Quiz on Payment and Settlement Systems Act 2007

The Act provides for the regulation and supervision of payment systems in India and designates the Reserve Bank of India as the authority for this purpose.

The Act is known as the Payment and Settlement Systems Act, 2007, and is Act No. 51 of 2007.

The Act came into force on 12 August 2008 through a Central Government notification.

Section 3 designates the Reserve Bank of India as the authority responsible for the regulation and supervision of payment systems under the Act.

Section 3 provides that the RBI exercises its powers, functions and duties under the Act through the Payments Regulatory Board.

Section 4 prohibits a person, other than the RBI, from commencing or operating a payment system without authorisation under the Act, subject to specified exceptions.

Section 5 deals with applications for authorisation. The RBI may examine the application and make inquiries before deciding whether to grant authorisation.

Section 6 empowers the RBI to make inquiries regarding the genuineness of particulars, the applicant‘s capacity to operate the system and the credentials of participants, among other matters.

Section 7 requires the RBI to give the applicant written notice stating the reasons for refusal and a reasonable opportunity of being heard before refusing the application.

Section 9 provides a period of 30 days from the date on which the relevant order is communicated to the applicant or system provider.

Section 10 empowers the RBI to prescribe standards for payment systems, including payment instructions, timings, fund transfers, membership criteria and participants‘ rights and obligations.

Section 10A refers to electronic modes of payment prescribed under Section 269SU of the Income-tax Act, 1961. The provision does not mean that every electronic payment of every kind is automatically covered.

Section 11 generally requires prior RBI approval and at least 30 days‘ notice to system participants after approval. The Act provides exceptions where the RBI permits a different notice arrangement in specified circumstances.

Section 12 empowers the RBI to require system providers to submit returns, documents or other information concerning the operation of their payment systems.

Section 14 empowers an RBI officer authorised in writing to enter premises and inspect equipment, computer systems and documents for ensuring compliance with the Act and regulations.

Section 17 empowers the RBI to issue written directions to address conduct that results, or is likely to result, in inadequately controlled systemic risk or affects payment systems, monetary policy or credit policy.

Section 21 requires system providers to disclose terms and conditions, including charges and limitations of liability, provide relevant rules and documents, and maintain prescribed standards.

Section 22 deals with the duty to keep payment-system documents confidential. Unauthorised disclosure can attract the consequences prescribed under the Act.

Section 23 deals with settlement and netting. Netting involves setting off or adjusting obligations so that the resulting net claim or obligation can be determined.

Section 23A specifically addresses the protection of funds collected from customers. It is an important provision concerning safeguarding customer funds in payment systems.

Section 24 provides for a panel constituted by the system provider to decide disputes between system participants concerning matters connected with the operation of the payment system. Further referral arrangements apply to other disputes and dissatisfied participants.

Section 25 provides for imprisonment for a term that may extend to two years, or a fine that may extend to twice the amount of the electronic funds transfer, or both, subject to the statutory conditions.

Section 25 requires the beneficiary to issue a written demand notice within 30 days of receiving information from the bank regarding dishonour. The person initiating the transfer then has 15 days after receipt of the notice to make payment.

Section 25 requires the person initiating the transfer to pay the beneficiary within 15 days of receiving the written notice. Failure to pay within this period is one of the conditions for applying the provision.

Section 30 provides for a penalty not exceeding ₹10 lakh or twice the amount involved where that amount is quantifiable, whichever is higher. For a continuing contravention or default, an additional penalty of up to ₹25,000 per day after the first day may apply.

For a continuing contravention or default covered by Section 30, the RBI may impose a further penalty of up to ₹25,000 for every day after the first during which the contravention or default continues.

Section 26(2) provides for imprisonment for a term that may extend to three years and a fine of not less than ₹10 lakh and up to ₹50 lakh for the specified wilful false statement or omission.

Section 27 provides for liability of the company and persons in charge of and responsible for the conduct of its business, subject to statutory defences. Directors, managers, secretaries or other officers may also be liable where consent, connivance or neglect is established as specified in the section.

Section 28 generally requires a written complaint by an RBI officer authorised generally or specially in writing. For an offence under Section 25, the Act also permits a written complaint by the person aggrieved by the dishonour of the electronic funds transfer.

Section 31 permits an officer of the RBI duly authorised for this purpose to compound eligible offences on receipt of an application. Offences punishable with imprisonment only, or with imprisonment and fine, are excluded from this compounding provision.

Section 32 deals with the overriding effect of the Act. The provision should be read with its statutory wording and the other applicable laws.

Section 34 states that the Act does not apply to stock exchanges or clearing corporations of stock exchanges.

Section 38 deals with the RBI‘s power to make regulations for carrying out the purposes of the Act, subject to the statutory framework.

Section 2 defines a payment system as a system enabling payment between a payer and a beneficiary involving clearing, payment or settlement services, or all of them. The definition includes systems enabling credit card, debit card, smart card and money transfer operations, but excludes a stock exchange.

Section 2 includes transfers initiated through instructions to a bank to debit or credit an account electronically. Examples expressly covered include point-of-sale transfers, ATM transactions, direct deposits or withdrawals, telephone and internet transfers, and card payments.