Dishonour Of Electronic Payments In India: A Closer Look at the Payments and Settlement Systems Act, 2007

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.

Litigation Under Payment and Settlement Systems Act, 2007-

The Payment and Settlement Systems Act of 2007 (PSS Act) has provisions similar to Section 138 regarding digital payments such as RTGS, NEFT, or ECS.

Section 25 of the PSS Act states that an individual may be sentenced to up to two years in prison or a fine of up to twice the amount if an electronic funds transfer that he initiates from an account that he maintains cannot be completed because the funds in that account are insufficient to honour the transfer instruction or because they exceed the amount that is scheduled to be paid from that account by a contract made with a bank.

In accordance with Section 25(3), a defence cannot be accepted unless there is a reasonable suspicion that the payment will be dishonoured. As per Section 28, a written complaint from the party who was harmed by the dishonoured transfer is sufficient for an officer authorised by the RBI to take cognizance of an offence involving an electronic funds transfer, even though the officer must first receive a written complaint.

Section 25 permits only judicial magistrates of the first class or Metropolitan Magistrates to decide cases.

Unless and until such fact is proven otherwise, the Court will presume, with respect to any proceeding brought under this section, that an electronic funds transfer was dishonoured upon the production of a communication from the bank.

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

1. The electronic funds transfer must be undertaken for the payment of money to settle a debt or other obligation;

2. It must be started in accordance with the pertinent procedural instructions provided by the system supplier;

3. 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;

4. 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:

The Payment and Settlement Act’s Section 25 was given the power by lawmakers to maintain and defend legitimate drawers who, for whatever reason—whether through carelessness or some other factor—failed to comply with the electronic fund transfer regulations. A scheduled electronic fund transfer that has been cancelled because there was not enough money, because the credit limit was exceeded, or because the banker received such instructions, according to the proviso to the Section. The person making the payment is subject to strict requirements under this provision, which also warns them that noncompliance 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.

Conclusion-

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.