Under Section 25 of the Payment and Settlement Systems Act, 2007, the dishonour of an electronic fund transfer (EFT) due to insufficient funds or exceeding credit limits is a criminal offense, similar to a cheque bounce, which attracts penalties up to two years imprisonment, fines up to twice the amount, or both.
The Payment and Settlement Systems Act, 2007 (PSS Act)
PSS Act is the primary legislation in India that provides a legal framework for the regulation and supervision of payment systems. Enacted in 2007 and effective from August 12, 2008, it designates the Reserve Bank of India (RBI) as the sole authority to oversee payment systems.
The Act promotes a secure, efficient, and transparent digital economy by authorizing, regulating, and supervising both paper-based and electronic payments, including UPI, NEFT, RTGS, and prepaid instruments.
Procedure for Action
- Notice: The beneficiary must send a written notice to the payer within 30 days of receiving information about the dishonour.
- Payment Window: The person initiating the transfer has 15 days to pay the amount after receiving the notice.
- Legal Action: If payment is not made within the 15-day window, the beneficiary can initiate legal proceedings.
Presumption of Liability and Evidence
Courts presume that the EFT was initiated to discharge a debt or liability, unless proven otherwise. A bank communication confirming the dishonour of the EFT is essential proof.
The Act Ensures Safety and Surety
The Act has facilitated a transition towards digital payments by strengthening the legal and functional safety of systems like UPI and card networks, ensuring they are reliable and secure.
