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The specific section where the liability is defined for who will be made liable in the event of any breach of the provisions of the Payment and Settlement Systems Act, 2007 is Section 25. The specific section in question raises the liability of individuals involved in the management of the respective organisation instead of the organisation itself, while at the same time providing a defence for such individuals in the event that they were unaware of the breach and took all necessary precautions against the said offence.
This section is very important since it enhances accountability, compliance and governance among various types of organisations, such as banks, payment systems and operators, fintech firms and others. An understanding of Section 25 would help various organisations ensure that they comply with the applicable laws and regulations and also avoid regulatory actions from the authorities. The understanding of this section would also make sure that the environment remains safe for consumers using digital payments. In the subsequent sections of the paper, we will discuss Section 25 and its implications.
Payment and Settlement Systems Act, 2007 is the main legislation relating to payment systems in India. The Act provides for the legal framework regarding authorisation, regulation and supervision of payment and settlement systems. The main aim of the Act is to regulate digital payment systems and ensure that payment systems work efficiently and effectively while safeguarding the interests of users and financial stability.
Section 25 of the Payment and Settlement Systems Act, 2007 is the section related to offences committed by companies. This section lays down provisions regarding the determination of people who would be liable for any offence committed against any of the provisions of the Act or RBI directions.
As per Section 25, apart from the company, the individual(s) having the responsibility of conducting the business on behalf of the company at the time of commission of the crime is also liable for the crime. However, such individuals will be absolved of any liability if it can be proved that they neither knew about the crime nor did they have any knowledge regarding its prevention.
The main objective of Section 25 is to:
Section 25 applies when a company commits offences under the Act, such as:
Section 25 applies to companies and other authorised entities involved in payment and settlement services, including:
This is an important section as it ensures that liability in case of a breach of regulations is not confined to the company alone. This helps in ensuring that people who manage the operations of companies take more responsibility in compliance issues.
Through such actions, Section 25 ensures that India continues to have safe, transparent, and reliable payment systems. This further helps in ensuring that India's fast-growing system of digital payments is trusted by all concerned, and that the Payment and Settlement Systems Act of 2007 is implemented effectively.
The application of section 25 of the Payment and Settlement Systems Act, 2007 occurs in case a company violates the provisions of the Act. Besides making the company liable for violating the provisions, section 25 also makes every person responsible who was managing and was in charge of the business of the company while the offence is being committed.
Section 25 operates when the authorised body has violated the provisions of the Act or directions given by the Reserve Bank of India (RBI). The most common cases include:
The following table summarises the offences and penalties prescribed under Section 26 of the Payment and Settlement Systems Act.
These provisions ensure accountability and strengthen compliance with RBI regulations.
The RBI is the regulatory authority that is in charge of enforcing the provisions of the Act. According to the type of violation, it can take actions such as:
26(2)
*T&C Apply
Before taking any penalties, the following aspects may be considered by the RBI:
Some of the examples of non-compliance are:
Compliance mechanisms, sound internal control processes, and consistent regulatory audits will allow companies to mitigate any potential risk related to legalities and regulations. They will also ensure the development of safe and secure payment systems.
The Reserve Bank of India (RBI) acts as the major regulatory authority responsible for the implementation and enforcement of the Payment and Settlement Systems Act, 2007. The regulatory authority is mainly responsible for monitoring the participants in the payment systems and compliance with the provisions of the Act, regulations and directions from the RBI. Whereas Section 25 provides for those persons who can be held liable for any offence committed by the company, the RBI plays an important role in enforcing this provision.
Under the Payments and Settlements Systems Act, 2007, the RBI is empowered to:
To ensure continued compliance, the RBI regularly supervises authorised entities through various mechanisms, including:
Where there are any deficiencies noted, the RBI may give directions to make the entity comply with its directives in a stipulated time frame. Where the violation is grave and repetitive in nature, it may consider taking legal action against the entity or withdraw its authorisation.
Section 25 of the Payment and Settlement Systems Act, 2007 is very important in ensuring accountability in India’s payments framework. By making both corporates and responsible persons accountable for any offences under the Act, it instils good corporate governance within regulated entities.
Why is Section 25 Important for Banks, Financial Institutions, and Payment Service Providers?
For banks, payment system operators, financial technology firms, and PPI issuers, Section 25 emphasises the need for compliance with the RBI rules and guidelines and risk management at the firm level. It ensures that organisations have:
Therefore, payment service providers will provide safe payment services and avoid being subjected to any regulatory penalties.
Even though there is no direct reference to any consumer right through this section, there is an indirect benefit for consumers. In fact, better compliance in terms of regulatory measures will lead to fewer cases of fraud, malfunctioning, unauthorised activity, and disruption of services.
A good regulation of the payment system serves as a source of increased trust in electronic payments. In fact, by imposing responsibilities on companies, Section 25 fosters transparency, business ethics, and regulation, which all serve as important determinants of the stability of India's financial system.
The Payment and Settlement Systems Act, 2007, Section 25 is designed to hold accountable the companies, as well as their responsible officers who commit any offence in relation to the Act, thus fostering compliance and corporate governance. Knowing Section 25 is crucial to be able to comply with the rules set forth by the RBI. For additional guidance on finance-related laws and regulations, visit Loansjagat.
As per Section 25 of the Code of Civil Procedure, 1908, the Supreme Court of India possesses the power to transfer any suit, appeal, or other civil proceeding from one State to another State if, according to it, such a transfer is necessary for doing justice.
Sanctions for contravention of the Act shall include imprisonment, payment of fines, or both depending upon the nature of the contravention. Where an ongoing contravention exists, sanctions will be increased daily.
The RBI Act, 1934 (Section 25) states that the design, form, and matter of Indian banknotes will be determined by the Central Government, with the advice of the Central Board of the Reserve Bank of India (RBI). These sections describe the legal provisions of Indian currency notes.
According to Section 25 of the Indian Evidence Act, 1872, no confession shall be made to a police officer to be used as evidence in a criminal trial. It acts as a safeguard to ensure that the accused does not confess unwillingly.
As per Sections 24 and 25 of the Code of Civil Procedure (CPC) 1908, the superior courts can transfer civil suits, if required, to ensure a fair trial in the matter. As per Section 24 of CPC 1908, the High Court and District Courts can transfer any suit, appeal or other proceedings from one court to another court in the same jurisdiction. As per Section 25 of CPC 1908, the Supreme Court can transfer any civil suit from one State to another State court.
The response to a Section 25 notice needs to be acknowledged and must mention the date and details of the notice in question. It will need to address each accusation separately by giving details about the same. As the legal consequences may vary, it is recommended to seek advice from a legal professional.
The person providing false information and failing to disclose material information will be subject to jail time and a significant fine. This will be dependent upon the severity of the offence and the law itself.
It is not legally necessary for you to seek the services of a lawyer to send a legal notice, since an individual is capable of drafting and sending the notice on their own. Yet, it is wise for you to take legal advice in complex cases.
All individuals or firms who desire to set up or run a payment system must get authorisation from the RBI according to the Payment and Settlement Systems Act. Nevertheless, some people or firms like authorised agents and firms that receive payments from their associated entities are exempted from this.
