Framework for Imposing Monetary Penalty and Compounding of Offences under the Payment and Settlement Systems Act, 2007
The Reserve Bank of India (RBI) has revised its framework for imposing monetary penalties and compounding offences under the Payment and Settlement Systems Act, 2007 (PSS Act). This amendment aims to streamline enforcement actions and consolidate penalties for non-compliance with payment system regulations.
Offences and Penalties
Section 26 of the PSS Act outlines offences related to the operation of payment systems. Key contraventions include:
- Operating a payment system without proper authorization.
- Providing false or misleading statements in applications or reports.
- Failure to furnish required statements, documents, or information.
- Unauthorized disclosure of protected information.
- Non-compliance with RBI directives and failure to pay penalties.
For these violations, RBI can impose penalties up to ₹10 lakh or twice the amount involved in the contravention, whichever is higher. If the contravention continues, an additional penalty of ₹25,000 per day may be levied.
Powers to Impose and Compound Penalties
RBI, under Section 30 of the PSS Act, has the authority to impose financial penalties, while Section 31 empowers it to compound offences. Only contraventions not punishable with imprisonment can be compounded.
The designated authority for imposing penalties consists of:
- A committee of three Executive Directors for central cases.
- A Regional Director with two senior officers for regional cases.
Procedure for Imposing Penalties
- Show Cause Notice (SCN) – Issued for significant breaches, especially if prior warnings exist.
- Personal Hearing – The contravener can present their case.
- Speaking Order – A final decision is issued based on evidence and explanations.
Compounding of Offences
Entities can apply for compounding before or after proceedings start. RBI considers factors like severity, financial impact, and compliance history. The compounding amount is typically 25% less than the penalty, but repeat offenders may face a 50% increase.
Consequences of Non-Payment
Penalties or compounding amounts must be paid within 30 days. Failure to do so may lead to legal action, criminal proceedings, or loss of the right to apply for compounding again.
Disclosure Requirements
Entities must disclose penalties in their financial statements and RBI publishes enforcement actions on its website.
This revised framework strengthens compliance in the payment system sector, ensuring adherence to regulatory norms and financial discipline.
