The Payments and Settlement Systems Act, 2007 (PSS Act) is a significant piece of Indian legislation which was enacted by Reserve Bank of India (RBI) that handles the oversight and regulation of the nation’s payment and settlement systems. The act was passed by the Indian Parliament along with ‘The Payments and Settlement Systems Regulations, 2008’ and came into force on 12th August, 2008 to establish a legislative foundation for the systematic growth of secure, dependable, efficient, and safe payment systems.
The Reserve Bank of India (Reserve Bank) is designated as the authority for the purpose of governance, pronouncement and other subjects related to the PSS Act, 2007. According to the Act, the Reserve Bank is permitted to set up a Central Board Committee known as the Board for Regulation and Supervision of Payment and Settlement Systems (BPSS), in order to carry out its statutory duties and exercise its authority. A legal foundation for “netting” and “settlement finality” is also provided by the Act. This is crucial as, in India, all other payment systems operate on a net settlement basis aside from the Real Time Gross Settlement (RTGS) system.
Litigation Under Payment and Settlement Systems Act, 2007
With regard to digital payments like RTGS, NEFT, or ECS, the Payment and Settlement Systems Act of 2007 (PSS Act) contains comparable provisions to Section 138.
According to Section 25 of the PSS Act, if an electronic funds transfer initiated by a person from an account maintained by him cannot be completed because the money in that account is insufficient to honor the transfer instruction or because it exceeds the amount set up to be paid from that account by a contract made with a bank, that person may be sentenced to up to 2 years in prison or a fine up to twice the amount.
According to Section 25(3), there must be some basis for believing that the payment may be dishonored in order for a defense to be accepted. Although an officer authorized by the RBI must receive a written complaint before taking cognizance of an offence involving an electronic funds transfer, Section 28 states that a written complaint from the party who was wronged by the dishonored transfer is sufficient.
Only a Metropolitan Magistrate or a judicial magistrate of the first class may adjudicate a case under Section 25.
In regards to any proceeding brought under this section, the Court shall assume that an electronic funds transfer was dishonored upon the production of a communication from the bank, unless and until such fact is disproved.
Sections 138 to 148 of Chapter XVII of the Negotiable Instrument Act, 1881 which deals with dishonor of electronic payments transfers, also apply here. Therefore, the same interim compensation, trial process, and appellate procedure that apply to cheque dishonor cases also apply to situations involving electronic financial transfers.
Conditions For The Application Of The Provision
- The electronic funds transfer must be undertaken for the payment of money to settle a debt or other obligation;
- It must be started in accordance with the pertinent procedural instructions provided by the system supplier;
- Within 30 days of becoming aware of the dishonor, the beneficiary must demand payment by sending a written notice to the party who initiated the transfer;
- The payer must miss the deadline for the payment by 15 days after receiving the notice.
In order to use the PSS Act’s provision, a notice of non-execution of payment instructions must be submitted to the payer within 30 days and the payer must be given a chance to pay within 15 days of the notification’s receipt. If payment isn’t made, a criminal court proceeding can be started in a matter of 30 days.
Section 25 acts as an exemplary system to govern such dishonored electronic payments:
Legislators provided Section 25 of the Payment and Settlement Act with the authority to preserve and protect genuine drawers who (due to neglect or any other reason) failed to uphold the requirements of the electronic fund transfer. The proviso to the Section says that a scheduled electronic fund transfer which has been cancelled due to inadequate money, surpassing the credit limit, or by providing the banker with such instructions. This provision imposes a stringent requirement on the individual initiating the payment, warning them that failure to comply will result in an offence and a fine.
This affords protection to the beneficiary and ensures prudence for the person making the payment. Instilling dread by the illegality of this behavior enables the payer to fulfill his duty. Protecting the interests of the beneficiary in making sure the payer is upholding their responsibilities becomes urgently critical as we move away from conventional banking channels and toward more technologically advanced solutions. In terms of electronic financial transfers, India has achieved great progress.
The RBI encourages electronic fund transfers and continually updates the rules that govern these operations. The chief manager of the RBI issued a clarification regarding the dishonor of electronic funds transfers, stating that Section 25 of the Payment and Settlement Act provides the same rights and remedies as Section 138 of the NI Act and that the act of dishonoring a check is a criminal offence.
These actions show that the government is willing to encourage and popularize electronic financial transfers by providing recipients with such rights and remedies.
The RBI also released Payments and Settlements Systems in India: Vision 2019–2021, with the main goal of “Empowering Exceptional (E)payments Experiences” in order to give Indian citizens access to a variety of secure, quick, convenient, and affordable electronic payment options. The RBI guarantees that as more innovators and players enter the market, the payment system landscape will evolve further. This is projected to result in lower costs for customers and greater freedom to choose from a variety of payment solutions.
The Reserve Bank of India and the Board of Regulation and Supervision of Payment and Settlement Systems are responsible for enforcing the Act. The RBI is aiming to promote efficient alternative approaches that will increase the security and effectiveness of the payment system and simplify the overall operational process for banks. The main thrust of Section 25 of the Payment and Settlement Act 2007 is that the payer is subject to punishment if an electronic transfer of funds cannot be carried out because there are insufficient funds or if the amount to be completed exceeds the payer’s credit limit and to avoid the dishonor of electronic payment instructions.
This article is written and submitted by Arpita Gupta during her course of internship at B&B Associates LLP. Arpita is a BBA LLB 4th year student at Chandigarh University.