Skip to main content

Framework for imposing monetary penalty and compounding of offences under the Payment and Settlement Systems Act, 2007

Reserve Bank of India (RBI) has released the framework for imposing monetary penalty and compounding of offences under the Payment and Settlement Systems Act, 2007.

What are the contraventions as per the Payment and Settlement Systems Act, 2007 (PSS Act)?

As per Section 26 of the Payment and Settlement Systems Act, 2007 (PSS Act), the contraventions are as under –

  • Operation of a payment system without authorisation or failure to comply with the terms and conditions subject to which authorisation was issued [section 26(1)].
  • Wilfully makes a statement which is false in any material particular or wilfully omits to make a material statement in any application for authorisation or return or other document or information [section 26(2)].
  • Failure to produce any statement, information, returns or documents [section 26(3)].
  • Disclosure of information which is prohibited [section 26(4)].
  • Non-compliance of direction issued by RBI or failure to pay the penalty imposed by RBI within the stipulated period [section 26(5)].
  • Contravention of any provision of the PSS Act or if any default is made in complying with any other requirements of the PSS Act, or any regulation, order or direction made or given or condition imposed thereunder [section 26(6)].

How is the materiality of a contravention determined?

Only material contraventions will be taken up for enforcement action in the form of imposition of monetary penalty or compounding of offences. The materiality of a contravention would be determined based on various factors including –

  • Severity of contravention in terms of degree of breach of norms / limits (isolated, localised, extensive, widespread).
  • Period and frequency of a similar contravention during the past 5 years.
  • Seriousness of the contravention, percentage of amount involved in the contravention vis-à-vis total value of transactions handled by the contravener during the period under consideration.
  • Amount involved in the contravention.
  • Submission of wrong / false / incomplete compliance.

Who is the designated authority for imposing monetary penalty and compounding of contraventions?

The designated authority for imposing monetary penalty and compounding of contraventions shall be –

  • Committee comprising 3 Executive Directors in respect of cases handled by Central Office of Enforcement Department.
  • Committee comprising Regional Director and 2 senior officers at the Regional Office of Enforcement Department.

What is the procedure for imposing monetary penalty?

  • A Show Cause Notice (SCN) may be issued 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 RBI on earlier occasions of contraventions during the last 5 years, an SCN shall be issued on the subsequent occasions.
  • The contravener shall be provided with a reasonable opportunity of being heard, if requested by the contravener in reply to the SCN.
  • 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.

What shall be the quantum of penalties?

  • The amount of monetary penalty for a contravention shall not exceed ₹10 lakh or twice the amount involved in such contravention, where such amount is quantifiable, whichever is more [Section 30]. 
  • Where such contravention or default is a continuing one, a further penalty up to ₹25,000/- for every day after the first during which the contravention or default continues, can also be imposed.

The amount of penalty may be based on the principles of proportionality, intent and mitigating factors, if any. 

Which contraventions can be compounded?

Section 31 of the PSS Act empowers an officer of RBI duly authorised 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.

What is the procedure for compounding?

  • An applicant wishing to seek compounding of eligible contraventions, shall submit an application, along with the supporting documents, to the Enforcement Department, RBI, Central Office. The applicant shall also give an undertaking that they are not under any enquiry / investigation / adjudication by any Law Enforcement Agency, such as Directorate of Enforcement, Directorate of Revenue Intelligence, Central Bureau of Investigation, etc. 
  • The contravener shall be provided with a reasonable opportunity of being heard by the respective Designated Authority.
  • The Designated Authority shall pass an order as expeditiously as possible, but within 6 months from the date of receipt of the complete compounding application.
  • Where a contravention has been compounded by RBI, no proceeding shall be initiated / continued against the person committing such contravention, in respect of the contravention so compounded.

What shall be the compounding amount?

  • The compounding amount may be 25% less than the calculated amount of fine / penalties that would have otherwise been imposed.
  • In case of repeated contraventions (within 5 years) in respect of which compounding has been done on earlier occasion, the compounding amount may be increased by 50% of the calculated compounding amount, subject to limits prescribed under statutory provisions.

What is the timeline for payment of monetary penalty or compounding amount?

  • The monetary penalty or compounding amount shall be payable within 30 days from the date of receipt of penalty or compounding order.
  • In case of failure to pay the penalty amount, RBI may initiate appropriate action against the contravener as per section 8 or section 30 (3) or section 33 of the PSS Act.
  • In the event of failure to pay the compounding amount within the stipulated time, it shall be deemed / treated as if the contravention has not been compounded and the applicant may become liable for being criminally proceeded with before the court of competent jurisdiction and / or such other action as RBI may deem fit in accordance with law. The applicant would not be entitled to file another application for compounding the contravention in respect of which the compounding order was passed.

What are the disclosure requirements?

The entities shall disclose the details of monetary penalty imposed in their Notes to Accounts that are part of Annual Financial Statements for the financial year in which the penalty is levied.


References

Reserve Bank of India. (2025, January 30). 'Framework for imposing monetary penalty and compounding of offences under the Payment and Settlement Systems Act, 2007'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12773&Mode=0


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Amendments in / additions to forex guidelines

Reserve Bank of India (RBI) has amended various forex guidelines. This article lists out some of the such recent amendments. What are the updates in the existing guidelines? Previous guidelines Revised guidelines Persons resident outside India that maintain a rupee account in terms of regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016 may purchase or sell dated Government Securities / treasury bills. The amount of consideration paid for the purchases shall be out of the funds held in the said rupee account. Persons resident outside India that maintain a rupee account in terms of regulation 7(1) of Foreign Exchange Management (Deposit) Regulations, 2016 may purchase or sell dated Government Securities / treasury bills and non-convertible debentures / bonds and commercial papers issued by an Indian company. The amount of consideration paid for the purchases shall be out of the funds held in the said rupee account. The balance...
Post a Comment
Read more

FX Global Code

Reserve Bank of India (RBI) has signed its renewed Statement of Commitment (SoC) to the FX Global Code.  What is FX Global Code? FX Global Code is a set of global principles of good practice in the foreign exchange market. The Code contains 55 principles that provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market. The principles cover ethics, governance, execution, information sharing, risk management and compliance as well as confirmation and settlement. The establishment of the Code was facilitated by the Foreign Exchange Working Group (FXWG), which operated under the auspices of the BIS Markets Committee.  The Code was developed by a partnership between central banks and market participants from around the globe and was first published in 2017. The Code promotes a robust, fair, liquid, open, and appropriately transparent market in which a diverse set of market participants, supported by resilient infras...
Post a Comment
Read more

Nomination for demat accounts and mutual fund folios

Securities and Exchange Board of India (SEBI) had revised the guidelines on nomination for demat accounts and mutual fund folios.   Which entities are covered by the guidelines? The following regulated entities (REs) are covered by the guidelines – Asset Management Companies (AMCs) of Mutual Funds (MFs) and their Registrars to an issue and share Transfer Agents (RTAs)  Association of Mutual Funds in India (AMFI)  Recognized Depositories  Registered Depository Participants (DPs) What are the guidelines on nomination facility? Nomination shall be mandatory for single holding and optional for jointly held accounts / folios. However, an investor having single holding / account / folio can opt-out of nomination, either online or through physical / offline mode. In case a joint account / folio becomes single holding, post the demise of holders, either nomination or ‘opt-out’, is mandatory. Investors shall have the option to specify guardians when nominees are minors....
Post a Comment
Read more

Nomination Facility in Banks

Reserve Bank of India (RBI) has issued directions on nomination facility in deposit accounts, safe deposit lockers and articles kept in safe custody with the banks. What is the legal framework for nomination facility in banks? Banking Regulation Act, 1949 (BR Act) contain provisions on nomination facility in banks. Section 45ZA – Nomination for payment of depositors' money  Where a deposit is held by a banking company to the credit of one or more persons, the depositor / all the depositors together, may nominate one person to whom in the event of his / their death, the amount of deposit may be returned by the banking company. Where the nominee is a minor, the depositor shall appoint any person to receive the amount of deposit in the event of his death during the minority of the nominee. Section 45ZC – Nomination for return of articles kept in safe custody with banking company  Where any person leaves any article in safe custody with a banking company, such person may nominate ...
Post a Comment
Read more

Recognition of Self-Regulatory Organisations (SROs) for Non-Banking Financial Companies (NBFCs)

Reserve Bank of India (RBI) has invited applications for recognition of Self-Regulatory Organisations (SROs) for Non-Banking Financial Companies (NBFCs). What is the basis of Self-Regulatory Organisations (SROs) for Non-Banking Financial Companies (NBFCs)? Reserve Bank of India (RBI) had issued ‘ Omnibus Framework for recognition of Self-Regulatory Organisations for Regulated Entities of the Reserve Bank ’ dated March 21, 2024, wherein broad parameters, viz., objectives, responsibilities, eligibility criteria, governance standards, application process, etc., were specified. It was also stated that other sector-specific guidelines like number of SROs, membership, etc., shall be issued separately whenever a sectoral SRO is intended to be set up. RBI has now invited applications for recognition of SROs for the NBFC sector under the aegis of the aforesaid omnibus framework.  What are the membership criteria for the SRO for NBFCs? The SRO for NBFC sector is primarily envisaged for NBFCs...
Post a Comment
Read more