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Under Explanation I(b) to section 6 of the Negotiable Instruments Act, 1881, when is a cheque 'truncated'?

Question and options

Under Explanation I(b) to section 6 of the Negotiable Instruments Act, 1881, when is a cheque 'truncated'?

  1. When, during a clearing cycle, an electronic image of it is generated for transmission in place of the paper cheque

  2. When it is drawn from the outset in electronic form and signed with a digital or electronic signature

  3. When, after payment, the paying bank keeps the paper cheque and sends the drawer a scanned copy of it

  4. When, after dishonour, the paying bank retains the paper cheque and issues an electronic return memo instead

Answer and explanation

Correct answer: A - When, during a clearing cycle, an electronic image of it is generated for transmission in place of the paper cheque

Explanation I(b) to section 6 of the Negotiable Instruments Act, 1881 defines a truncated cheque as one truncated during a clearing cycle, by the clearing house or by the paying or collecting bank, on generation of an electronic image for transmission, which replaces further physical movement of the cheque. A cheque drawn in electronic form with a digital signature is the separate 'cheque in the electronic form' under Explanation I(a).

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