Dishonor of electronic funds transfer for insufficiency of funds in the bank account – clarification

Today Reserve Bank of India, DPSS has issued a clarification on Dishonour of electronic funds transfer for insufficiency of funds in the bank account.

The Press Release can be accessed @ RBI Press Release

The clarification was necessary, as the general market opinion was that on ‘Dishonour of electronic funds transfer for insufficiency of funds in the bank account’, equal protection as under penalties stipulated for dishonor of cheques under the Negotiable Instruments Act, 1881, were not available

Through this clarification, RBI has informed that electronic funds transfer are on par with the penalties stipulated for dishonor of cheques under the Negotiable Instruments Act, 1881.

This clarification should now encourage migration of Loan Payments from the paper-mode to electronic mode.  

It is to be noted, in case of electronic funds transfer i.e Electronic Clearing Services-Debit, the Sponsor Bank can generate the requisite reports in case the ECS transaction is ‘returned.’

As everything moves electronically, the data can be exchanged quickly amongst the various participants in the process.

For an interesting article on the dishonor of cheques under the Negotiable Instruments Act, 1881, please refer here  NI ACT - Dishonor of Cheques