Introduction

Sri Lanka has taken a decisive step towards modernising its negotiable instruments law with the enactment of the Bills of Exchange (Amendment) Act, No. 13 of 2025. The principal enactment, the Bills of Exchange Ordinance, had remained largely untouched despite seismic shifts in banking, technology, and commercial practice over the past century. This Amendment introduces critical legal and procedural updates to ensure the Ordinance remains relevant in the digital era, while also seeking to address longstanding gaps in enforcement relating to dishonoured cheques.

In this insight, we examine the key provisions introduced by the Amendment, explain their legal and practical implications, and offer an assessment of their overall efficacy.

1.     Updating Legal Terminology and Definitions

(a)   Modernised Definition of “Banker”

In the Amendment, the term “banker” now refers to only:

·        Licensed commercial banks,

·        Licensed specialised banks, and

·        Branches of foreign banks incorporated outside Sri Lanka,

within the meaning of the Banking Act, No. 30 of 1988. This is a material change.

Previously, the “banker” was very broadly defined as a person who carries on the business of banking and was not linked to the regulatory framework. This led to ambiguity over which institutions were entitled to rights and protections under the Ordinance. By tethering the term to the Banking Act, the amendment ensures that only regulated financial institutions can act within the scope of the Ordinance.

(b)   Recognition of Electronic and Facsimile Technologies

Further, two new definitions for the recognition of electronic and facsimile technologies have been introduced:

·        “Electronic” is broadly defined to cover information generated, sent, received, or stored using electronic, magnetic, optical, or similar technologies.

·        “Facsimile transmission” refers to document transmission over telephone lines by photoelectric scanning.

The inclusion of these definitions lays the groundwork for a number of substantive amendments later in the Act, especially around the electronic presentment of cheques and notices of dishonour. It also reflects the fact that banking operations and interbank settlements in Sri Lanka are now digitised, with systems such as LankaClear handling image-based cheque clearing and real-time payment infrastructure.

2.      Reforms to Payment Timing, Interest, etc.

(a)   Legal Interest Rate to Float with Time

Section 9 of the Ordinance originally fixed interest on dishonoured instruments at a rate of 9% per annum. This was an arbitrary figure, increasingly out of step with prevailing monetary policy. The amendment replaces it with a floating reference to “the legal rate applicable for the time being,” thereby linking it to the Civil Procedure Code. This update introduces flexibility, removes the need for repeated statutory revision, and ensures that the rate of interest is commercially realistic in any given economic climate.

(b)   Clarification of Maturity Dates

Section 14 is amended to clarify that if the due date for payment falls on a non-business day, the instrument is payable on the next business day.

(c)   Elimination of “Days of Grace”

The repeal of Section 15 abolishes the concept of “days of grace”, a legacy feature of British mercantile law that allowed debtors a few additional days beyond the maturity date to honour a bill. In modern practice, especially where digital payment systems are employed, such grace periods are rarely needed. This removal tightens payment discipline and aligns Sri Lankan law with international best practice.

3.      Notices of Dishonour

Under the amended Section 49, notice of dishonour may now be sent not only in writing or through personal delivery, but also by electronic or facsimile means, provided that the notice adequately identifies the bill and states that it has been dishonoured. This development is particularly important in the context of increasing reliance on automated cheque return systems and electronic communications. It recognises the antiquated nature of manual dispatch and allows for greater speed in enforcing rights following non-payment.

4.      Material Alterations

Section 64 has been amended to treat any alteration to the name of the payee, in addition to the date, as a material alteration. This is a significant development, particularly in fraud prevention. Altering the name of the payee is a common method of cheque tampering and recognising this as a material alteration strengthens the legal remedies available to payees and financial institutions.

5.      Recognition of Digital Cheque Presentment

The amendments to Section 74 recognises a major shift in how cheques may be presented for payment. Banks are now authorised by law to present a cheque electronically by transmitting a digital image of the front and back of the cheque, along with specific electronic payment data such as:

·        Cheque serial number,

·        Bank and branch code,

·        Drawer’s account number,

·        Drawer’s stated amount,

·        Any other information prescribed under regulations.

This aligns Sri Lankan law with systems already in place at the national clearing house, and mirrors global developments in cheque truncation and image-based clearing. Crucially, several traditional requirements under the Ordinance (such as the need to present the original instrument, or to present it at a specific location and time) are explicitly excluded where electronic presentment is employed. However, the law also introduces a safeguard, if the image or electronic data is inaccurate, the presentment is deemed a nullity. This encourages banks to adopt robust quality control mechanisms for digital clearing.

6.      Codification of Cheque Crossing Rules and Banker Liability

(a)   Clearer Definitions of General and Special Crossing (Section 76)

The updated provision now provides precise definitions of general crossings (i.e., two transverse lines) and special crossings (i.e., name of banker), both with or without the words “not negotiable”. This adds clarity and harmonises statutory language with actual cheque design and usage.

(b)   Crossings on Reverse of Cheques Permitted (Section 77)

The new language expressly permits crossings (especially for collection purposes) to appear on the reverse of the cheque. While this was already a clearing practice, its codification eliminates possible evidentiary or compliance challenges in court.

(c)   Banker’s Discharge from Liability

Sections 80 and 82 have been revised to confirm that a banker will not be liable for acting on a cheque merely due to absence or irregularity in endorsement, provided the cheque is otherwise valid. This protects banks from undue exposure where, for example, endorsements are incomplete but payment has been authorised in good faith.

7.      Penal Provisions for Dishonoured Cheques

Perhaps the most controversial element of the 2025 Amendment is the insertion of Sections 82A to 82F, which introduce criminal penalties for dishonour of cheques under specific circumstances.

(a)   Section 82A: Offence of Dishonour

Issuing a cheque that is subsequently dishonoured for any of the following reasons now constitutes a criminal offence:

·        Insufficient funds,

·        Cheque amount exceeds agreed overdraft limit,

·        Account has been closed, or

·        Drawer countermanded payment without legitimate cause.

On conviction, the penalty is a fine equal to the cheque amount, or up to two years’ imprisonment, or both. However, certain conditions must be met:

·        The cheque must have been presented within 6 months (or the validity period),

·        The payee must issue a written demand within 90 days of return,

·        The drawer must fail to settle within 90 days of demand.

(b)   Section 82B: Strict Limitation Periods

Legal action must be instituted within 30 days after the expiry of the 90-day grace period for payment. This introduces a highly structured and unforgiving timeline, and claimants must be mindful to avoid forfeiting their remedies through delays.

(c)   Sections 82C–82F: Procedural Framework

·        Jurisdiction vests with the Magistrate’s Court where either the payee’s or drawer’s bank branch is located.

·        A cheque return memo, deposit slip, or returned instrument is deemed conclusive evidence of dishonour.

·        The law presumes that the cheque was issued to discharge a legally enforceable debt, unless the drawer proves otherwise.

·        Where the drawer is a company, partnership, or unincorporated body, key officers or partners may be held personally liable, unless they can demonstrate that the offence occurred without their knowledge or despite due diligence.

This structure is clearly influenced by India’s Section 138 of its Negotiable Instruments Act and represents a major policy shift in Sri Lanka’s enforcement approach.

Conclusion: A Balanced but Ambitious Overhaul

The Bills of Exchange (Amendment) Act, No. 13 of 2025 is a wide-ranging and long-overdue reform that brings clarity, modernisation, and enhanced enforceability to Sri Lanka’s negotiable instruments regime. It aligns the law with digital banking systems, introduces formal recognition for long-practised cheque collection norms, and offers robust remedies for cheque dishonour. However, the decision to criminalise dishonour, while understandable given abuse by serial defaulters, may have unintended consequences if not applied judiciously. The tight procedural timeframes and the presumptions against drawers should also be handled with care to ensure that procedural justice is not compromised.

From a compliance perspective, both commercial entities and banks will need to review their internal procedures to ensure alignment with the new legal requirements. We recommend that clients, particularly those in the banking, finance, and trade sectors, conduct a comprehensive review of their cheque handling, payment, and dispute resolution protocols in light of these amendments.