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Stella (Artist)     03 January 2009

Dishonoring ECS

Dear Forum Members,

Would be great if anyone can advise me the Law on Dishonoring an ECS. Is it the same as the 'Negotiable Instruments Act Sec 138 ?'
Please email your comments to stellabasel@gmail.com.

Thank you,
Regards,

Stella Basel (Goa)
Artist


Learning

 12 Replies

AEJAZ AHMED (Legal Consultant/Lawyer)     03 January 2009

DEAR STELLA,


Yes, Dishonour of ECS shall be triable under " The Payment and Settlement System Act 2007" , which is same as Dishnour of Cheque U/S. 138 of N.I. Act.


ECS dishonored cheques case shall be triable Under Section 25 of payment and settlement system act 2007.


Dear Stella, You can find pdf formate of  The Payment and Settlement System Act - 2007, in the attached file below, so go through Section 25 of the Act. 


Attached File : 29 the payment and settlement system act - 2007.pdf downloaded: 1256 times

AEJAZ AHMED (Legal Consultant/Lawyer)     03 January 2009

DEAR STELLA,


Your E-mail is not recognised as per the G-Mail site, so I could not send the above details in your mail.  

Stella (Artist)     04 January 2009

Dear Aejaz,


I got your email. Thank you for taking time to send it.


And have a great weekend.


Regards,


Stella


 

RAKHI BUDHIRAJA ADVOCATE (LAWYER AT BUDHIRAJA & ASSOCIATES SUPREME COURT OF INDIA)     08 January 2009

Gud collection Sir, Thanx a lot for providing the same.

govind r (student)     04 December 2009

thank you sir, the information was a great help.

SATYANARAYANA K (Advocate)     05 December 2009

Thank you very much sir, Mr. Aejaz Ahmed, Good information provided by you it will be more useful to others

shiva (Office Administrator Cum Draftor)     03 September 2010

Originally posted by :Stella
" Dear Forum Members,Would be great if anyone can advise me the Law on Dishonoring an ECS. Is it the same as the 'Negotiable Instruments Act Sec 138 ?'Please email your comments to stellabasel@gmail.com.Thank you,Regards,Stella Basel (Goa)Artist
 
"

Dear Sir,

          My name is G.Shiva and i am a Law Student i thank you for suggestion you gave but i want a complaint and notice format for dishonour of ECS. It is very important to me sir, if you have the format for the same you please forward the same to me.

 

Thanking you

 

 

G.SHIVA 

shiva (Office Administrator Cum Draftor)     03 September 2010

Originally posted by :Stella
" Dear Forum Members,Would be great if anyone can advise me the Law on Dishonoring an ECS. Is it the same as the 'Negotiable Instruments Act Sec 138 ?'Please email your comments to stellabasel@gmail.com.Thank you,Regards,Stella Basel (Goa)Artist
 
"

Dear Sir

               This is my email gsksivadha09@gmail.com i will be very thankful to you if you send me the format of complaint and notice for dishonour of ECS.

Thanking you

 

G.SHIVA

Aniruddha Kulkarni (abc)     24 February 2011

Dear Knowledgiable members,

Please help me in this issue.

I have a personal loan with NBFC, to repay i setup ECS facility.

For ECS there are two forms 1) ECS Mandate 2) ECS Request.

In the very first month this NBFC forgot to submit the mandate to my bank, and they submitted ECS request on 3rd March 2010. Without mandate my bank rejected that ECS request. Realising the mistake NBFC submitted mandate on 4th March.


Now they are charging me Rs. 580 as ECS Bounce charges.

I have collected all the system audit records from my bank which shows

1)Date of ECS Request

2) Date of Mandate received.

3) Date of EMI debited.

I have read somewhere that according to RBI guidelines banks or NBFCs can charge penalties only in case of "Insufficient Balance" Since my NBFC clearly charging me for the mistake they have done, it's aclear violation of RBI, the central body's rules & regulations.


What action i can take against this fraudulant practice.

Warm Regards

Aniruddha

Rajinder Singh Bhalla (Proprietor)     22 January 2013

Since in this you are not at fault. Register your grievance with the bank asking for crediting the amount charged. After your notice to the bank you can file a complaint with banking ombudsman and claim compnsation of Rs. 100 for per day delay of giving you the credit of the bank charges for bounching of ECS.

Rajinder Singh Bhalla (Proprietor)     22 January 2013

I think that laws relating to dishonour of cheques and dishonour of ECS is not properly understood by any one. Failed ECS will not be normally covered by section 138 of negotiation instruments act.

One needs to read the payments and settlement systems act 2007 in entirety and try to understand the scheme of the act. 

One needs to pay special attention to the meaning of initiation of ECS.

Scheme of the Act is that the complaint under the act can be filed by an officer of RBI. However an aggrieved person can also file the complaint. By looking at the scheme of the act it seems to mean that an aggrieved person is one who has acted on the initiation of ECS m(supplied the goods after initiation of the ECS). ECS given in advance for purchase of goods are not covered under this act. 

Jagruti (officer)     28 July 2014

 

Whether the Payment and Settlement System Act 2007 is applicable on individuals or not?

answer this question is affirmative for the following reasons.

The Payment and Settlement System Act 2007 has been enacted to provide a legal framework to the settlement systems which are largely operating on the voluntary basis without any statutory backing whatsoever. The relevant portion of statement of objects and reasons is as follows.

“ the payment and settlement systems serve as the backbone of financial system of the country. In India, a host of payment systems are in operation, ranging from manual paper-based clearing to the real-time gross settlement……..

clearing houses are not legal entities, but voluntary bodies of banks who have come together for the express purpose of clearing payment instructions. The rules and regulations for the functioning of clearing houses are contractual in nature…..

In view of the above, it is considered necessary to enact specific legislation…..”

 

The first reading of the Payment and Settlement System Act of 2007 gives the impression that this has been only enacted for the purpose of the banks and financial institutions.

However, to my understanding, it is applicable to all persons. In order to support my contention, I will rely upon few provisions of the Payment and Settlement System Act of 2007.

System provider — system provider means a person who operates an authorized payment system.

System participant — system participant means a bank or any other person participating in a payment system and includes the system provider.

 Payment system — payment system means a system that enables payment to be effected between a paper and a beneficiary, involving clearing, payment or settlement service or any of them, but does not include a stock exchange.

Payment and Settlement System Act of 2007 is applicable to a system participant. System participants include a “person”. The “person” has not been defined under the act.

 

However, for the purpose of the enactment system participant means “any person participating in a payment system”.

Going by the definition of payment system, every person who is carrying transaction, which is being processed by a payment system, would be a system participant.

Thus, The Payment and Settlement System, Act 2007 is applicable to every person and not only to the banks or system providers.

In fact, the definition of payment system makes it amply clear that every payer and a beneficiary is a system participant.

 

 Meaning thereby, a person who gives an instruction to his bank to credit or debit particular account or execute payment instructions on his behalf would be a system participant, because by giving instructions; he is participating in a payment system.

 

payment system requires at least three parties, one is payer, another is the beneficiary and the third one is the bank. All the three are System participants, because they are participating in payment system.

 

 The word “person” has been used in the Payment and Settlement System Act of 2007 without any limitations/restrictions. For the purpose of the Act a person can be individual; it can be a corporate body or a financial institution.

 

Chapter 3, 4 and 5 respectively deals with authorization of payment systems, regulation and supervision by the reserve bank, and the rights and duties of a payment system provider. 

 

 In these chapters, the word person has been used in its broadest connotation. Any person can apply for a license. The person who has applied for the license will be scrutinized by the RBI.

In case the person has been granted a license, he will be bound by the guidelines issued by the RBI from time to time. The person applying for the license need not be a bank, financial institution, banking company, or corporate entity.

The act says that any person can apply; therefore, any person who fulfils the criteria laid down by RBI will be illegible for grant of license under the Payment And Settlement Systems Act 2007.

 

 The last and most crucial sections are section 25 and section 28 of the Payment and Settlement Systems, Act 2007. These two sections specifically deal with the cases of individuals in case of default.

Section 25 relates to dishonour of electronic funds transfer for insufficiency of funds in the account.

 

The first part of the section says where and electronic funds transfer initiated by a person from an account maintained by him cannot be executed on the ground that the amount of money standing to the credit of that account is insufficient to honour the transfer instructions or that it exceeded the amount as to be paid from that account by any agreement made with the bank,

 

such person shall be deemed to have committed an offence — – this extract of section 25 makes it clear that an individual can be a system participant. Because an individual is participating in payment system by giving instructions and due to the failure of instruction on account of insufficiency of fund, he will become liable for punishment, under section 25.

The object and the reasons for enacting section 25 of Payment and Settlement System Act of 2007 are the same as behind section 138 in the Negotiable Instrument Act.

 

 Then reading section 28, coupled with section 25 will leave no scope of doubt of any sort regarding the applicability of the Payment and Settlement System, Act 2007 on the individuals. Section 28 deals with cognizance of offences.

The first part of section 28 is specifically relate to the RBI. It says that no court shall take cognizance of an offence punishable under this act except on the complaint in writing made by an officer of RBI.

 

 

 

However, an exception has been carved in the second part of subsection 1 of section 28 of the Payment and Settlement Systems at 2007.

 

 

 

It say s “ provided that the court may take cognizance of an offence punishable under section 25 upon a complaint in writing made by the person aggrieved by the dishonour of electronic funds transfer.”

 

 

 

Meaning thereby, any person who is aggrieved can make a complaint in writing and the court is free to take cognizance on such a complaint,

 

 

 

if the ingredients of section 25 has been fulfilled.

 

 

 

Thus, if any electronic instruction cannot be executed on account of insufficiency of the funds in the account of instructor,

 

 

 

then he shall be liable under section 25 of the Payment and Settlement Systems, Act 2007.

 

 

 

CONCLUSION :-

 

 

 

Any individual can file such a complaint against any individual. In the scheme of the Act the beneficiary and payer will always be a person and person will include an individual apart from corporate entities.

 

 

 

This conclusion can be supported by section 26 and 27 of Payment and Settlement System Act of 2007 which deals with punishment in case of persons and companies.

 

For these reasons, I believe that The Payment and Settlement Systems at 2007 is applicable to, the individuals who are participating in a payment system, either by giving instructions or by receiving payments.


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