Madras HC Issues Notices to RBI, FinMin on Positive Pay System for High Value Cheques
Moneylife Digital Team 11 September 2021
The Madurai Bench of Madras High Court has issued a notice to the Reserve Bank of India (RBI) and Union finance ministry on a public interest litigation (PIL) petition filed against challenging the mandatory positive pay system in the country.
 
The litigant K Krishna, an advocate from Madurai, has challenged the RBI notification and claimed that the positive pay system defeats the purpose of the Negotiable Instruments Act, 1881.
 
The positive pay system is a new process for reconfirming key details of high-value cheques.
 
As per this positive pay system, the issuer of the cheque needs to submit specific details of that cheque (such as date, name of the beneficiary or payee, and cheque amount) to the drawee bank electronically through channels such as SMS, mobile application, internet banking, or automated teller machine (ATM). The details are then cross-checked with the cheque presented by the cheque truncation system (CTS). The system sounds an alert to both the drawee bank and the presenting bank in case of any discrepancy. A redressal mechanism is in place at both ends to resolve the matter.
 
Mr Krishna pointed out that because of the new RBI notification, the system, which was optional, has now been made mandatory by all banks for payments above Rs50,000. Though the system’s objective is to prevent cheque fraud, the lawyer expressed a fear that this would lead to more fraud. 
 
“It would be very easy for fraudulent persons to issue the cheque and then submit wrong details through positive pay system so that the payee would not receive the amount,” he said while requesting the HC to quash RBI’s notification. 
 
A division bench of justices M Duraiswamy and K Murali Shankar, who heard the petition, issued the notice and adjourned the case hearing until November.
 
National Payments Corporation of India (NPCI) created the positive pay system to revalidate essential details of large value cheques. 
 
The Indian government implemented the ‘positive pay system’ from 1st September to hedge against forgery with cheque-based transactions. The RBI introduced the mechanism to beef up the security of high-value financial dealings. It has made it mandatory for the banks that customers must be informed about the procedure.
 
All account holders issuing cheques for Rs50,000 and above will be able to use it, depending on the banks. While it is up to the account holder whether or not to use this service, the banks may consider making it mandatory for cheques of Rs5 lakh or more, as suggested by RBI.
 
Some banks are informing customers that if the details of large-value cheques are not pre-registered, the cheque will be returned. On issuance of a high-value cheque, customers should confirm details are submitted within the time frame suggested by the banks for faster clearance. RBI has informed that only cheques registered within the PPS will be accepted under the dispute resolution mechanism. Customers would get an SMS on whether the cheque is accepted or rejected for any reason.
 
Comments
deepak.narain
3 months ago
Instead of facilitating, this Govt is making life difficult in almost all matters. Why should there be any limit on the value of any cheque as long as the concerned Bank verifies its particulars from their record? Why should there be any condition of pre-registration of high value cheques? I would not be able to use my own money at will! Very unfortunate! I have not received any intimation in this behalf so far from any of my three Banks. Government is needlessly interfering in my private affairs! Too bad!
narayansa
Replied to deepak.narain comment 3 months ago
I agree this is quite ridiculous. Compared to the number of transactions of high value cheques, the fraudulent or forged ones ones must be miniscule. It is for the bank to exercise care to spot unusual or large uncharacteristic transactions and alert the issuer and verify. Asking everyone to follow a mandatory procedure amounts to harassment of customers to avoid fault finding against banks. Most unfriendly customer service move!
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