The Author, Vijeta Kondebettu is a 5th Year, B.A LL.B in Raja Lakhamgouda Law College, Belgaum. She is currently interning with LatestLaws.com.
1. When did the Payment and Settlement Systems Act of 2007 come into force and what is the object?
● The Payment and Settlement Systems Act,2007 came into force on 12th August 2008 with an object to provide for the regulation and supervision of payment systems in India and to designate the Reserve Bank of India as the authority for that purpose and matters connected therewith or incidental thereto.
2. Who regulates and supervises the payment systems under this Act?
● The Reserve Bank of India is the designated Authority for the regulations and supervision of the payment systems [Section 3(1)]
● Payment Regulatory Board is a board that exercises the powers, performs the functions and discharges the duties conferred on it through the Reserve Bank of India [Section 3(2)]
3. What is the Payment System and Who is the authority to operate the payment system under this act?
● Section 2(i) defines “payment system”- means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them but does not include a stock exchange. ( For this clause, the payment system includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations;)
● Section 4 of the Act gives the Authority to the Reserve Bank of India and no one can operate the payment system without the authorisation of the Reserve Bank of India
● The Reserve Bank authorises a company or corporation to operate or regulate the existing clearing houses or new clearing houses of banks in order to have a common retail clearing house system for the banks throughout the country.
● Provided, however, that not less than fifty-one per cent. of the equity of such a company or corporation shall be held by public sector banks.
● Any person who wants to commence or carry on the Payment System must file an application under Section 5 of the Act to the Reserve Bank for authorisation which is accompanied by such fees as may be prescribed.
● After the receipt of an application under section 5, and before an authorisation is issued under this Act, the Reserve Bank may make such inquiries as it may consider necessary for the purpose of satisfying itself about the genuineness of the particulars furnished by the applicant, his capacity to operate the payment system, the credentials of the participants or for any other reason and when such an inquiry is conducted by any person authorised by it in this behalf, it may require a report from such person in respect of the inquiry [Section 6]
● The Reserve Bank can issue or refuse the application of authorisation as under section 7 and can also revoke the authorisation as per section 8.
4. What if the Reserve Bank refused or revoked the authorisation?
● Section 9 provides for appeal to the Central Government by the aggrieved within thirty days from the date on which the order is communicated to him.
● The Central Government shall dispose of the appeal within a period of three months and that decision shall be final.
5. What if a system provider wants to make changes in a payment system?
● Section 11 speaks about providing notice to the Bank of India before making any changes.
● No system provider shall cause any change in the system which would affect the structure or the operation of the payment system without
(a) the prior approval of the Reserve Bank; and (b) giving notice of not less than thirty days to the system participants after the approval of the Reserve Bank
● Where the Reserve Bank has any objection, to the proposed change for any reason, it shall communicate such objection to the systems provider within two weeks of receipt of the intimation of the proposed changes from the system provider. The system provider shall, within a period of two weeks of the receipt of the objections from the Reserve Bank forward his comments to the Reserve Bank and the proposed changes may be effected only after the receipt of approval from the Reserve Bank.
6. What powers does the Reserve Bank hold under this Act?
● Section 7. Issue or refusal of authorisation.
● Section 8. Revocation of authorisation.
● Section 10. Power to determine standards.
● Section 12. Power to call for returns, documents or other information.
● Section 13. Access to information.
● Section 14. Power to enter and inspect.
● Section 16. Power to carry out audit and inspection.
● Section 17. Power to issue directions.
● Section 18. Power of Reserve Bank to give directions generally.
● Section 30. Power of Reserve Bank to impose fines
7. Who is the system Provider and What are the Duties of a System Provider?
● Sec 2(q) “system provider” means a person who operates an authorised payment system.
● Duties of a system provider
● Every system provider shall disclose to the existing or potential system participants, the terms and conditions including the charges and the limitations of liability under the payment system, supply them with copies of the rules and regulations governing the operation of the payment system, netting arrangements and other relevant documents.[Sec 21]
● It shall be the duty of every system provider to maintain the standards determined under this Act.[Sec 21]
● Duty to keep documents in the payment system confidential.[Sec 22]
● Every system provider shall operate the payment system in accordance with the provisions of this Act, the regulations, the contract governing the relationship among the system participants, the rules and regulations which deal with the operation of the payment system and the conditions subject to which the authorisation is issued, and the directions given by the Reserve Bank from time to time. [Sec 20]
● deposit and keep deposited in a separate account or accounts held in a scheduled commercial bank; or (b) maintain liquid assets in such manner and form as it may specify from time to time[Sec 23A (1)]
● The balance held in the account or accounts, referred to in sub-section (1), shall not be utilised for any purpose other than for discharging the liabilities arising on account of the usage of the payment service by the customers or for repaying to the customers or for such other purpose as may be specified by the Reserve Bank from time to time [Sec 23A (2)].
8. How will the disputes be resolved in case of any disputes arising in any matter connected with the operation of the payment system?
● Section 24 sub-sections (1),(2),(3),(4),(5) provides the provision regarding settlement of dispute in case of dispute arising of any matter connected with the operation of the payment system
➔ In case of dispute between system participants :
The system provider shall make the provisions in rules or regulations for creation of panel which shall consists of three or more system participants(shall not include system participants who are the parties to the dispute) [Section 24(1)]
➔ In case of dispute arising between two or more system participants:
The system provider shall refer the matter to the panel [Section 24(2)]
➔ In case of dispute arising between a system participant and a system provider or between system providers or where any of the system participants is not satisfied with the decision of the panel:
The dispute shall be referred to the Reserve Bank for adjudication shall be disposed of by an officer of the Reserve Bank generally or specially authorised in this behalf and the decision of the Reserve Bank shall be final and binding.[Section 24(3) & (4)]
➔ In case of dispute arising between the Reserve Bank, while acting in its capacity as system provider or as system participant, and another system provider or system participant:
The matter shall be referred to the Central Government which may authorise an officer not below the rank of Joint Secretary for settlement of the dispute and the decision of such officer shall be final. [Section 24(5)]
9. Which are the different penalties charged in case of various offences committed under this act?
● Offences committed by individuals:
○ Person operating the payment system without authorisation(Sec 4) or fails to comply the terms and conditions with respect to authorisation issued under section 7, he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years or with fine which may extend to one crore rupees or with both and with a further fine which may extend to one lakh rupees for every day, after the first during which the contravention or failure to comply continues.[Section 26(1)]
○ If any person wilfully makes a statement which is false in any material particular, knowing it to be false or wilfully omits to make a material statement,in any application for authorisation or in any return or other document or on any information required to be furnished by or under, or for the purpose of, any provision of this Act,shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine which shall not be less than ten lakh rupees and which may extend to fifty lakh rupees. [Section 26(2)]
○ If any person fails to produce any statement, information, returns or other documents, or to furnish any statement, information, returns or other documents, which under section 12 or under section 13 or under section 14, he shall be punishable with fine which may extend to ten lakh rupees in respect of each offence and if he persists in such refusal, to a further fine which may extend to twenty-five thousand rupees for every day for which the offence continues.[Section 26(3)]
○ If any person discloses any information, the disclosure of which is prohibited under section 22, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five lakh rupees or an amount equal to twice the amount of the damages incurred by the act of such disclosure, whichever is higher or with both.[Section 26(4)]
○ Where a direction issued under this Act is not complied with within the period stipulated by the Reserve Bank or where no such period is stipulated, within a reasonable time or where the penalty imposed by the Reserve Bank under section 30 is not paid within a period of thirty days from the date of the order, the system provider or the system participant which has failed to comply with the direction or to pay the penalty shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years, or with fine which may extend to one crore rupees or with both and where the failure to comply with the direction continues, with further fine which may extend to one lakh rupees for every day, after the first during which the contravention continues.[Section 26(5)]
○ If any provision of this Act is contravened, or if any default is made in complying with any other requirement of this Act, or of any regulation, order or direction made or given or condition imposed 14 thereunder and in respect of which no penalty has been specified, then, the person guilty of such contravention or default, as the case may be, shall be punishable with fine which may extend to ten lakh rupees and where a contravention or default is a continuing one, with a further fine which may extend to twenty-five thousand rupees for every day, after the first during which the contravention or default continues.[Section 26(6)]
● Offences committed by the Company
○ Section 27 provides the provision for the offences by companies
○ Where a person committing a contravention of any of the provisions of this Act or any regulation, direction or order made thereunder is a company, every person who, at the time of the contravention, was in-charge of, and was responsible to, the company for the conduct of business of the company, as well as the company, shall be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.
○ Exception is that the person is not liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
10. Whether the Court can take cognizance of an offence punishable under this act?
● Section 28- Cognizance of Offences
● No, the Court cannot take cognizance of an offence punishable under this act unless the complaint is made in writing by an officer of Reserve Bank generally or specially authorised to do this.
● no court lower than that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any such offence
● Exception is that the court can take the cognizance of an offence punishable under section 25 if the complaint is made by the aggrieved person by the dishonour of the electronic funds transfer.
