(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.
Simplified Explanation
Section 25 of the Payment and Settlement Systems Act, 2007 deals with the dishonour of electronic funds transfers due to insufficient funds in the account. It establishes the penalties and conditions under which a person may be penalized for initiating an electronic funds transfer that cannot be honoured due to a lack of funds or exceeding pre-arranged payment limits.
Key Provisions of Section 25:
- Offence and Penalty (Subsection 1):
- Offence: A person who initiates an electronic funds transfer from their account, but the transfer cannot be executed due to insufficient funds or exceeding the agreed-upon limit, is deemed to have committed an offence.
- Penalty: The person may be punished with:
- Imprisonment for a term that may extend up to two years, or
- A fine that may extend to twice the amount of the electronic funds transfer, or
- Both imprisonment and fine.
- Conditions for the offence to apply:
- The transfer must have been initiated for the payment of a debt or other liability.
- The transfer must have been done according to the relevant procedural guidelines issued by the system provider.
- The beneficiary must demand payment in writing, giving notice within 30 days of receiving information from the bank about the dishonour.
- The person initiating the transfer must fail to pay the amount to the beneficiary within 15 days of receiving the demand notice.
- Presumption Regarding Debt or Liability (Subsection 2):
- Presumption of Debt: It is presumed, unless proven otherwise, that the electronic funds transfer was initiated for the discharge of a debt or other liability, in whole or in part.
- This presumption simplifies proving the intent behind the transfer.
- Defence Not Allowed (Subsection 3):
- It is not a valid defence in a prosecution that the person who initiated the transfer did not know, or had no reason to believe, that their account balance was insufficient at the time of initiating the transfer.
- The responsibility lies with the person initiating the transfer to ensure there are sufficient funds in their account.
- Presumption of Dishonour (Subsection 4):
- If a bank communication is produced showing the dishonour of the electronic funds transfer, it will be presumed, unless disproved, that the dishonour occurred. This reduces the burden of proof on the prosecution.
- Application of the Negotiable Instruments Act (Subsection 5):
- The provisions of Chapter XVII of the Negotiable Instruments Act, 1881, which deal with dishonour of cheques and related matters, will also apply to the dishonour of electronic funds transfers, to the extent applicable.
- This provides consistency in the treatment of dishonoured financial instruments.
- Definition of “Debt or Other Liability” (Explanation):
- The term “debt or other liability” refers to a legally enforceable debt or liability.
- This clarification ensures that the offence applies to legitimate financial obligations and not to informal debts or liabilities.
Summary of Key Elements:
- Offence and Penalty: If an electronic funds transfer is dishonoured due to insufficient funds or exceeding pre-arranged limits, the person initiating the transfer is deemed to have committed an offence, punishable by imprisonment or a fine, or both.
- Conditions for Applicability:
- The transfer must be for the payment of a debt or liability.
- The beneficiary must give written notice of dishonour within 30 days.
- The person who initiated the transfer must fail to make the payment within 15 days after receiving the notice.
- Presumption of Debt: There is a presumption that the funds transfer was made to discharge a debt or liability unless proven otherwise.
- No Defence for Insufficient Funds: It is not a defence that the person initiating the transfer did not know about insufficient funds in the account.
- Presumed Dishonour: A bank communication showing dishonour of the transfer is sufficient proof unless disproven.
- Negotiable Instruments Act: Provisions related to dishonour in the Negotiable Instruments Act apply to dishonour of electronic funds transfers.
Practical Implications:
- Accountability: Individuals who initiate electronic transfers are responsible for ensuring sufficient funds are available in their accounts. If the transfer is dishonoured, they may face penalties.
- Notice Requirement: The beneficiary must notify the person initiating the transfer of the dishonour within 30 days, and if payment is not made within 15 days, the initiator could be prosecuted.
- Clarification of Debt: The term “debt or other liability” ensures that this provision targets legitimate financial obligations, not informal debts.
- Legal Consistency: The application of provisions from the Negotiable Instruments Act creates consistency in handling dishonoured financial transactions.
In summary, Section 25 provides a legal framework for holding individuals accountable for dishonouring electronic funds transfers due to insufficient funds and ensures that there are penalties for such offences while providing clear guidelines on dispute resolution.
