyanasundaram | Updated on October 14, 2020 Published on October 14, 2020

Going online for payments may be better

Recently, the Reserve Bank of India said it has been decided to introduce a mechanism of Positive Pay for all cheques of value ₹50,000 and above to further augment customer safety in cheque payments and reduce instances of fraud occurring on account of tampering of cheque leaves.

Under the Positive Pay system, the cheques will be processed for payment by the drawee bank based on information passed on by its customer at the time of issuance of cheque. The RBI claimed that this measure will cover approximately 20 per cent and 80 per cent of total cheques issued in the country by volume and value, respectively.

By another notification, the RBI said the system shall be implemented from January 1, 2021.

Further, it said the National Payments Corporation of India (NPCI) shall develop the facility of Positive Pay in Cheque Truncation System and make it available to participant banks. Banks, in turn, shall enable it for all account holders issuing cheques for amounts of ₹50,000 and above.

The RBI has prescribed that while using this facility is at the discretion of the account holder, banks may consider making it mandatory for cheques of ₹5,00,000 and above.

General directions

These guidelines are issued under Section 18 of the Payment and Settlement Systems Act, 2007, which empowers the RBI to give directions generally.

It is noteworthy that the RBI has suggested to banks to consider making the direction mandatory only in case of cheques for amounts of ₹5 lakh and above. While the reason for this is to avoid fraudulent payment of high-value cheques, it is doubtful whether the banks can make it compulsory for customers to follow the Positive Pay system.

The issue and payment of cheques are governed by the Negotiable Instrument Act, 1881, which contains various prescriptions. Section 31 prescribes that the bank is liable to pay for the cheque when funds are available in the account. Section 85 prescribes that the bank will be discharged from its liability when the payment is a ‘payment in due course’. While defining ‘payment in due course’, Section 10, prescribes that the payment should be as per the ‘apparent tenor of the instrument’ with some more stipulations.

Nowhere does the Act prescribe that some advance information should be provided to the banker regarding the cheque issued by a customer. Hence, it is doubtful whether the bank can compel its customers to adopt the Positive Pay system.

Cheque is a ‘bill of exchange’ drawn on a bank, and a bill of exchange should be an unconditional order. There cannot be any condition attached to a bill of exchange or a cheque and on this count also, the directive is questionable.

Instead of the Positive Pay system, the RBI may direct banks to make it mandatory to use only online avenues for payments exceeding ₹50,000.

In course of time the cheque system of payment can be drasticaly reduced, which can reduce cost to the entire financial system and have ecological benefits, too.

When 20 of the 27 EU member states have effectively eliminated cheques with usage down to two cheques per capita per annum or less, with the mobile phone and internet penetration, it should be possible for India to move to paperless bank transactions.

The writer is a retired banker

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Published on October 14, 2020
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