RBI Published Revised Framework for Imposing Monetary Penalty and Compounding of Offences under PSS Act, 2007

Reserve Bank of India (RBI) has published the revised ‘Framework for imposing monetary penalty and compounding of offences under the Payment and Settlement Systems Act, 2007’ (Revised Framework). The Revised Framework has been published keeping in view the amendments made to the provisions of the Payment and Settlement Systems Act, 2007 (PSS Act) vide the Jan Vishwas (Amendment of Provisions) Act, 2023, and with the objective of rationalizing and consolidating enforcement action by the RBI.

 

The key changes introduced under the Revised Framework inter alia include the following aspects:

 

1. Offences and Penalties

Pursuant to the Revised Framework, an illustrative list of contraventions / violations with the applicable corresponding provision of the PSS Act that may be examined for enforcement actions has been provided.

 

2. Powers of the RBI to impose penalties and compound contraventions

The revised position prescribed in this regard is as follows:

 

• • Power of RBI to Impose Penalties

In terms of Section 30 of the PSS Act, the RBI is empowered to impose a penalty not exceeding INR 10 lakh or twice the amount involved in such contravention or default where such amount is quantifiable, whichever is more, in case of contraventions / defaults of the nature mentioned in sub-sections (2), (3) and (6) of section 26 of the PSS Act. Where such contravention or default is a continuing one, a further penalty up to INR 25,000/- for every day after the first during which the contravention or default continues, can also be imposed.

• • Compounding of contraventions

Section 31 of the PSS Act empowers an officer of Reserve Bank duly authorized by it in this behalf to compound contraventions, not being an offence punishable with imprisonment only or with imprisonment and fine. Accordingly, contraventions mentioned in sub-sections (1), (3), (4), (5) and (6) of section 26 of the PSS Act are covered for the purpose of compounding.

 

3. Material Contraventions to be penalized / compounded

In this regard, it has been clarified under the Revised Framework that only material contraventions will be taken up for enforcement action in the form of imposition of monetary penalty or compounding of offences.

 

4. Imposition of monetary penalty

• • Procedure for imposing monetary penalty

In relation to the procedure for imposing monetary penalty, the Revised Framework sets out the following process flow for imposing monetary penalty as under:

• • • • Issue of Show Cause Notice (SCN): An SCN may be issued based on the parameters mentioned in Paragraph 5 of the Revised Framework, advising the contravener to show cause as to why the amount specified in the notice should not be imposed as penalty. In cases where a contravener has already been issued with more than one cautionary / warning / displeasure letter for a particular type of contravention by Reserve Bank on earlier occasions of contraventions during the last five years, an SCN shall be issued on the subsequent occasion/s.

• • • • Personal Hearing: The contravener shall be provided with a reasonable opportunity of being heard, if requested by the contravener in reply to the SCN.

• • • • Issue of Speaking Order: The Designated Authority shall pass a Speaking Order based on the material on record, the reply and supporting documents presented by the contravener and also the submissions made in this connection during the Personal Hearing.

• • Quantum of monetary penalty

The Revised Framework provides that that the amount of penalty may be based on the principles of proportionality, intent and mitigating factors, if any. Additionally, it also lists the factors that may be considered for determining the amount of monetary penalty.

 

5. Eligibility for compounding of contraventions

The eligibility for compounding of contraventions will be examined based on the following:

• • Contraventions of the nature mentioned in section 26 (1), (3), (4), (5) and (6) of the PSS Act;
  • The application for compounding of eligible contraventions may be received from an applicant either before or after the institution of any proceedings;
  • The designated authority may take into consideration various factors while deciding on the compounding application under the PSS Act and
  • Mere submission of an application for compounding shall not automatically result in the compounding of the contraventions mentioned in the application and filing of such application shall not confer any right on the applicant to get the contravention compounded.”

 

For more details, kindly refer to the Revised Framework published by the RBI, available by clicking on this link – link.