Whether the Payment and Settlement System Act 2007 is applicable on individuals or not?
answer this question is affirmative for the following reasons.
The Payment and Settlement System Act 2007 has been enacted to provide a legal framework to the settlement systems which are largely operating on the voluntary basis without any statutory backing whatsoever. The relevant portion of statement of objects and reasons is as follows.
“ the payment and settlement systems serve as the backbone of financial system of the country. In India, a host of payment systems are in operation, ranging from manual paper-based clearing to the real-time gross settlement……..
clearing houses are not legal entities, but voluntary bodies of banks who have come together for the express purpose of clearing payment instructions. The rules and regulations for the functioning of clearing houses are contractual in nature…..
In view of the above, it is considered necessary to enact specific legislation…..”
The first reading of the Payment and Settlement System Act of 2007 gives the impression that this has been only enacted for the purpose of the banks and financial institutions.
However, to my understanding, it is applicable to all persons. In order to support my contention, I will rely upon few provisions of the Payment and Settlement System Act of 2007.
System provider — system provider means a person who operates an authorized payment system.
System participant — system participant means a bank or any other person participating in a payment system and includes the system provider.
Payment system — payment system means a system that enables payment to be effected between a paper and a beneficiary, involving clearing, payment or settlement service or any of them, but does not include a stock exchange.
Payment and Settlement System Act of 2007 is applicable to a system participant. System participants include a “person”. The “person” has not been defined under the act.
However, for the purpose of the enactment system participant means “any person participating in a payment system”.
Going by the definition of payment system, every person who is carrying transaction, which is being processed by a payment system, would be a system participant.
Thus, The Payment and Settlement System, Act 2007 is applicable to every person and not only to the banks or system providers.
In fact, the definition of payment system makes it amply clear that every payer and a beneficiary is a system participant.
Meaning thereby, a person who gives an instruction to his bank to credit or debit particular account or execute payment instructions on his behalf would be a system participant, because by giving instructions; he is participating in a payment system.
payment system requires at least three parties, one is payer, another is the beneficiary and the third one is the bank. All the three are System participants, because they are participating in payment system.
The word “person” has been used in the Payment and Settlement System Act of 2007 without any limitations/restrictions. For the purpose of the Act a person can be individual; it can be a corporate body or a financial institution.
Chapter 3, 4 and 5 respectively deals with authorization of payment systems, regulation and supervision by the reserve bank, and the rights and duties of a payment system provider.
In these chapters, the word person has been used in its broadest connotation. Any person can apply for a license. The person who has applied for the license will be scrutinized by the RBI.
In case the person has been granted a license, he will be bound by the guidelines issued by the RBI from time to time. The person applying for the license need not be a bank, financial institution, banking company, or corporate entity.
The act says that any person can apply; therefore, any person who fulfils the criteria laid down by RBI will be illegible for grant of license under the Payment And Settlement Systems Act 2007.
The last and most crucial sections are section 25 and section 28 of the Payment and Settlement Systems, Act 2007. These two sections specifically deal with the cases of individuals in case of default.
Section 25 relates to dishonour of electronic funds transfer for insufficiency of funds in the account.
The first part of the section says where and 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 instructions or that it exceeded the amount as to be paid from that account by any agreement made with the bank,
such person shall be deemed to have committed an offence — – this extract of section 25 makes it clear that an individual can be a system participant. Because an individual is participating in payment system by giving instructions and due to the failure of instruction on account of insufficiency of fund, he will become liable for punishment, under section 25.
The object and the reasons for enacting section 25 of Payment and Settlement System Act of 2007 are the same as behind section 138 in the Negotiable Instrument Act.
Then reading section 28, coupled with section 25 will leave no scope of doubt of any sort regarding the applicability of the Payment and Settlement System, Act 2007 on the individuals. Section 28 deals with cognizance of offences.
The first part of section 28 is specifically relate to the RBI. It says that no court shall take cognizance of an offence punishable under this act except on the complaint in writing made by an officer of RBI.
However, an exception has been carved in the second part of subsection 1 of section 28 of the Payment and Settlement Systems at 2007.
It say s “ 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 electronic funds transfer.”
Meaning thereby, any person who is aggrieved can make a complaint in writing and the court is free to take cognizance on such a complaint,
if the ingredients of section 25 has been fulfilled.
Thus, if any electronic instruction cannot be executed on account of insufficiency of the funds in the account of instructor,
then he shall be liable under section 25 of the Payment and Settlement Systems, Act 2007.
CONCLUSION :-
Any individual can file such a complaint against any individual. In the scheme of the Act the beneficiary and payer will always be a person and person will include an individual apart from corporate entities.
This conclusion can be supported by section 26 and 27 of Payment and Settlement System Act of 2007 which deals with punishment in case of persons and companies.
For these reasons, I believe that The Payment and Settlement Systems at 2007 is applicable to, the individuals who are participating in a payment system, either by giving instructions or by receiving payments.
