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Section 25 of The Payment and Settlement Systems Act, 2007
- (1)Where an 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 instruction or that it exceeds the amount arranged to be paid from that account by an agreement made with a bank, such person shall be deemed to have committed an offence and shall, without prejudice to any other provisions of this Act, be punished with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the electronic funds transfer, or with both: Provided that nothing contained in this section shall apply unless--
- (a)the electronic funds transfer was initiated for payment of any amount of money to another person for the discharge, in whole or in part, of any debt or other liability;
- (b)the electronic funds transfer was initiated in accordance with the relevant procedural guidelines issued by the system provider;
- (c)the beneficiary makes a demand for the payment of the said amount of money by giving a notice in writing to the person initiating the electronic funds transfer within thirty days of the receipt of information by him from the bank concerned regarding the dishonour of the electronic funds transfer; and
- (d)the person initiating the electronic funds transfer fails to make the payment of the said money to the beneficiary within fifteen days of the receipt of the said notice.
- (2)It shall be presumed, unless the contrary is proved, that the electronic funds transfer was initiated for the discharge, in whole or in part, of any debt or other liability.
- (3)It shall not be a defence in a prosecution for an offence under sub-section (1) that the person, who initiated the electronic funds transfer through an instruction, authorisation, order or agreement, did not have reason to believe at the time of such instruction, authorisation, order or agreement that the credit of his account is insufficient to effect the electronic funds transfer.
- (4)The Court shall, in respect of every proceeding under this section, on production of a communication from the bank denoting the dishonour of electronic funds transfer, presume the fact of dishonour of such electronic funds transfer, unless and until such fact is disproved.
- (5)The provisions of Chapter XVII of the Negotiable Instruments Act, 1881 (26 of 1881) shall apply to the dishonour of electronic funds transfer to the extent the circumstances admit. Explanation.--For the purposes of this section, "debt or other liability" means a legally enforceable debt or other liability, as the case may be.
Summary
- It is a criminal offence if an electronic funds transfer fails because there is not enough money in the account.
- It is also an offence if the transfer exceeds the amount agreed upon with the bank.
- Punishment can be up to two years in prison, a fine up to twice the amount of the transfer, or both.
- The transfer must be for paying a debt or a legal liability.
Practical examples
1On June 1, Arjun schedules an electronic transfer of 20,000 rupees to pay his credit card bill. The transfer fails because he only has 5,000 rupees. The bank informs the credit card company on June 3. The company sends Arjun a notice on June 10. Arjun ignores it and doesn't pay by June 25, making him liable for prosecution.
2Meera sends an electronic instruction to pay 1 lakh to a supplier. Her bank agreement only allows transfers up to 50,000. The transfer is rejected. Even though she has the money, she has exceeded her limit, which counts as an offence under this section if she doesn't fix it after getting a notice.
FAQ
1. Is it a crime if I genuinely forgot I was low on cash?
Yes, the law says it is not a defense to claim you had no reason to believe the account had insufficient funds.
2. What is the maximum jail time for this?
You can be punished with imprisonment for a term which may extend to two years.
3. Does this apply to gifts?
Generally no, it applies to transfers made for the discharge of a debt or other legally enforceable liability.
Test yourself
Q1.Under Section 25 of The Payment and Settlement Systems Act, 2007, what is the maximum fine a court can impose for a failed electronic funds transfer?
Q2.Under Section 25 of The Payment and Settlement Systems Act, 2007, how many days does a person have to pay the money after receiving a notice of dishonour?
Q3.Under Section 25 of The Payment and Settlement Systems Act, 2007, what must a beneficiary do within 30 days of hearing from the bank about a failed transfer?
Q4.According to Section 25 of The Payment and Settlement Systems Act, 2007, what is the legal presumption regarding the purpose of a failed electronic transfer?