Payment and Settlement System’s act, 2007 – Landmark Judgements

By Tulika Banerjee-

Internet and Mobile Association of India vs. Reserve Bank of India, 2020 SCC Online SC 275

Facts- The RBI on 6th April 2018, issued a Circular banning entities including banks from dealing with individuals or companies dealing in or facilitating banking transactions relating to Virtual Currencies (VCs) which eventually resulted in the virtual currency market in India coming to a standstill. However, it did not per se ban holding or trading in cryptocurrency as it still could be transferred to another person or a barter transaction could have been carried out. The effect of the prohibition was that exchanges through which VCs were traded could no longer maintain and operate a bank account, thereby putting an end to the business of VC trading that required conversion from fiat currencies using formal banking channels. The Petitioner contended that RBI had no power to prohibit the activity of trading in VCs since VCs are not legal tenders and thus not be regulated by RBI and also that the services rendered by VC exchanges do not qualify to be a ‘patent system’, thus, are not entities that are regulated by the RBI under Payment and Settlement Systems Act, 2007. RBI then responded to the petitioner’s contentions saying that the RBI circular was necessitated in public interest to protect the interest of consumers, the interest of the payment and settlement systems of the country and for the protection of regulated entities against exposure to high volatility of the VCs. Thus, the RBI is empowered and duty bound to take such pre-emptive measures in public interest and the power to regulate includes the power to prohibit. The RBI also alleged that the circular was non-violative of any fundamental right as there cannot be any unfettered fundamental right to do business on the network of entities regulated by RBI.

Ratio- After hearing the contentions of both the parties, the Supreme Court observed that the power conferred upon RBI under Section 10(2) of the Payment and Settlement Systems Act, 2007 to issue guidelines for proper and efficient management of payment systems and under Section 18 of the said Act to lay down policies relating to the regulation of payment systems and to give directions pertaining to the conduct of business relating to payments systems, exercisable in public interest upon being satisfied, is not applicable to virtual currency exchanges, as the services rendered by them do not fall within the definition of the expression “payment system” under Section 2(1)(i) of the said Act.  The court also said that the RBI has the requisite power to regulate or prohibit any activity of this nature. The RBI circular is primarily addressed to the banks who are ‘system participants’ regulated by the RBI under the PSS Act. In relation to the alleged violation of the fundamental right of the petitioners, the Supreme Court held that any restriction to freedom guaranteed in the Article 19(1)(g) of the Constitution of India should pass the test of reasonableness. Thus, the Supreme Court held that RBI circular is not reasonable or proportionate as in the past 5 years or more, RBI has not found any adverse impact of the activities of VC exchanges on the way the regulated entities function and also the RBI has taken the stand that it has not banned VC’s in the country. Therefore, the RBI circular is liable to be set aside on the grounds of proportionality.

Ritu Jain vs. The State Through Standing Counsel & Anr, 2019 CRILJ 2980

Facts- In this, the petitioner (Ritu Jain) is the proprietor of the firm called M/s Shrey Overseas. The complainant filed a case alleging that that the cheques were issued by the petitioner and handed over along with separate applications dated 06.01.2015 and 17.01.2015 for RTGS transfer of funds. The two instruments were statedly presented at the concerned bank where the account was held in the name of the proprietary concern of the petitioner, but electronic funds transfers could not be executed, the same being dishonoured on 09.03.2015 since the petitioner had issued instructions for ‘stop payment’. The complainant has claimed that a statutory notice of demand was sent on 28.03.2015, but no payment was made within the requisite period, this according to the complainant, constituting offence punishable under Section 25 read with Section 27 of Payment and Settlement Systems Act, 2007. But, the petitioner challenged the maintainability of the proceedings in the criminal complaint case primarily on the ground that the cheques, and the instructions for RTGS transfer, were issued not by her but under the signatures of Manish Kumar Jain who is described by her as her brother-in-law and also alleged that the firm was being run and managed by the said relative.

Ratio- It was observed that the fact remains the same that the petitioner (Ritu Jain) is the proprietor of the business. In these circumstances, the provision contained in Section 27 of the Payment and Settlement Systems Act, 2007 stands attracted. Since the proprietor of a business of such nature has to be assumed to be the person in charge of and responsible for the conduct of its business, she cannot escape the prosecution for the offence under Section 25 of the Payment and Settlement Systems Act, 2007. Several summons had been sent by the Metropolitan Magistrate to the petitioner but she had been evading the process of law. Therefore, the Delhi High Court held the petition wholly devoid of any substance as the petitioner has been successful in evading the process before the criminal court over the last years. So, the court said that it of the view that the petition is an abuse of the process of law so the court dismissed the petition and the application filed therewith with cost of Rs 50,000 to be deposited with the Delhi High Court Legal Services Authority within a week and also ordered that if the is not deposited then it is to be recovered by the Metropolitan Magistrate as if it were fine imposed on the petitioner.

  • M/S Barclays Bank Plc vs. Unknown, 2011

Facts- In this case, as per the terms and conditions embodied in agreement the complainant had granted a loan or finance facility to the accused, repayable by the accused with interest in equal monthly instalments through Electronic Clearing System (ECS) and the accused accordingly issued standing instructions to its bankers, viz. Centurion Bank of Punjab bearing bank MICR No. 110233029, to debit a sum of Rs 11,364 towards the EMI in respect of the aforesaid loan transaction, on monthly basis, from his bank account bearing no. 120401000006250 and correspondingly to credit the said amount in the account of the complainant. According to the complainant, the electronic funds transfer initiated by the accused, in respect of the EMI for the month of 05.02.2009 amounting to Rs 11,364 could not be realized on ground of ‘Insufficient Balance’ and an intimation in this regard was received by the complainant. Thereafter, the complainant had sent a demand notice to the accused within the prescribed period, calling upon the accused to pay the ECS amount within 15 days of receipt of the notice. However, since the accused failed to make the payment therefore the complainant filed a complaint under Section 25 of the Payment and Settlement Systems Act, 2007.

Ratio- The court observed that one of the basic ingredient of the offence under Section 25 is that the electronic funds transfer is initiated by the accused out of the account maintained by him with a bank for payment of any amount of money to another person for the discharge, in whole or in part, of any debt or other liability, in accordance with the relevant procedural guidelines issued by the system provider. In other words, not only the ECS mandate must be signed by the accused but also it should be initiated in accordance with relevant guidelines issued by system provider. It was also observed that the complainant has failed to prove that the alleged ECS mandate has been signed by the accused. Even otherwise, according to him, the complainant has failed to prove the ECS mandate as per the relevant provisions of Indian Evidence Act regarding proof of facts by documentary evidence. Therefore, the court held that since the complainant had failed to prove that the complaint has been filed by duly authorized representative of the complainant, and that the Electronic Funds transfer was initiated by the accused in accordance with the guidelines laid down by the system provider and also that the legal notice was duly served upon the accused, the accused is entitled to be acquitted of charges under Section 25 of the Payment and Settlement Systems Act, 2007

Gujarat vs. Nansinh, 2010

Facts- In this case, workman Nansinh Dabhi was working with Corporation as Conductor died on 1/12/1997. According to policy and as per relevant Rules and regulation, which was applicable at that time, legal heirs of deceased is entitled to make application for compassionate regard to appointment and same was considered in accordance with Rules and Regulation and policy, prevailing at relevant point of time. The respondent who failed in standard 10th, qualified for post of Peon.  But, on 9/2/1998, the deceased’s son made an application for appointment and it is a say of respondent that on 5/5/1999, application was disposed of and appointment was not offered to respondent. The counsel of the petitioner submitted that the wife of deceased is also getting pension of Rs 2,625 and Rs 416 received by respondent, total comes to more than Rs 2500. Therefore, case of respondent is not covered under policy of income. So, the petitioner challenged award passed by Industrial Tribunal, Ahmedabad saying that the Industrial Tribunal has not considered Rules and Regulation and policy which was prevailing at the relevant time. He also submitted that such kind of direction cannot be issued by Tribunal because Industrial Tribunal has no jurisdiction to pass such award against Corporation and alleged that the Corporation has considered application submitted by respondent as per policy prevailing thereby, the Industrial Tribunal directing the Corporation to give appointment to Arjunsinh Nansinh Dabhi (son of deceased) in the post of Peon with notional increment benefit and with continuity of service and accordingly fix salary within 30 days from date of publication of award and no arrears had been directed to be paid by Corporation to Arjunsinh.

Ratio- The Gujarat High Court in this case observed that Industrial Tribunal has come to conclusion that right of respondent arise as per section 30 of Settlement, which is binding to Corporation. In Section 30, there is no provision made which require less than income of Rs 2500. In fact, there is no income at all mentioned in such settlement of section 30. The subsequent resolution or General Standing order, which has been issued, changed terms of settlement then it is not binding to respondent as there is no other settlement arrived for changing Section 30, which was produced before Industrial Tribunal. According to Section 30 of settlement, time limit has been prescribed but there is no reference to have any particular amount of income which is to be satisfied by legal heirs of deceased employee for claiming compassionate appointment. Thus, the court held that on that basis, Industrial Tribunal has rightly granted relief in favour of respondent and therefore Industrial Tribunal has not committed any error which would require interference by this Court.

M/S The Royal Bank of Scotland vs. Gyan Chand Garg, 2012

Facts- In this case, the complainant was a bank which was formally known as Ms. ABN Amro Bank whose name was later on changed to the Royal Bank of Scotland N.V. vide notification issued by the Reserve Bank of India. On the representation of the accused, the complainant bank granted a loan facility to the accused. As per the terms and conditions of the loan agreement, accused had to make the instalments together with interest in equated monthly instalments besides other charges. The accused opted for electronic clearance system mandate through ECS and accordingly issued standing instructions to its banker namely Punjab National Bank to debit amount towards the equated monthly instalments in respect to the aforesaid loan transaction. It is further alleged by the complainant that the first instalment initiated by the accused through electronic funds of Rs 8,627 on 26.10.2010 and the second transfer of Rs 8,627 on 28.10.2010 could not be executed on the grounds of Account Closed. The intimation of such dishonoured of electronic funds was received by the complainant vide intimation dated 27.10.2010 and 28.10.2010 respectively. On dishonour of the electronic funds transfer the complainant sent a legal demand notice dated 10.11.2010, dispatched on 19.11.2010 through courier, demanding the payment against the dishonour of said electronic transfer within the prescribed period of 15 days. However, inspite of receipt of legal demand notice dated 10.11.2010 the accused failed to make the payment of dishonoured EMIs through ECS. Therefore, the complainant Ms. The Royal Bank of Scotland N. V. had filed the complaint under section 25 of the Payment and Settlement System Act, 2007 against the accused.

Ratio- The court observed that On default of payment of EMI through ECS, complainant can send notice as per Section 25 of Payment and Settlement Systems Act for that CC No. 196/11 Page No. 6/07 particular month within 30 days and only in case of failure to make the payment within 15 days of the receipt of notice complainant can present complaint under section 25 of The Payment and Settlement Systems Act within one month from the expiry of 15 days. And, in the present case, ECS was presented in the month of October, 2010. It was also admitted by one of the court witness in his cross-examination that, last payment was due in the month of January, 2010. Thus, the complainant did not send any notice to the accused since the last default i.e. June, 2007 and the complainant after three years presented two ECS in a single month. Since, ECS Mandate authorizes complainant to raise debit regularly every month. Therefore, complainant cannot present the ECS beyond the period of ECS Mandate as the same is contrary to the condition of ECS Mandate. Thus, the court held that any criminal action taken for the default of ECS under Section 25 of the Payment and Settlement Systems Act for ECS presented beyond the period of mandate is liable to be dismissed and therefore the case got dismissed on merits and the complainant not being able to prove its case against the accused, the accused thus got acquitted.

Nishant Mukul vs. Tata Capital Financial Services Ltd, 2018

Facts- In this case, the petitioner company Tata Capital Financial Services Ltd. was engaged in the business of providing financial facilities to its various customers and thus, provided loan to the accused company M/s Amrapali Infrastructure Pvt Ltd. As per the complaint filed by the respondent, in furtherance to the terms and conditions of the loan account and towards the repayment of monthly instalment(EMI), the accused company agreed and opted for Electronic Clearance System(ECS) and   the   EMI   amount   was   to   be transferred   every   month   in   the   account of complainant company and therefore the accused issued standing instructions to their banker, namely Indian Overseas Bank, Indirapuram branch to debit monthly instalments in respect of the above mentioned loan account on monthly basis. It was alleged in the complaint that the accused had expressly   assured   the   complainant   company   that   the   accused   would maintain adequate balance in their account so as to honour the monthly ECS given in favour of the complainant company. It is alleged that when the complainant presented the said electronic transfer through its banker, HDFC Bank Ltd. the Electronic Fund Transfer given by the accused in respect of the monthly instalment for the month of May 2017 amounting to Rs 3,04,570 could not be honoured for the reason ‘Balance Insufficient’. Thereafter, the complainant sent a statutory demand legal notice on 15.05.2017 to the accused. However, the accused persons did not make the payment during the required period due to which the petitioner filed a complaint under section 25 of The Payment and Settlement Systems Act, 2007 wherein it was alleged that Nishant Mukul was one of the directors of the accused company and was involved in management and day to day affairs of the company. But, the revisionist, that is Nishant Mukul alleged that he was the director of the company, that is M/s Amrapali Infrastructure Pvt Ltd. for a period from 22.07.2008 to 01.08.2016 after which he was appointed as director in the said company and thereafter he had resigned from the directorship of the accused company on 01.08.2016 and the company accepted the said resignation on 08.08.2016 and the ROC was also informed accordingly. Nishant Mukul also said that after the resignation from the directorship of the accused company he was not involved into any activity of the accused company. Thus, it was submitted that the Ld. Metropolitan Magistrate without satisfying himself as to the veracity of the allegations of directorship against the applicant, issued summon to the revisionist vide impugned order dated 10.07.2017. Therefore, being aggrieved by the impugned order dated 10.07.2017 passed, the revisionist preferred the revision petition.

Ratio- The high court after reviewing the whole case observed that the complaint had been filed under Section 25 of the Payment and Settlement Systems Act, 2007 however, the cognizance had been taken by the Trial Court vide the impugned order date 10.07.2017 under Section 138 of Negotiable Instruments Act, without any reference to either Section 25 or Section 25(5) of Payment and Settlement Systems Act, 2007 which is technically and legally bad in law. Therefore, the court set aside the impugned order dated 10.07.2017 taking cognizance under Section 138 of the Negotiable Instruments Act and remanded the case back to Trial Court for fresh consideration, in accordance with law.

  • The Google Pay Case, 2020

Facts- In this recent ongoing case, a PIL was filed by the petitioner; Abhijit Mishra who is a financial economist requesting the court to stop Google Pay operation in India and impose penalties on the Google India Digital Services Private Limited for unauthorised operation in India alleging that Google Pay is doing unauthorised operation in India as per the Payment and Settlement Systems in defiance of the Section 4(1) of the Payment and Settlement Systems Act, 2007, published by the Reserve Bank of India on March 20, 2019. Following this, the division bench of Delhi High Court issued notice to RBI and Google India Digital Services Private Limited. The Reserve Bank of India alleged that Google Pay is not a payment system operator. As per the Payment and Settlement Systems Act, 2007 ‘payment system’ is defined as ‘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. It also includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations.’ So, RBI said that Google Pay is not a digital transaction platform and thus does not operate any payment systems as it is third party application provider and therefore is operating without getting any authorisation from the RBI. The petitioner also contended that since RBI is not listed under National Payments Corporation of India’s (NPCI) therefore it does not qualify to continue operating payment settlements. Google Pay has further contended that since it is Third-Party App Provider in the UPI interface so it does not require a specific authorisation from Reserve Bank of India (RBI) under the Payments and Settlements Systems Act, 2007. Further, the respondent said that it is not a system provider or a payment system operator that requires authorisation under the Payment and Settlement Systems Act. Rather, it is technological platform working on the multi-PSP (Payment Service Provider) model and connecting users to the UPI systems operated by NPCI through multiple PSP Banks.

Present Situation- Recently, on 22nd January a bench of Chief Justice D N Patel and Justice Prateek Jalan of Delhi High Court listed the matter for further hearing on 31 August after the petitioner sought time to respond to Google’s affidavit.