SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.

Page 1 Thursday, January 18, 2024

Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

The
Payment and Settlement Systems Act,
20071
(Payment and Settlement Systems Act, 2007)

[Act 51 of 2007 as amended up to Act 18 of 2023 and updated as of 31st

August 2023]
[20th December, 2007]

CONTENTS

CHAPTER I

PRELIMINARY

1. Short title, extent and commencement

2. Definitions

CHAPTER II

DESIGNATED AUTHORITY

3. Designated authority

CHAPTER III

AUTHORISATION OF PAYMENT SYSTEMS

4. Payment system not to operate without authorisation

5. Application for authorisation

6. Inquiry by the Reserve Bank

7. Issue or refusal of authorisation

8. Revocation of authorisation

9. Appeal to the Central Government

CHAPTER IV

REGULATION AND SUPERVISION BY THE RESERVE BANK

10. Power to determine standards

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 2 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

11. Notice of change in the payment system

12. Power to call for returns, documents or other information

13. Access to information

14. Power to enter and inspect

15. Information etc., to be confidential

16. Power to carry out audit and inspection

17. Power to issue directions

18. Power of Reserve Bank to give directions generally

19. Directions of Reserve Bank to be complied with

CHAPTER V

RIGHTS AND DUTIES OF A SYSTEM PROVIDER

20. System provider to act in accordance with the Act,

regulations, etc

21. Duties of a system provider

22. Duty to keep documents in the payment system confidential

23. Settlement and netting

23-A. Protection of funds collected from customers

CHAPTER VI

SETTLEMENT OF DISPUTES

24. Settlement of disputes

25. Dishonour of electronic funds transfer for insufficiency, etc., of

funds in the account

CHAPTER VII

OFFENCES AND PENALTIES

26. Penalties

27. Offences by companies

28. Cognizance of offences

SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 3 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

29. Application of fine

30. Power of Reserve Bank to impose penalties

31. Power to compound offences

CHAPTER VIII

MISCELLANEOUS

32. Act to have overriding effect

33. Mode of recovery of penalty

34. Act not to apply to stock exchanges or clearing corporations of

stock exchanges

34-A. Act to apply to designated trade repository and issuer

34-B. Powers of Reserve Bank not to apply to International

Financial Services Centre

35. Certain persons deemed to be public servants

36. Protection of action taken in good faith

37. Power to remove difficulties

38. Power of Reserve Bank to make regulations

———

Payment and Settlement Systems Act,

2007
[Act 51 of 2007 as amended up to Act 18 of 2023] [20th
December,
2007]
An Act 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 for matters connected therewith or
incidental thereto
Be it enacted by Parliament in the Fifty-eighth Year of the Republic
of India as follows:—
Statement of Objects and Reasons.—The payment and settlement
systems serve as a backbone of financial system of a country. In India,
a host of payment systems are in operation ranging from manual paper
-based clearing to the Real Time Gross Settlement (RTGS) System for
facilitating non-cash mode of payments. The various retail payment
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 4 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

systems in operation include the manual paper based clearing, MICR

Clearing, Electronic Funds Transfer Systems (including the Electronic
Clearing Services), Card Based Payment Systems, Government
Securities Clearing, Forex Clearing, etc. The paper-based cheque
processing is operated and managed by the Reserve Bank of India at
the four metro centres, whereas at twelve other centres it is operated
by public sector banks and managed by Reserve Bank of India, while at
the remaining centres it is operated as well as managed by certain
public sector banks. Clearing houses are not legal entities but voluntary
bodies of banks who have come together for the expressed purpose of
clearing payment instruments and instructions. The rues and
regulations for the functioning of clearing houses are contractual in
nature. Among the large-value payment systems, the Real Time Gross
Settlement System is operated by the Reserve Bank of India while the
inter-bank Government Securities and Foreign Exchange Clearing
Systems are at present operated by Clearing Corporation of India Ltd.
(CCIL). A new National Payments Corporation of India would be taking
over the operations of retail payment systems. Both these corporate
entities will be outside the specific regulatory purview. The operations
of Card Based systems is not under the regulatory purview of the
Reserve Bank of India, however, the Bank is indirectly regulating it
through the card issuing banks.
2. The Central Board of Directors of the Reserve Bank of India under
Section 58(2)(p) of the Reserve Bank of India Act, 1934 is empowered
to make regulations of clearing houses for banks and under 58(2)(pp)
of the said Act, to make regulations of fund transfer through electronic
means. These regulations are adopted by the members of the clearing
houses by way of contractual agreement.
3. The procedure of netting (arriving at the multilateral net
settlement) is not legally recognised but has been adopted as a
working procedure adopted by the members of the clearing houses.
4. In view of the above, it is considered necessary to enact a specific
legislation which will, inter alia, empower the Reserve Bank of India to
act as the designated authority with the following powers and
functions, namely:—
(a) to regulate and oversee the various payment and settlement
systems in the country including those operated by non-banks
like CCIL, card companies, other payment system providers and
the proposed umbrella organisation for retail payment;
(b) lay down the procedure for authorisation of payment systems as
well as revocation of authorisation;
(c) to lay down operational and technical standards for various
payment systems;
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 5 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

(d) to call for information and furnish returns and documents from
the service providers;
(e) to issue directions and guidelines to system providers;
(f) to audit and inspect the systems and premises of the system
providers;
(g) to lay down the duties of the system providers;
(h) to levy fines and impose penalties for not providing information
or documents or wrongfully disclosing information, etc.; and
(i) to make regulations for carrying out the provisions of the
proposed legislation.
5. The Bill, inter alia, seeks to provide for the following matters,
namely:—
(a) to designate the Reserve Bank of India as the designated
authority for the regulation and supervision of payment systems
in India for their smooth operations;
(b) to give legal recognition to the netting procedure and settlement
finality; and
(c) to empower the Securities Appellate Tribunals to settle disputes
between the Reserve Bank of India and the system providers.
6. The Bill seeks to achieve the above objects.
Chapter I
PRELIMINARY
1. Short title, extent and commencement.—(1) This Act may be
called the Payment and Settlement Systems Act, 2007.
(2) It extends to the whole of India.
(3) It shall come into force on such date as the Central Government
may, by notification in the Official Gazette, appoint and different dates
may be appointed for different provisions of this Act, and any reference
to the commencement in any such provision of this Act shall be
construed as a reference to the commencement of that provision.
Date of Enforcement.—The Act was brought into force, w.e.f.
August 12, 2008 [Vide Noti. No. S.O. 2032(E), dated August 12, 2008].
2. Definitions.—(1) In this Act, unless the context otherwise
requires,—
(a) “bank” means,—
(i) a bank included in the Second Schedule to the Reserve
Bank of India Act, 1934 (2 of 1934);
(ii) a post office savings bank;
(iii) a banking company as defined in clause (c) of Section 5 of
the Banking Regulation Act, 1949 (10 of 1949);
(iv) a co-operative bank as defined in clause (cci) of Section 5,
as inserted by Section 56, of the Banking Regulation Act,
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 6 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

1949 (10 of 1949); and

(v) such other bank as the Reserve Bank may, by notification,
specify for the purposes of this Act;
(b) “derivative” means an instrument, to be settled at a future
date, whose value is derived from change in interest rate,
foreign exchange rate, credit rating or credit index, price of
securities (also called “underlying”), or any other underlying or
a combination of more than one of them and includes interest
rate swaps, forward rate agreements, foreign currency swaps,
foreign currency rupee swaps, foreign currency options, foreign
currency rupee options or any other instrument, as may be
specified by the Reserve Bank from time to time;
(c) “electronic funds transfer” means any transfer of funds which
is initiated by a person by way of instruction, authorisation or
order to a bank to debit or credit an account maintained with
that bank through electronic means and includes point of sale
transfers, automated teller machine transactions, direct
deposits or withdrawal of funds, transfers initiated by
telephone, internet and card payment;
(d) “gross settlement system” means a payment system in which
each settlement of funds or securities occurs on the basis of
separate or individual instructions;
2
[(da) “issuer” means a person who issues a legal entity identifier
or such other unique identification (by whatever name called),
as may be specified by the Reserve Bank from time to time;
(db) “legal entity identifier” means a unique identity code
assigned to a person by an issuer for the purpose of identifying
that person in such derivatives or financial transactions, as may
be specified by the Reserve Bank from time to time;]
(e) “netting” means the determination by the system provider of
the amount of money or securities, due or payable or
deliverable, as a result of setting off or adjusting, the payment
obligations or delivery obligations among the system
participants, including the claims and obligations arising out of
the termination by the system provider, on the insolvency or
dissolution or winding up of any system participant or such
other circumstances as the system provider may specify in its
rules or regulations or bye-laws (by whatever name called), of
the transactions admitted for settlement at a future date so
that only a net claim be demanded or a net obligation be
owned;
(f) “notification” means a notification published in the Official
Gazette;
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 7 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

(g) “payment instruction” means any instrument, authorisation or

order in any form, including electronic means, to effect a
payment,—
(i) by a person to a system participant; or
(ii) by a system participant to another system participant;
(h) “payment obligation” means an indebtedness that is owned by
one system participant to another system participant as a
result of clearing or settlement of one or more payment
instructions relating to funds, securities or foreign exchange or
derivatives or other transactions;
(i) “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;
Explanation.—For the purposes of this clause, “payment
system” includes the systems enabling credit card operations,
debit card operations, smart card operations, money transfer
operations or similar operations;
(j) “prescribed” means prescribed by regulations made under this
Act;
(k) “regulation” means a regulation made under this Act;
(l) “Reserve Bank” means the Reserve Bank of India, constituted
under the Reserve Bank of India Act, 1934 (2 of 1934);
(m) “securities” means the Government securities as defined in
the Public Debt Act, 1944 (18 of 1944) or such other securities
as may be notified by the Central Government from time to
time under that Act;
(n) “settlement” means settlement of payment instructions and
includes the settlement of securities, foreign exchange or
derivatives or other transactions which involve payment
obligations;
(o) “systemic risk” means the risk arising from—
(i) the inability of a system participant to meet his payment
obligations under the payment system as and when they
become due; or
(ii) any disruption in the system,
which may cause other participants to fail to meet their
obligations when due and is likely to have an impact on the
stability of the system:
Provided that if any doubt or difference arises as to whether
a particular risk is likely to have an impact on the stability of
the system, the decision of the Reserve Bank shall be final;
(p) “system participant” means a bank or any other person
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 8 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

participating in a payment system and includes the system

provider;
(q) “system provider” means a person who operates an authorised
payment system.
3
[(r) “trade repository” means a person who is engaged in the
business of collecting, collating, storing, maintaining,
processing or disseminating electronic records or data relating
to such derivatives or financial transactions, as may be
specified by the Reserve Bank from time to time.]
(2) Words and expressions used, but not defined in this Act and
defined in the Reserve Bank of India Act, 1934 (2 of 1934) or the
Banking Regulation Act, 1949 (10 of 1949), shall have the meanings
respectively assigned to them in those Acts.
4
[Chapter II
DESIGNATED AUTHORITY
3. Designated authority.—(1) The Reserve Bank shall be the
designated authority for the regulation and supervision of payment
systems under this Act.
(2) The Reserve Bank shall exercise the powers, perform the
functions and discharge the duties conferred on it under this Act
through a Board to be known as the “Payments Regulatory Board”.
(3) The Board shall consist of the following members, namely:—
(a) the Governor of the Reserve Bank—Chairperson, ex officio;
(b) the Deputy Governor of the Reserve Bank in-charge of the
Payment and Settlement Systems—Member, ex officio;
(c) one officer of the Reserve Bank to be nominated by the Central
Board of the Reserve Bank—Member, ex officio; and
(d) three persons to be nominated by the Central Government—
Members.
(4) The powers and functions of the Board referred to in sub-section
(2), the time and venue of its meetings, the procedures to be followed
in such meetings (including the quorum at such meetings) and other
matters incidental thereto shall be such as may be prescribed.]
Chapter III
AUTHORISATION OF PAYMENT SYSTEMS
4. Payment system not to operate without authorisation.—(1) No
person, other than the Reserve Bank, shall commence or operate a
payment system except under and in accordance with an authorisation
issued by the Reserve Bank under the provisions of this Act:
Provided that nothing contained in this section shall apply to—
(a) the continued operation of an existing payment system on
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 9 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

commencement of this Act for a period not exceeding six

months from such commencement, unless within such period,
the operator of such payment system obtains an authorisation
under this Act or the application for authorisation made under
Section 7 of this Act is refused by the Reserve Bank:
(b) any person acting as the duly appointed agent of another
person to whom the payment is due;
(c) a company accepting payments either from its holding
company or any of its subsidiary companies or from any other
company which is also a subsidiary of the same holding
company;
(d) any other person whom the Reserve Bank may, after
considering the interests of monetary policy or efficient
operation of payment systems, the size of any payment system
or for any other reason, by notification, exempt from the
provisions of this section.
NOTIFICATIONS
(1)
RBI, Noti. No. DPSS/194/02-11-01/2007-2008, dated August 12, 2008,
published in the Gazette of India, Extra., Part III, Section 4, dated 12th
September, 2008, pp. 30-31, No. 131
The Reserve Bank, considering the operational aspects, systemic
implications and efficient operation of the payment systems, on being
satisfied that it is necessary so to do, in exercise of its powers conferred
under clause (d) of sub-section (1) of Section 4 of the Payment and
Settlement Systems Act, 2007 (51 of 2007) and of all the powers
enabling it in this behalf, hereby directs that the provisions of sub-
section (1) of Section 4 of the Payment and Settlement Systems Act,
2007 (51 of 2007) shall not apply to:
(a) a “bank”, as defined in clause (a) of sub-section (1) of Section 2
of the Payment and Settlement Systems Act, 2007 (51 of 2007),
in respect of intra-bank transactions;
(b) a “clearing house” run by State Bank of India, subsidiary bank
and a corresponding new bank as defined in Section 5 of the
Banking Regulation Act, 1949 (10 of 1949); and
(c) the Department of Posts, Government of India, in respect of their
payment systems.
2. Notwithstanding the aforesaid exemption, the payment systems
operated by the persons as mentioned in clauses (a) to (c) above, shall
be deemed to be authorised payment systems for the purposes of the
Payment and Settlement Systems Act, 2007 (51 of 2007) and all other
provisions of that Act shall apply accordingly.
(2)
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 10 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

RBI, Noti. No. DPSS. AD. No. 1146/02.27.004/2010-11, dated

November 23, 2010, published in the Gazette of India, Extra., Part III,
Section 4, dated 15th December, 2010, No. 321
The Reserve Bank of India, recognizing the need for facilitating inter-
bank cheque drawing arrangements and to provide for enhanced
services to customers of banks, in exercise of its powers conferred
under clause (d) of sub-section (1) of Section 4 of the Payment and
Settlement Systems Act, 2007 (51 of 2007) and of all the powers
enabling it in this behalf, hereby directs that the provisions of sub-
section (1) of Section 4 of the Payment and Settlement Systems Act,
2007 (51 of 2007) shall not apply to the banks entering into bilateral
inter-bank cheque drawing arrangements in India or arrangements for
instruments of similar nature, irrespective of the nomenclature
employed for describing the instrument, subject to the condition that
one of the banks involved is a scheduled commercial bank.
2. Notwithstanding the aforesaid exemption, the payment system
operated by the banks as mentioned above, shall be deemed to be
authorized payment systems for the purposes of the Payment and
Settlement Systems Act, 2007 (51 of 2007) and all other provisions of
that Act shall apply accordingly.
(3)
RBI, Noti. No. DPSS. AD. No. 1145/02.27.004/2010-11, dated
November 23, 2010, published in the Gazette of India, Extra., Part III,
Section 4, dated 7th January, 2011, p. 1, No. 2
In exercise of the powers conferred upon the Reserve Bank of India
under Section 4(1)(d) of the Payment and Settlement Systems Act,
2007 (51 of 2007), hereinafter referred to as the PSS Act, the Reserve
Bank of India hereby notifies that non-resident Exchange Houses
having Rupee Drawing Arrangements with AD Category-I banks in
India for cross-border inward remittances into India which have been
duly approved by the Reserve Bank of India under the Foreign
Exchange Management Act, 1999, hereinafter referred to as FEMA, are
exempted from the requirement of obtaining Authorisation under the
PSS Act. Such Exchange Houses, however, shall be deemed to be
authorised to operate cross-border inward remittance services under
the PSS Act and shall comply with the provisions of the PSS Act and
FEMA and Regulations issued thereunder by the Reserve Bank of India
from time to time.
(2) The Reserve Bank may, under sub-section (1) of this section,
authorise 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
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 11 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

of such company or corporation shall be held by public sector banks.

Explanation—For the purposes of this clause, “public sector banks”
shall include a “corresponding new bank”, “State Bank of India” and
“subsidiary bank” as defined in Section 5 of the Banking Regulation
Act, 1949 (10 of 1949).
5. Application for authorisation.—(1) Any person desirous of
commencing or carrying on a payment system may apply to the
Reserve Bank for an authorisation under this Act.
(2) An application under sub-section (1) shall be made in such form
and in such manner and shall be accompanied by such fees as may be
prescribed.
6. Inquiry by the Reserve Bank.—(1) 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 application, 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.
7. Issue or refusal of authorisation.—(1) The Reserve Bank may, if
satisfied, after any inquiry under Section 6 or otherwise, that the
application is complete in all respects and that it conforms to the
provisions of this Act and the regulations issue an authorisation for
operating the payment system under this Act having regard to the
following considerations, namely:—
(i) the need for the proposed payment system or the services
proposed to be undertaken by it;
(ii) the technical standards or the design of the proposed payment
system;
(iii) the terms and conditions of operation of the proposed
payment system including any security procedure;
(iv) the manner in which transfer of funds may be effected within
the payment system;
(v) the procedure for netting of payment instructions effecting the
payment obligations under the payment system;
(vi) the financial status, experience of management and integrity
of the application;
(vii) interests of consumers, including the terms and conditions
governing their relationship with payment system providers;
(viii) monetary and credit policies; and
(ix) such other factors as may be considered relevant by the
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 12 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

Reserve Bank.
(2) An authorisation issued under sub-section (1) shall be in such
form as may be prescribed and shall—
(a) state the date on which it takes effect;
(b) state the conditions subject to which the authorisation shall
be in force;
(c) indicate the payment of fees, if any, to be paid for the
authorisation to be in force;
(d) if it considers necessary, require the applicant to furnish such
security for the proper conduct of the payment system under
the provisions of this Act;
(e) continue to be in force till the authorisation is revoked.
(3) Where the Reserve Bank considers that the application for
authorisation should be refused, it shall give the applicant a written
notice to that effect stating the reasons for the refusal;
Provided that no such application shall be refused unless the
applicant is given a reasonable opportunity of being heard.
(4) Every application for authorisation shall be processed by the
Reserve Bank as soon as possible and an endeavour shall be made to
dispose of such application within six months from the date of filing of
such application.
► Meal vouchers.—Alternative payment/settlement system cannot be
construed as “goods”, for purpose of levy of octroi or local body tax (LBT) — As
per Section 2(31-A) of Maharashtra Municipal Corporation Act, 1949, LBT meant
a tax on entry of goods into limits of city, for consumption, use or sale therein.
Appellant Company was conducting business of providing pre-printed meal
vouchers to its customers i.e. establishments/companies having a number of
employees on their rolls and had arrangements with various restaurants,
departmental stores, shops, etc. (affiliated) for utilisation of vouchers. Appellant
resisted imposition of LBT on ground that establishments with whom it had entered
into contracts was for providing services and not for sale of any goods. The
Supreme Court held that appellant was only a facilitator and a medium between
affiliates and customers and was providing services. Further, vouchers were
printed for a particular customer and used by the said customer for distribution to
its employees and the vouchers were not transferable at all. Further, in view of
Section 17 of Income Tax Act, value of such free food and non-alcoholic beverage
provided by an employer to an employee was treated as expenditure incurred by
employer and amenity in hands of employee. In this case, held, Sodexo Meal
Vouchers were not “goods” within the meaning of Section 2(25) of 1949 Act and,
therefore, not liable for either octroi or LBT, Sodexo SVC India (P) Ltd. v. State of
Maharashtra, (2015) 16 SCC 479.
8. Revocation of authorisation.—(1) If a system provider,—
(i) contravenes any provisions of this Act, or
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 13 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

(ii) does not comply with the regulations, or

(iii) fails to comply with the orders or directions issued by the
designated authority, or
(iv) operates the payment system contrary to the conditions
subject to which the authorisation was issued,
the Reserve Bank may, by order, revoke the authorisation given to such
system provider under this Act:
Provided that no order of revocation under sub-section (1) shall be
made—
(i) except after giving the system provider a reasonable
opportunity of being heard; and
(ii) without prejudice to the direction of the Reserve Bank to the
system provider that the operation of the payment system shall
not be carried out till the order of revocation is issued.
(2) Nothing contained in sub-section (1) shall apply to a case where
the Reserve Bank considers it necessary to revoke the authorisation
given to a payment system in the interest of the monetary policy of the
country or for any other reasons to be specified by it in the order.
(3) The order of revocation issued under sub-section (1) shall
include necessary provisions to protect and safeguard the interests of
persons affected by such order of revocation.
(4) Where a system provider becomes insolvent or dissolved or
wound up, such system provider shall inform that fact to the Reserve
Bank and thereupon the Reserve Bank shall take such steps as deemed
necessary to revoke the authorisation issued to such system provider to
operate the payment system.
9. Appeal to the Central Government.—(1) Any applicant for an
authorisation whose application for the operation of the payment
system is refused under sub-section (3) of Section 7 or a system
provider who is aggrieved by an order of revocation under Section 8
may, within thirty days from the date on which the order is
communicated to him, appeal to the Central Government.
(2) The Central Government shall endeavour to dispose of an appeal
under sub-section (1) within a period of three months.
(3) The decision of the Central Government on the appeal under sub-
section (1) shall be final.
► Validity of regulation.—Mere absence of power to grant interim relief does
not make appeal provision invalid, A.J.K. Feranandez v. RBI, (2010) 6 CTC 745
(Mad).
Chapter IV
REGULATION AND SUPERVISION BY THE RESERVE BANK
10. Power to determine standards.—(1) The Reserve Bank may, from
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 14 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

time to time, prescribe—

(a) the format of payment instructions and the size and shape of
such instructions;
(b) the timings to be maintained by payment systems;
(c) the manner of transfer of funds within the payment system,
either through paper, electronic means or in any other manner,
between banks or between banks and other system
participants;
(d) such other standards to be complied with the payment
systems generally;
(e) the criteria for membership of payment systems including
continuation, termination and rejection of membership;
(f) the conditions subject to which the system participants shall
participate in such fund transfers and the rights and obligations
of the system participants in such funds.
(2) Without prejudice to the provisions of sub-section (1), the
Reserve Bank may, from time to time, issue such guidelines, as it may
consider necessary for the proper and efficient management of the
payment systems generally or with reference to any particular payment
system.
5
[10-A. Bank, etc., not to impose charge for using electronic
modes of payment.—Notwithstanding anything contained in this Act,
no bank or system provider shall impose, whether directly or indirectly,
any charge upon a person making or receiving a payment by using the
electronic modes of payment prescribed under Section 269-SU of the
Income Tax Act, 1961 (43 of 1961).]
11. Notice of change in the payment system.—(1) 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:
Provided that in the interest of monetary policy of the country or in
public interest, the Reserve Bank may permit the system provider to
make any changes in a payment system without giving notice to the
system participants under clause (b) or requiring the system provider
to giving notice for a period longer than thirty days.
(2) 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.
(3) The system provider shall, within a period of two weeks of the
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 15 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

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.
12. Power to call for returns, documents or other information.—The
Reserve Bank may call for from any system provider such returns or
documents as it may require or other information in regard to the
operation of his payment system at such intervals, in such form and in
such manner, as the Reserve Bank may require from time to time or as
may be prescribed and such order shall be complied with.
13. Access to information.—The Reserve Bank shall have right to
access any information relating to the operation of any payment system
and system provider and all the system participants shall provide
access to such information to the Reserve Bank.
14. Power to enter and inspect.—Any officer of the Reserve Bank
duly authorised by it in writing in this behalf, may for ensuing
compliance with the provisions of this Act or any regulations, enter any
premises where a payment system is being operated and may inspect
any equipment, including any computer system or other documents
situated at such premises and call upon any employee of such system
provider or participant thereof or any other person working in such
premises to furnish such information or documents as may be required
by such officer.
15. Information etc., to be confidential.—(1) Subject to the
provisions of sub-section (2), any document or information obtained by
the Reserve Bank under Sections 12 to 14 (both inclusive) shall be kept
confidential.
(2) Notwithstanding anything contained in sub-section (1), the
Reserve Bank may disclose any document or information obtained by it
under Section 12 to 14 (both inclusive) to any person to whom the
disclosure of such document or information is considered necessary for
protecting the integrity, effectiveness or security of the payment
system, or in the interest of banking or monetary policy or the
operation of the payment systems generally or in the public interest.
16. Power to carry out audit and inspection.—The Reserve Bank may,
for the purpose of carrying out its functions under this Act, conduct or
get conducted audits and inspections of a payment system or
participants thereof and it shall be the duty of the system provider and
the system participants to assist the Reserve Bank to carry out such
audit or inspection, as the case may be.
17. Power to issue directions.—Where the Reserve Bank is of the
opinion that,—
(a) a payment system or a system participant is engaging in, or is
about to engage in, any act, omission or course of conduct that
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 16 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

results, or is likely to result, in systemic risk being

inadequately controlled; or
(b) any action under clause (a) is likely to affect the payment
system, the monetary policy or the credit policy of the country.
the Reserve Bank may issue directions in writing to such payment
system or system participant requiring it, within such time as the
Reserve Bank may specify—
(i) to cease and desist from engaging in the act, omission or
course of conduct or to ensure the system participants to cease
and desist from the act, omission or course of conduct; or
(ii) to perform such acts as may be necessary, in the opinion of
the Reserve Bank, to remedy the situation.
18. Power of Reserve Bank to give directions generally.—Without
prejudice to the provisions of the foregoing, the Reserve Bank may, if it
is satisfied that for the purpose of enabling it to regulate the payment
systems or in the interest of management or operation of any of the
payment systems or in public interest, it is necessary so to do, lay
down policies relating to the regulation of payment systems including
electronic, non-electronic, domestic and international payment systems
affecting domestic transactions and give such directions in writing as it
may consider necessary to system providers or the system participants
or any other person either generally or to any such agency and in
particular, pertaining to the conduct of business relating to payment
systems.
NOTIFICATION
Reserve Bank of India, Noti. No. DPSS.CO.AD. No.
1946/02.27.004/2012-13, dated April 26, 2013 published in the
Gazette of India, Extra., Part III, Section 4, dated May 15, 2013
Authorisation Applications from Overseas Principals for cross
border in-bound money transfer services to India
In exercise of the powers conferred under Section 18 of the Payment
and Settlement Systems Act, 2007, it is notified that henceforth the
Reserve Bank shall accept applications seeking Authorisation for setting
up Payment Systems for cross border in-bound money transfer services
to India under Money Transfer Service Scheme (MTSS) from Overseas
Principals registered in Financial Action Task Force (FATF) jurisdictions
only. Applications received after the date of this notification from
overseas entities registered in non-FATF jurisdictions shall not be
considered for Authorisation and no correspondence on the subject will
be entertained by the Reserve Bank of India.
►RBI directions affecting cryptocurrency/virtual currency exchanges
(VCEs).—Section 18 empowers RBI (i) to lay down policies relating to the
regulation of payment systems including electronic, non-electronic, domestic and
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 17 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

international payment systems affecting domestic transactions and (ii) to give

such directions as it may consider necessary. Further, persons qua whom the
powers under Section 18 can be exercised are (i) system providers (ii) system
participants and (iii) any other person generally or any such agency. In the overall
scheme of the Payment and Settlement Systems Act, RBI has the power to frame
policies and issue directions to banks who are system participants, with respect to
transactions that will fall under the category of payment obligation or payment
instruction, if not a payment system. However, the same must comply with
doctrine of proportionality, Internet & Mobile Assn. of India v. Reserve Bank of
India, (2020) 10 SCC 274.
19. Directions of Reserve Bank to be complied with.—Every person to
whom a direction has been issued by the Reserve Bank under this Act
shall comply with such direction without any delay and a report of
compliance shall be furnished to a Reserve Bank within the time
allowed by it.
Chapter V
RIGHTS AND DUTIES OF A SYSTEM PROVIDER
20. System provider to act in accordance with the Act, regulations,
etc.—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.
21. Duties of a system provider.—(1) 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.
(2) It shall be the duty of every system provider to maintain the
standards determined under this Act.
22. Duty to keep documents in the payment system confidential.—
(1) A system provider shall not disclose to any other person the
existence or contents of any document or part thereof or other
information given to him by a system participant, except where such
disclosure is required under the provisions of this Act or the disclosure
is made with the express or implied consent of the system participant
concerned or where such disclosure is in obedience to the orders passed
by a court of competent jurisdiction or a statutory authority in exercise
of the powers conferred by a statute.
(2) The provisions of the Bankers' Book Evidence Act, 1891 (18 of
1991) shall apply in relation to the information or documents or other
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 18 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

books in whatever form maintained by the system provider.

23. Settlement and netting.—(1) The payment obligations and
settlement instructions among the system participants shall be
determined in accordance with the gross or netting procedure, as the
case may be, approved by the Reserve Bank while issuing authorisation
to a payment system 6[under Section 7, or, such gross or netting
procedure as may be approved by it under any other provisions of this
Act].
(2) Where the rules providing for the operation of a payment system
indicates a procedure for the distribution of losses between the system
participants and the payment system, such procedure shall have effect
notwithstanding anything to the contrary contained in any other law for
the time being in force.
(3) A settlement effected under such procedure shall be final and
irrevocable.
7
[(4) Where, by an order of a court, Tribunal or authority—
(a) a system participant is declared as insolvent or is dissolved or
wound up; or
(b) a liquidator or receiver or assignee (by whatever name called),
whether provisional or otherwise, is appointed in a proceeding
relating to insolvency or dissolution or winding up of a system
participant,
then, notwithstanding anything contained in the Banking Regulation
Act, 1949 (10 of 1949) or the Companies Act, 1956 (1 of 1956) or the
Companies Act, 2013 (18 of 2013) 8[or the Insolvency and Bankruptcy
Code, 2016 (31 of 2016)] or any other law for the time being in force,
such order shall not affect any settlement that has become final and
irrevocable prior to such order or immediately thereafter, and the right
of the system provider to appropriate any collaterals contributed by the
system participants towards its settlement or other obligations in
accordance with the rules, regulations or bye-laws relating to such
system provider.]
9
[(5) Where an order referred to in sub-section (4) is made with
respect to a central counter party, then, notwithstanding such order or
anything contained in the Banking Regulation Act, 1949 (10 of 1949) or
the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18
10
of 2013) [or the Insolvency and Bankruptcy Code, 2016 (31 of 2016)]
or any other law for the time being in force, the payment obligations
and settlement instructions between the central counter party and the
system participants including those arising from transactions admitted
for settlement at a future date, shall be determined forthwith by such
central counter party in accordance with the gross or netting procedure,
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 19 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

as the case may be, approved by the Reserve Bank, while issuing
authorisation or under any other provisions of this Act, and such
determination shall be final and irrevocable.
(6) Notwithstanding anything contained in the Banking Regulation
Act, 1949 (10 of 1949) or the Companies Act, 1956 (1 of 1956) or the
Companies Act, 2013 (18 of 2013) 11[or the Insolvency and Bankruptcy
Code, 2016 (31 of 2016)] or any other law for the time being in force,
the liquidator or receiver or assignee (by whatever name called) of the
central counter party, whether appointed as provisional or otherwise,
shall—
(a) not re-open any determination that has become final and
irrevocable;
(b) after appropriating in accordance with the rules, regulations or
bye-laws of the central counter party, the collaterals provided
by the system participants towards their settlement or other
obligations, return the collaterals held in excess to the system
participants concerned.]
Explanation12[1].—For the removal of doubts, it is hereby declared
that the settlement, whether gross or net, referred to in this section is
final and irrevocable as soon as the money, securities, foreign exchange
or derivatives or other transactions payable as a result of such
settlement is determined, whether or not such money, securities or
foreign exchange or derivatives or other transactions is actually paid.
13
[Explanation 2.—For the purposes of this section, the expression
“central counter party” means a system provider who by way of
novation interposes between system participants in the transactions
admitted for settlement, thereby becoming the buyer to every seller
and the seller to every buyer, for the purpose of effecting settlement of
their transactions.]
14
[23-A. Protection of funds collected from customers.—(1) The
Reserve Bank may, in public interest or in the interest of the customers
of designated payment systems or to prevent the affairs of such
designated payment system from being conducted in a manner
prejudicial to the interests of its customers, require system provider of
such payment system to—
(a) 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,
of an amount equal to such percentage of the amounts collected by the
system provider of designated payment system from its customers and
remaining outstanding, as may be specified by the Reserve Bank from
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 20 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

time to time:
Provided that the Reserve Bank may specify different percentages
and the manner and forms for different categories of designated
payment systems.
(2) 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.
(3) Notwithstanding anything contained in the Banking Regulation
Act, 1949 (10 of 1949) or the Companies Act, 1956 (1 of 1956) or the
Companies Act, 2013 (18 of 2013) 15[or the Insolvency and Bankruptcy
Code, 2016 (31 of 2016)] or any other law for the time being in force,
the persons entitled to receive payment under sub-section (2) shall
have a first and paramount charge on the balance held in that account
and the liquidator or receiver or assignee (by whatever name called) of
the system provider of the designated payment system or the
scheduled commercial bank concerned, whether appointed as
provisional or otherwise, shall not utilise the said balances for any other
purposes until all such persons are paid in full or adequate provision is
made therefor.
Explanation.—For the purposes of this section, the expressions—
(a) “designated payment system” shall mean a payment system
or a class of payment system, as may be specified by the
Reserve Bank from time to time, engaged in collection of funds
from their customers for rendering payment service;
(b) “scheduled commercial bank” shall mean a “banking
company”, “corresponding new bank”, “State Bank of India”
and “subsidiary bank” as defined in Section 5 of the Banking
Regulation Act, 1949 (10 of 1949) and included in the Second
Schedule to the Reserve Bank of India Act, 1934 (1 of 1934).]
Chapter VI
SETTLEMENT OF DISPUTES
24. Settlement of disputes.—(1) The system provider shall make
provision in its rules or regulations for creation of panel consisting of
not less than three system participants other than the system
participants who are parties to the dispute to decide the disputes
between system participants in respect of any matter connected with
the operation of the payment system.
(2) Where any dispute in respect of any matter connected with the
operation of the payment system arises between two or more system
participants, the system provider shall refer the dispute to the panel
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 21 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

referred to in sub-section (1).

(3) Where any dispute arises between any system participant and
the system provider or between system providers or where any of the
system participants is not satisfied with the decision of the panel
referred to in sub-section (1), the dispute shall be referred to the
Reserve Bank.
(4) The dispute referred to the Reserve Bank for adjudication under
sub-section (3) 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.
(5) Where a dispute arises 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.
25. Dishonour of electronic funds transfer for insufficiency, etc., of
funds in the account.—(1) Where an electronic funds transfer initiated
by a person from an account maintained by him cannot be executed on
the ground that the amount of money standing to the credit of that
account is insufficient to honour the transfer instruction or that it
exceeds the amount arranged to be paid from that account by an
agreement made with a bank, such person shall be deemed to have
committed an offence and shall, without prejudice to any other
provisions of this Act, be punished with imprisonment for a term which
may extend to two years, or with fine which may extend to twice the
amount of the electronic funds transfer, or with both:
Provided that nothing contained in this section shall apply unless—
(a) the electronic funds transfer was initiated for payment of any
amount of money to another person for the discharge, in whole
or in part, of any debt or other liability;
(b) the electronic funds transfer was initiated in accordance with
the relevant procedural guidelines issued by the system
provider;
(c) the beneficiary makes a demand for the payment of the said
amount of money by giving a notice in writing to the person
initiating the electronic funds transfer within thirty days of the
receipt of information by him from the bank concerned
regarding the dishonour of the electronic funds transfer; and
(d) the person initiating the electronic funds transfer fails to make
the payment of the said money to the beneficiary within fifteen
days of the receipt of the said notice.
(2) It shall be presumed, unless the contrary is proved, that the
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 22 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

electronic funds transfer was initiated for the discharge, in whole or in

part, of any debt or other liability.
(3) It shall not be a defence in a prosecution for an offence under
sub-section (1) that the person, who initiated the electronic funds
transfer through an instruction, authorisation, order or agreement, did
not have reason to believe at the time of such instruction,
authorisation, order or agreement that the credit of his account is
insufficient to effect the electronic funds transfer.
(4) The Court shall, in respect of every proceeding under this
section, on production of a communication from the bank denoting the
dishonour of electronic funds transfer, presume the fact of dishonour of
such electronic funds transfer, unless and until such fact is disproved.
(5) The provisions of Chapter XVII of the Negotiable Instruments
Act, 1881 (26 of 1881) shall apply to the dishonour of electronic funds
transfer to the extent the circumstances admit.
Explanation.—For the purposes of this section, “debt or other
liability” means a legally enforceable debt or other liability, as the case
may be.
Chapter VII
OFFENCES AND PENALTIES
26. Penalties.—(1) Where a person contravenes the provisions of
Section 4 or fails to comply with the terms and conditions subject to
which the authorisation has been 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.
(2) Whoever 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, wilfully makes a
statement which is false in any material particular, knowing it to be
false or wilfully omits to make a material statement, 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.
(3) 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, it is his duty to furnish or to answer any question relating to the
operation of a payment system which is required by an officer making
16
inspection under Section 14, he shall be [liable to penalty as may be
imposed in accordance with the provisions of Section 30].
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 23 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

(4) 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.
(5) 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.
(6) 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
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 17[liable to penalty as may be imposed in accordance with the
provisions of Section 30].
27. Offences by companies.—(1) 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:
Provided that nothing contained in this sub-section shall render any
such person 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.
(2) Notwithstanding anything contained in sub-section (1), where a
contravention of any of the provisions of this Act or of any regulation,
direction or order made thereunder has been committed by a company
and it is proved that the contravention has taken place with the consent
or connivance of, or is attributable to any neglect on the part of any
director, manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be deemed to be
guilty of the contravention and shall be liable to be proceeded against
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 24 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

and punished accordingly.

Explanation.—For the purposes of this section,—
(a) “company” means any body corporate and includes a firm or
other association of individuals; and
(b) “director”, in relation to a firm, means a partner in the firm.
28. Cognizance of offences.—(1) No court shall take cognizance of an
offence punishable under this Act except upon a complaint in writing
made by an officer of the Reserve Bank generally or specially authorised
by it in writing in this behalf, and no court, lower than that of a
Metropolitan Magistrate or a Judicial Magistrate of the first class shall
try any such offence:
Provided that the Court may take cognizance of an offence
punishable under Section 25 upon a complaint in writing made by the
person aggrieved by the dishonour of the electronic funds transfer.
(2) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), a Magistrate may dispense with the
personal attendance of the officer of the Reserve Bank filing the
complaint, but the Magistrate may, in his discretion, at any stage of the
proceedings, direct the personal attendance of the complainant.
29. Application of fine.—A court imposing any fine under this Act
may direct that the whole or any part thereof shall be applied in, or
towards payment of, the costs of the proceedings.
30. Power of Reserve Bank to impose 18[penalties].—(1)
Notwithstanding anything contained in Section 26, if a contravention or
19
default of the nature referred to in sub-section (2) [or subsection (3)]
or sub-section (6) of Section 26, as the case may be, the Reserve Bank
may impose on the person contravening or committing default a
penalty not exceeding 20[ten lakh] rupees or twice the amount involved
in such contravention or default where such amount is quantifiable,
whichever is more, and where such contravention or default is a
continuing one, a further penalty which may extend to twenty-five
thousand rupees for every day after the first during which the
contravention or default continues.
(2) For the purpose of imposing penalty under sub-section (1), the
Reserve Bank shall serve a notice on the defaulter requiring him to
show cause why the amount specified in the notice should not be
imposed as a penalty and a reasonable opportunity of being heard shall
also be given to such defaulter.
(3) Any penalty imposed by the Reserve Bank under this section
shall be payable within a period of thirty days from the date on which
notice issued by the Reserve Bank demanding payment of the sum is
served on the defaulter and, in the event of failure of the person to pay
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 25 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

the sum within such period, may be recovered on a direction made by

the principal civil court having jurisdiction in the area where the
registered office of the defaulter company or the official business of the
person is situated:
Provided that no such direction shall be made, except on an
application made by an officer of the Reserve Bank authorised by it in
this behalf.
(4) The Reserve Bank may recover the amount of penalty by debiting
the current account, if any, of the defaulter or by liquidating the
securities held to the credit of the defaulter or in accordance with the
provisions of this Act.
(5) The court which makes a direction under sub-section (3) shall
issue a certificate specifying the sum payable by the defaulter and
every such certificate shall be enforceable in the same manner as it
were a decree made by the court in a civil suit.
(6) Where any complaint has been filed against any person in any
court in respect of the contravention or default of the nature referred to
in sub-section (2), or, as the case may be, sub-section (4) of Section
26, then, no proceeding for the imposition of any penalty on the person
shall be taken under this section.
31. Power to compound offences.—(1) Notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974), any
offence punishable under this Act for any contravention, not being an
offence punishable with imprisonment only, or with imprisonment and
also with fine, may, on receipt of an application for the person
committing such contravention either before or after the institution of
any proceeding, be compounded by an officer of the Reserve Bank duly
authorised by it in this behalf.
(2) Where a contravention has been compounded under sub-section
(1), no proceeding or further proceeding, as the case may be, shall be
initiated or continued, as the case may be, against the person
committing such contravention under that section, in respect of the
contravention so compounded.
Chapter VIII
MISCELLANEOUS
32. Act to have overriding effect.—The provisions of this Act shall
have effect notwithstanding anything inconsistent therewith contained
in any other law for the time being in force.
33. Mode of recovery of penalty.—(1) The penalty imposed on the
defaulter by the Reserve Bank under Section 30 may be recovered by
issuing a notice to any person from whom any amount is due to the
defaulter, by requiring such person to deduct from the amount payable
by him to the defaulter, the amount payable to the Reserve Bank by
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 26 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

way of penalty and pay to the Reserve Bank.

(2) Save as otherwise provided in this section, every person to whom
a notice is issued under this sub-section shall be bound to comply with
such notice, and, in particular, where such notice is issued to a post
office, bank or an insurer, it shall not be necessary for any passbook,
deposit receipt, policy or any other document to be produced for the
purpose of any entry, endorsement or the like being made before
payment is made notwithstanding that any rule, practice or
requirement to the contrary.
(3) Any claim respecting any property in relation to which a notice
under this sub-section has been issued arising after the date of the
notice shall be void as against any demand contained in the notice.
(4) Where a person to whom the notice under this sub-section is
sent objects to it by a statement on oath that the sum demanded or
any part thereof is not due to the defaulter or that he does not hold any
money for or on account of the defaulter, then, nothing contained in
this sub-section shall be deemed to require such person to pay any
such sum or part thereof, as the case may be, but if it is discovered
that such statement was false in any material particular, such person
shall be personally liable to the Reserve Bank to the extent of his own
liability to the defaulter on the date of the notice, or to the extent of the
penalty imposed on the defaulter by the Reserve Bank, whichever is
less.
(5) The Reserve Bank may at any time or from time to time, amend
or revoke any notice issued under this section or extend the time for
making the payment in pursuance of such notice.
(6) The Reserve Bank shall grant a receipt for any amount paid to it
in compliance with a notice issued under this section and the person so
paying shall be fully discharged from his liability to the defaulter to the
extent of the amount so paid.
(7) Any person discharging any liability to the defaulter after the
receipt of a notice under this section shall be personally liable to the
Reserve Bank to the extent of his own liability to the defaulter so
discharged or to the extent of the penalty imposed on the defaulter by
the Reserve Bank, whichever is less.
(8) If the person to whom the notice under this section is sent fails
to make payment in pursuance thereof to the Reserve Bank, he shall be
deemed to be the defaulter in respect of the amount specified in the
notice and further proceedings may be taken against him for the
realisation of the amount as if it were an arrear due from him in the
manner provided in this section.
Explanation.—For the purposes of this section, “defaulter” means any
person or system provider or system participant on whom the Reserve
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 27 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

Bank has imposed a penalty under Section 30.

34. Act not to apply to stock exchanges or clearing corporations of
stock exchanges.—Nothing contained in this Act shall apply to stock
exchanges or the clearing corporations of the stock exchanges.
21
[34-A. Act to apply to designated trade repository and issuer.—(1)
The provisions of this Act shall apply to, or in relation to, a designated
trade repository or issuer, as they apply to, or in relation to, payment
systems to the extent applicable, subject to the modification that,
throughout this Act, unless the context otherwise requires,—
(a) references to a “payment system” or “system provider” shall
be construed as references to a “designated trade repository”
or “issuer”, as the case may be;
(b) references to “commencement of this Act” shall be construed
with reference to—
(i) a designated trade repository, as references to the date on
which a trade repository is specified by the Reserve Bank as
a designated trade repository; and
(ii) an issuer, as references to commencement of the Payment
and Settlement Systems (Amendment) Act, 2015.
(2) The Reserve Bank may, on an application by a designated trade
repository or otherwise, permit or direct the designated trade repository
to provide such other services as are deemed necessary from time to
time.
Explanation.—For the purposes of this section, the expression
“designated trade repository” shall mean a trade repository or a class of
trade repositories, as may be specified by the Reserve Bank from time
to time.]
22
[34-B. Powers of Reserve Bank not to apply to International
Financial Services Centre.—Notwithstanding anything contained in any
other law for the time being in force, the powers exercisable by the
Reserve Bank under this Act,—
(a) shall not extend to an International Financial Services Centre
set up under sub-section (1) of Section 18 of the Special
Economic Zones Act, 2005 (28 of 2005);
(b) shall be exercisable by the International Financial Services
Centres Authority established under sub-section (1) of Section
4 of the International Financial Services Centres Authority Act,
2019,
insofar as regulation of financial products, financial services and
financial institutions that are permitted in the International Financial
Services Centres are concerned.]
35. Certain persons deemed to be public servants.—Every officer of
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 28 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

the Reserve Bank who has been entrusted with any power under this
Act, shall be deemed to be a public servant within the meaning of
Section 21 of the Indian Penal Code (45 of 1860).
36. Protection of action taken in good faith.—No suit or other legal
proceedings shall lie against the Central Government, the Reserve
Bank, or any officer thereof for any damage caused or likely to be
caused by anything which is in good faith done or intended to be done
in pursuance of this Act, any regulations, order or direction made or
given thereunder.
37. Power to remove difficulties.—(1) If any difficulty arises in giving
effect to the provisions of this Act, the Central Government may, by
order published in the Official Gazette, make such provision is not
inconsistent with the provisions of this Act as appear to it to be
necessary or expedient for removing the difficulty:
Provided that no order shall be made under this section after the
expiry of a period of two years from the commencement of this Act.
(2) Every order made under this section shall be laid, as soon as
may be after it is made, before each House of Parliament.
38. Power of Reserve Bank to make regulations.—(1) The Reserve
Bank may, by notification, make regulations consistent with this Act to
carry out the provisions of this Act.
(2) In particular, and without prejudice to the generality of the
foregoing provision, such regulations may provide for all or any of the
following matters, namely:—
(a) the powers and functions of the 23[Board referred to in sub-
section (2)], the time and venue of its meetings and the
procedure to be followed by it at its meetings (including the
quorum at such meetings) under sub-section (4) of Section 3;
(b) the form and manner in which an application for authorisation
for commencing or carrying on a payment system shall be
made and the fees which shall accompany such application
under sub-section (2) of Section 5;
(c) the form in which an authorisation to operate a payment
system under this Act shall be issued under sub-section (2) of
Section 7;
(d) the format of payment instructions and other matters relating
to determination of standards to be complied with by the
payment systems under sub-section (1) of Section 10;
(e) the intervals at which and the form and manner in which the
information or returns required by the Reserve Bank shall be
furnished under Section 12;
(f) such other matters as are required to be, or may be,
prescribed.
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 29 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

(2) Any regulation made under this section shall have effect from
such earlier or later date (nor earlier than the date of commencement of
this Act) as may be specified in the regulation.
(3) Every regulation shall, as soon as may be after it is made by the
Reserve Bank, be forwarded to the Central Government and that
Central Government shall cause a copy of the same to be laid before
each House of Parliament, while it is in session, for a total period of
thirty days which may be comprised in one session or in two or more
successive sessions, and if, before the expiry of the session
immediately following the session or the successive sessions aforesaid,
both Houses agree in making any modification in the regulation, or both
Houses agree that the regulation should not be made, the regulation
shall, thereafter, have effect only in such modified form or be of no
effect, as the case may be; so, however, that any such modification or
annulment shall be without prejudice to the validity of anything
previously done under that regulation.
———
1.
Received the assent of the President on December 20, 2007 and published in the Gazette
of India, Extra, Part II, Section 1, dated 20th December, 2007, pp. 1-14, No. 62

2.
Ins. by Act 18 of 2015, S. 2(i) (w.e.f. 1-6-2015).

3.
Ins. by Act 18 of 2015, S. 2(ii) (w.e.f. 1-6-2015).

4.
Subs. by Act 7 of 2017, S. 152 (w.e.f. the date to be notified). Prior to substitution it read
as:

“CHAPTER II

DESIGNATED AUTHORITY AND ITS COMMITTEE

3. Designated authority and its Committee.—(1) The Reserve Bank shall be the
designated authority for the regulation and supervision of payment systems under this
Act.
(2) The Reserve Bank may, for the purposes of exercising the powers and performing
the functions and discharging the duties conferred on it by or under this Act, by
regulation, constitute a committee of its Central Board to be known as the Board for
Regulation and Supervision of Payment and Settlement Systems.
(3) The Board constituted under sub-section (2) shall consist of the following members,
namely:—

(a) Governor, Reserve Bank, who shall be the Chairperson of the Board;

(b) Deputy Governors, Reserve Bank, out of whom the Deputy Governor who is in-charge
of the Payment and Settlement Systems, shall be the Vice-Chairperson of the Board;

(c ) Not exceeding three Directors from the Central Board of the Reserve Bank of India to
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 30 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

be nominated by the Governor, Reserve Bank.

(4) The powers and functions of the Board constituted under sub-section (2), the time
and venue of its meetings, the procedure to be followed in such meetings (including the
quorum at such meetings), and other matters incidental thereto shall be such as may be
prescribed.
(5) The Board of Regulation and Supervision of Payment and Settlement Systems
constituted under clause (i) of sub-section (2) of Section 58 of the Reserve Bank of India
Act, 1934 (2 of 1934) shall be deemed to be the Board constituted under this section and
continue accordingly until the Board is reconstituted in accordance with the provisions of
this Act and shall be governed by the rules and regulations made under the Reserve Bank
of India Act, 1934 insofar as they are not inconsistent with the provisions of this Act.”

5.
Ins. by Act 23 of 2019, S. 204 (w.e.f. 1-11-2019).

6.
Ins. by Act 18 of 2015, S. 3(i) (w.e.f. 1-6-2015).

7.
Subs. by Act 18 of 2015, S. 3(ii) (w.e.f. 1-6-2015). Prior to substitution it read as:
“(4) Where a system participant is declared by a court of competent jurisdiction as
insolvent or is dissolved or wound up, then notwithstanding anything contained in the
Companies Act, 1956 (1 of 1956) or the Banking Regulation Act, 1949 (10 of 1949) or any
other law for the time being in force, the order of adjudication or dissolution or winding
up, as the case may be, shall not affect any settlement that has become final and
irrevocable and the right of the system provider to appropriate any collaterals contributed
by the system participant towards its settlement or other obligations in accordance with
the rules, regulations or bye-laws of such system provider.”.

8.
Ins. by Act 31 of 2016, S. 253 and Sch. IX (w.e.f. 15-11-2016).

9.
Ins. by Act 18 of 2015, S. 3(iii) (w.e.f. 1-6-2015).

10.
Ins. by Act 31 of 2016, S. 253 and Sch. IX (w.e.f. 15-11-2016).

11.
Ins. by Act 31 of 2016, S. 253 and Sch. IX (w.e.f. 15-11-2016).

12.
Renumbered by Act 18 of 2015, S. 3(iv) (w.e.f. 1-6-2015).

13.
Ins. by Act 18 of 2015, S. 3(iv) (w.e.f. 1-6-2015).

14.
Ins. by Act 18 of 2015, S. 4 (w.e.f. 1-6-2015).

15.
Ins. by Act 31 of 2016, S. 253 and Sch. IX (w.e.f. 15-11-2016).

16.
Subs. by Act 18 of 2023, S. 2 and Sch. (w.e.f. the date to be notified).
“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”

17.
Subs. by Act 18 of 2023, S. 2 and Sch. (w.e.f. the date to be notified).
SCC Online Web Edition, © 2024 EBC Publishing Pvt. Ltd.
Page 31 Thursday, January 18, 2024
Printed For: Avantika Sharma
SCC Online Web Edition: http://www.scconline.com
© 2024 EBC Publishing Pvt. Ltd., Lucknow.
-----------------------------------------------------------------------------------------------------------------------------------------------------------

“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”

18.
Subs. for “fines” by Act 18 of 2023, S. 2 and Sch. (w.e.f. the dated to be notified).

19.
Ins. by Act 18 of 2023, S. 2 and Sch. (w.e.f. the dated to be notified).

20.
Subs. for “five lakh” by Act 18 of 2023, S. 2 and Sch. (w.e.f. the dated to be notified).

21.
Ins. by Act 18 of 2015, S. 5 (w.e.f. 1-6-2015).

22.
Ins. by Act 50 of 2019, S. 33 and Sch. II (w.e.f. 1-10-2020).

23.
Subs. for “Committee constituted under sub-section (2)” by Act 7 of 2017, S. 153 (w.e.f.
the date to be notified).

Disclaimer: While every effort is made to avoid any mistake or omission, this casenote/ headnote/ judgment/ act/ rule/
regulation/ circular/ notification is being circulated on the condition and understanding that the publisher would not be
liable in any manner by reason of any mistake or omission or for any action taken or omitted to be taken or advice
rendered or accepted on the basis of this casenote/ headnote/ judgment/ act/ rule/ regulation/ circular/ notification. All
disputes will be subject exclusively to jurisdiction of courts, tribunals and forums at Lucknow only. The authenticity of
this text must be verified from the original source.