Finance ministry has advised banks to popularise electronic funds transfers to reduce usage of cheques and bank drafts that are prone to fraud, assuring them electronic transfer of funds will have same legal protection as the traditional bankinginstruments.
There are currently over 30 lakh cases of bounced cheque in the courts, a problem the government feels can be addressed through electronic transfers.
"We have examined the matter and told banks that this (dishonour of e-payment) will involve the same penalty clause as in the case of a bounced cheque," said a finance ministry official, emphasizing customers will not be legally disadvantaged if they opted for electronic transfer instead of cheque payments.
Officials believe increased awareness can help electronic funds transfer become more acceptable among customers.
Banks agree that increased use of electronic transfers can help track financial transactions and investigate frauds easily.
"There is a lot of frauds that happen on account of cheques or drafts. In case of electronic transfers, such fraudulent activities will be curtailed and easily tracked," said an official with state-run Punjab National Bank.
Last year, after Rs 1 crore was siphoned off through issue of fake cheques, the Employee Provident Fund Organisation (EPFO), had instructed all regional offices to ensure that most payments take place through national electronic fund transfer (NEFT).
The country's largest lender, State Bank of India, has already decided to close the accounts of those customers who default on their cheques four times or more in a financial year.
Bankers had recently expressed some concern over the legal implications of electronic transfers in case of inadequate funds in the user's account.
The government, in its note to banks, has clarified that the Payment and Settlement Systems Act 2007 accords legal recognition to electronic payment systems and provides for punishment of two years and a monetary penalty twice the amount of electronic funds transfer, or both in case of dishonour.
"Section 25 of the Payment and settlement Act 2007 gives the same right and remedies to the beneficiary in cases where electronic settlements are dishonoured similar to cheque bouncing cases," explained Hitendra Mehta, Partner, Vaish Associates Advocates
The Reserve Bank of India has also been keen to move away from cheques and drafts.
Last week, the central bank had reduced the validity period of cheques, drafts, pay orders or banker's cheques to three months from six months.
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