RBI’s Positive Pay To Make Cheques Safer

Amidst the ongoing debate on whether the Indian government should decriminalize cheque dishonoring, RBI has introduced a mechanism called Positive Pay to increase the security of cheques, giving banks the burden to verify the details of cheques. Let’s understand what is this mechanism and how does it work.

Crux of the Matter

Positive Pay Mechanism
RBI’s Positive Pay mechanism would be valid for cheques worth above ₹50,000. This mechanism is aimed at adding security and reducing instances of fraud. Approximately 20% cheques issued by volume and 80% cheques issued by value in India will be covered under this system. ICICI bank has been implementing a similar system since 2016.

Let’s Understand It Through An Example
Mr A, having a bank account with SBI issues a cheque of ₹1 lakh to Mr B having a bank account in Yes Bank. Earlier, Mr B could do fraud by changing the amount, duplicating the cheque, etc. But, with Positive Pay Mechanism, Mr A will notify to SBI the cheque number, date, payee name, payee account number, amount, image of the front and back of the cheque before issuing it to Mr B. So whenever Mr B deposits cheque into Yes bank, SBI will verify the details of the cheque sent by Mr A. Cheque is honoured if the details match, and referred back to the issuer if do not.

What Is Reverse Positive Pay?
In the Reverse Positive Pay mechanism, everything remains the same but the burden to verify the details will be on the person who issues the cheques. Here, the bank will send details to the issuers to confirm the details.

Debate On Decriminalizing Cheque Bounce
In the month of June, the Union Finance Ministry had proposed to decriminalize cheque bounce cases and proposed to count it as a civil offense rather than a criminal offense. The government has asked for public comment on the matter. Currently, the punishment for bounced cheques is jail imprisonment of up to two years and/or fine double the amount of cheque.

Experts’ And Government’s Take On Why It Should Be Decriminalized
The government believes that by doing so, ease in doing business will increase. By decriminalizing cheque bounce, it will reduce the burden on courts as currently ~40 lakh cheque bounce cases are pending as per 213th Law Commission Report. Moreover, one has to file different cases for each cheque bounce, and the burden to prove remains on the one who filed the case, making it less feasible with negligible favorable results. The government believes that in the wake of coronavirus, it is necessary to remove such hurdles to boost investments and businesses. The government also thinks that such harsh criminal punishment stops domestic as well as foreign investments.

Criminalising procedural lapses and minor non-compliances increases burden on businesses and it is essential that one should re-look at provisions which are merely procedural in nature and do not impact national security or public interest at large.

Department of Financial Services

Experts’ And Government’s Take On Why It Should Not Be Decriminalized
However, business unions have opposed this proposal saying that it will cause great instability in the trade cycle and worsen the trust in the market. Cheques have value because of the strict laws and business people may stop taking cheques because of fear of being unpaid, leaving them in a financial turmoil.

A bounced cheque is equivalent to paying in fake currency, a much more serious crime. It also amounts to cheating, since the receiver is under the false impression that there are sufficient funds in the issuer’s bank. Hence, cheque bouncing cannot be equated with a minor non-compliance or a procedural lapse. It should remain a criminal offense.

Ajit Ranade, Indian Economist

Some corporate lawyers also believe that it may prove to be counter-productive for foreign investors. Legal remedies of a civil nature are time-consuming making this proposal less feasible.

While a defaulter whose intent is genuine will anyway find ways to adhere to his obligation and reach out to his creditor, for habitual offenders this will be a huge relief and thereby unfortunately encourage them to continue the same which will disrupt the business ecosystem in India.

Anant Merathia, Chennai-based Corporate Lawyer

The criminality factor had made people act responsibly when issuing cheques. While the government has taken steps to speed up the process of settling cheque bounce cases through Lok Adalats, making it into a civil offence goes against the interest of the consumers.

T. Sadagopan, Consumer Activist
  • Frank Abagnale is an American security consultant known for his career as a con man, check forger, and impostor. Abagnale’s story inspired the Academy Award-nominated feature film, Catch Me If You Can, starring Leonardo DiCaprio as Abagnale.
  • Cheque fraud refers to a category of criminal acts that involve making the unlawful use of cheques in order to illegally acquire or borrow funds that do not exist within the account balance or account-holder’s legal ownership. Specific kinds of cheque fraud include cheque kiting, Embezzlement, Bad cheque writing and Forgery.
  • The Eurocheque was a type of cheque used in Europe that was accepted across national borders and which could be written in a variety of currencies. Eurocheques were originally introduced in 1969 as an alternative to the traveler’s cheque and for international payments for goods and services.