In this digital age, banks ignore a 142-year-old rule regarding cheques

Businesses and banks frequently overlook the fact that the law is not changing at the same rate as their efficient process adoption.

Even though banks are required by law to credit endorsed cheques to third parties, the current Cheque Truncation System (CTS), which took the place of physical check clearing, is not fully capable of complying with all requirements set forth in the Negotiable Instruments Act of 1881.

The Act allows ownership of negotiable instruments, such as cheques, to be transferred to a different individual through the payee’s endorsement on the cheques’s reverse. All types of instruments, such as promissory notes, bills of exchange, checks, and hundis, are subject to the rule. Giving the beneficiary access to liquidity is the goal.

The clearing house of Bank of India returned an endorsed Saraswat Bank check that insurance professional AvinashNunes had presented to the bank. The payee had endorsed the check in Nunes’ favor and the other bank had verified his signature.

Crossed cheques are non-transferable, according to BOI officials, despite the Act permitting such cheques to be endorsed in favor of a third party.

After Nunes complained to the RBI, BOI acknowledged that the check had been returned incorrectly. The bank gave NunesRs 1,000 in compensation as per the investigating officer’s recommendation.