The Reserve Bank of India (RBI) has introduced a revised framework for imposing monetary penalties and compounding offences under the Payment and Settlement Systems Act, 2007 (PSS Act).
Key Offences Under the PSS Act, 2007
Section 26 of the PSS Act details the offences that warrant penalties, including:
- Operating a payment system without authorization or failing to comply with authorization conditions.
- Providing false statements or omitting crucial information in applications or returns.
- Failing to submit required statements, information, or documents to the RBI.
- Unauthorized disclosure of prohibited information.
- Non-compliance with RBI directions, including failure to pay imposed penalties.
- Violations related to data storage, KYC/AML norms, and escrow account maintenance.
These contraventions affect the integrity and security of India’s financial ecosystem, necessitating stringent regulatory oversight.
RBI’s Powers to Impose Penalties
As per Section 30 of the PSS Act, RBI can levy fines up to ₹10 lakh or twice the amount involved in the contravention, whichever is higher. In cases of ongoing violations, an additional penalty of ₹25,000 per day may be imposed until the contravention ceases.
Compounding of Offences
The RBI is empowered under Section 31 of the PSS Act to compound certain contraventions, excluding offences punishable with imprisonment. Compounding allows violators to settle regulatory breaches without undergoing prolonged legal proceedings. This process applies to offences such as unauthorized disclosures, failure to submit documents, and non-compliance with regulatory directives.
Process for Imposing Monetary Penalties
- Issuance of Show Cause Notice (SCN): Entities in violation receive an SCN outlining the alleged breach and proposed penalty.
- Personal Hearing: Offenders can request a hearing to present their case.
- Speaking Order: The designated authority evaluates all evidence before issuing a final decision on penalties.
The quantum of penalty is determined based on proportionality, financial impact, and intent behind the contravention.
Procedure for Compounding Offences
Entities seeking compounding must submit an application to the RBI along with relevant documents. The RBI then examines the case, seeks additional information if required, and may conduct a personal hearing. A final compounding order is issued within six months of receiving a complete application.
Consequences of Non-Payment
Failure to pay monetary penalties within 30 days can result in further regulatory action, including criminal proceedings and additional financial penalties. Non-payment of compounding fees nullifies the compounding benefit, making the violator liable for further legal consequences.
Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12773&Mode=0
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