Section 25 of The Payment and Settlement Systems Act, 2007: Advocates & Lawyers
Section 25 of The Payment and Settlement Systems Act, 2007: Dishonour of Electronic Funds Transfer
Section 25 of the Payment and Settlement Systems Act, 2007 addresses the offence and penalties related to the dishonour of electronic funds transfers due to insufficient funds or exceeding the credit limit in the payer’s account.
Offence Defined: If a person initiates an electronic funds transfer to discharge a debt or liability and the transfer is dishonoured due to insufficient funds or because it exceeds the arrangement made with the bank, it constitutes an offence.
Penalty: The person responsible for the dishonoured transfer can face:
Imprisonment for up to two years, or
A fine up to twice the amount of the dishonoured transfer, or
Both imprisonment and fine.
Notice Requirement: The beneficiary (payee) must notify the payer in writing about the dishonour within 30 days of receiving information from the bank. If the payer does not make the payment within 15 days of receiving this notice, prosecution can be initiated.
Presumption of Debt: There is a legal presumption that the electronic funds transfer was made for the discharge of a debt or liability unless proven otherwise.
Application of Negotiable Instruments Act: Section 25(5) clarifies that the provisions of Chapter XVII of the Negotiable Instruments Act, 1881 (notably Section 138, which deals with dishonour of cheques) apply to dishonour of electronic funds transfers as far as circumstances permit.
Purpose and Implications
Accountability: The law holds individuals strictly accountable for ensuring sufficient funds are available before initiating an electronic transfer.
Protection for Beneficiaries: The provision acts as a safeguard for those expecting payment, ensuring a legal recourse if electronic payments are dishonoured.
Deterrence: Criminalization of dishonoured electronic transfers is intended to promote prompt and reliable payments in the electronic payment ecosystem.
Legal Consistency: By applying the principles of the Negotiable Instruments Act, the section ensures consistency in handling dishonoured payments, whether by cheque or electronic means.
| Aspect | Provision under Section 25 |
|---|---|
| Offence | Dishonour of electronic funds transfer due to insufficient funds or exceeding limit |
| Penalty | Up to 2 years imprisonment, or fine up to twice the transfer amount, or both |
| Notice Requirement | Beneficiary must notify payer within 30 days; payer has 15 days to pay after notice |
| Presumption | Transfer presumed for discharge of debt/liability unless proved otherwise |
| Related Law | Provisions of Negotiable Instruments Act, 1881 apply as relevant |
Section 25 thus provides a robust legal mechanism for addressing dishonour of electronic payments, mirroring the protections and procedures established for dishonoured cheques, and ensuring both accountability and protection in digital transactions.
