INTRODUCTION

India has a diverse range of payment systems, including traditional and electronic/digital methods. Traditional systems like cash payments, cheques, and demand drafts have been longstanding, while electronic systems have significantly modernized transactions. Real-Time Gross Settlement (RTGS) is used for high-value, real-time transfers with a minimum of ₹2 lakhs, and the National Electronic Funds Transfer (NEFT) allows for transfers of any amount in half-hourly batches. The Immediate Payment Service (IMPS) offers instant fund transfers 24/7, and the Unified Payments Interface (UPI) enables real-time inter-bank transactions via mobile apps like Google Pay, PhonePe, BHIM, and Paytm. Mobile wallets such as Paytm, MobiKwik, and FreeCharge provide prepaid payment options, while credit and debit cards, including Visa, MasterCard, and RuPay, are widely used for various payments. Prepaid cards like gift and travel cards offer convenience for specific amounts. Electronic Clearing Service (ECS) and the National Automated Clearing House (NACH) facilitate bulk and recurring transactions like salaries and utility bills. The Aadhaar Enabled Payment System (AePS) leverages Aadhaar authentication for banking transactions such as balance inquiries and cash withdrawals. Internet banking platforms enable online transactions, including fund transfers and bill payments. Point of Sale (POS) terminals are common in retail for card payments, and QR code payments are popular among small vendors. Additionally, the Bharat Bill Payment System (BBPS) integrates bill payments for utilities and other services, while the Trade Receivables Discounting System (TReDS) helps finance MSMEs through trade receivables discounting. These systems collectively enhance the convenience, speed, and security of financial transactions across India.

DEFINITIONS

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.

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,

Settlement: means settlement of payment instructions and includes the settlement of securities, foreign exchange or derivatives or other transactions which involve payment obligations

ROLE OF RBI

The Reserve Bank of India (RBI) is responsible for regulating and supervising payment systems under this Act. The RBI can create a committee from its Central Board, called the Board for Regulation and Supervision of Payment and Settlement Systems, to help with these duties.

 The committee will have the following members:

  1. The Governor of the RBI, who will be the Chairperson.
  2. Deputy Governors of the RBI, with the Deputy Governor in charge of Payment and Settlement Systems serving as the Vice-Chairperson.
  3. Up to three Directors from the Central Board of the RBI, chosen by the Governor.

POWER OF RBI

  • Setting Standards: The Reserve Bank can define the format and timing of payment instructions, how funds are transferred (electronically or otherwise), and the criteria for joining or leaving a payment system. They also set participant rights and obligations.
  • Approving Changes: The Reserve Bank needs to approve any changes made to a payment system’s structure or operation. System providers have to give them a heads-up at least 30 days before implementing changes, except in urgent situations related to monetary policy or public interest.
  • Information Access and Inspection: The Reserve Bank can request information and documents from payment system providers about their operations. They also have the right to access any information related to a payment system and can inspect their premises and equipment. This information is generally confidential, but the Reserve Bank can disclose it for various reasons, such as protecting the system’s integrity or for public interest.
  • Auditing and Issuing Directions: The Reserve Bank can conduct audits and inspections of payment systems and participants. They can also issue directions if they believe the system is engaging in risky behavior or could negatively affect the country’s payment system, monetary policy, or credit policy. Additionally, they can lay down broader policies for regulating payment systems overall.
  • Compliance: Everyone involved in a payment system must follow the Reserve Bank’s directions promptly and report back on their compliance.

ROLE OF SYSTEM PROVIDER

Every system provider must operate their payment system in accordance with the provisions of the Act, regulations, contracts among participants, and any conditions or directions issued by the Reserve Bank. They must disclose the terms, conditions, charges, and liability limitations to current or potential participants, and provide copies of rules, regulations, and relevant documents. System providers are also required to maintain the standards set under this Act. Additionally, system providers must keep all documents and information given by participants confidential, except when disclosure is required by law, consented to by the participant, or ordered by a court or statutory authority.

SETTLEMENT OF DISPUTE

Disputes between system participants in payment systems are resolved by a panel of at least three participants, excluding those involved in the dispute. If a dispute arises, the system provider refers it to this panel. If a participant is dissatisfied with the panel’s decision or if the dispute involves the system provider, it is referred to the Reserve Bank, whose decision is final. Disputes involving the Reserve Bank are referred to the Central Government, with a Joint Secretary or higher officer making the final decision. Additionally, if an electronic funds transfer fails due to insufficient funds or exceeding the agreed limit, the initiator commits an offense punishable by up to two years in prison, a fine up to twice the transfer amount, or both, provided the transfer was for paying a debt, followed procedural guidelines, and the beneficiary demands payment within 30 days. The initiator must pay within 15 days of the notice. It’s presumed that the transfer was for a debt unless proven otherwise, and lack of knowledge about insufficient funds is not a defense. Courts will presume dishonour based on a bank communication unless disproved, and the provisions of the Negotiable Instruments Act, 1881, apply as relevant.

PENALTY

Penalty for failing an electronic funds transfer due to insufficient funds or exceeding limits:

  • This can be a criminal offense punishable by up to two years in prison, a fine up to twice the transfer amount, or both.
  • The offender must pay the beneficiary within 15 days of the notice.

CONCLUSION

In conclusion, the Payment and agreement System Act, 2007 regulates and supervise payment  styles through- out India. The Act vests RBI as the supreme authority and  entitlement powers and to regulate payment gateways. It also provides legal  frame for ‘ netting ’ and ‘  agreement futurity. It establishes the standard for payment systems and specifies payment instructions. It includes  motifs pertaining to the delivery of returns, documents, or other information. It also covers how system providers produce account and balance  wastes.

BY: LUCKY SINGH (INTERN)

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