Payment and Settlement Systems Act: Section 27 – Offences by companies

(1) Where a person committing a contravention of any of the provisions of this Act or any regulation, direction or order made thereunder is a company, every person who, at the time of the contravention, was in-charge of, and was responsible to, the company for the conduct of business of the company, as well as the company, shall be guilty of the contravention and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.

(2) Notwithstanding anything contained in sub-section (1), where a contravention of any of the provisions of this Act or of any regulation, direction or order made thereunder has been committed by a company and it is proved that the contravention has taken place with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

Explanation.–For the purposes of this section,–

(a) “company” means any body corporate and includes a firm or other association of individuals; and

(b) “director”, in relation to a firm, means a partner in the firm.

Simplified Explanation

Section 27 of the Payment and Settlement Systems Act, 2007 deals with the liability of companies and their officers in cases where the company contravenes any provision of the Act or its regulations, directions, or orders. This section is designed to hold both the company and its responsible individuals accountable for violations of the Act.

Key Provisions of Section 27:

1. Liability of Company and Responsible Persons (Subsection 1):
   • Offence by Company: If a company commits a contravention of the Act or any related regulation, direction, or order, the company itself is held accountable.
   • Liability of Responsible Individuals: Every person who was in charge of and responsible for the company’s business at the time of the contravention is also liable. This includes directors, managers, and others responsible for the conduct of the business.
   • Defence for Responsible Persons: A responsible person will not be liable if they can prove:
     • The contravention took place without their knowledge.
     • They exercised all due diligence to prevent the contravention.
2. Consent, Connivance, or Neglect of Directors or Officers (Subsection 2):
   • Company’s Officer Responsibility: If a company commits a contravention and it is proven that:
     • The contravention occurred with the consent or connivance of, or
     • It is attributable to the neglect of any director, manager, secretary, or other officer of the company,
   • Then those individuals (directors, managers, secretaries, etc.) will also be held guilty of the contravention and will be liable to be proceeded against and punished accordingly.
3. Definitions for the Purpose of Section 27:
   • Company: The term “company” is broadly defined to include any body corporate, which means it also covers firms and other associations of individuals.
   • Director in Relation to a Firm: In the case of a firm, the term “director” is defined as a partner in the firm.

Summary of Section 27:

1. Liability of the Company and its Officers:
   • When a contravention occurs, both the company and its responsible officers (like directors, managers, etc.) are held accountable.
   • Responsible individuals can defend themselves if they prove that the contravention occurred without their knowledge or due diligence to prevent it.
2. Directors and Officers’ Accountability:
   • If the contravention is proven to be with the consent, connivance, or neglect of any officer (director, manager, secretary), those individuals are also held accountable.
3. Broad Definitions:
   • The definition of “company” is inclusive, covering bodies corporate, firms, and other associations.
   • A “director” in a firm is treated as a partner for the purposes of this section.

Practical Implications:

• Corporate Accountability: This section places significant responsibility on both the company and its officers to ensure compliance with the provisions of the Act. It ensures that individuals in positions of authority cannot evade responsibility by merely attributing the violation to the company as a whole.
• Due Diligence Defense: The provision allowing responsible individuals to defend themselves by proving lack of knowledge or failure to exercise due diligence emphasizes the importance of internal controls and governance within companies.
• Enforcement Against Individuals: Even if a company commits an offence, individuals who are complicit, or whose actions or negligence contributed to the violation, will be personally liable for prosecution, which incentivizes higher standards of corporate governance and compliance.
• Applicability to Firms: The inclusion of firms under the definition of “company” and the recognition of partners as directors ensures that small businesses and partnerships are also covered under this provision, reinforcing personal responsibility among partners in the firm.

In essence, Section 27 ensures that both the organization (company) and its responsible individuals are held accountable for violations under the Payment and Settlement Systems Act. It encourages stringent internal checks and corporate responsibility for compliance with the law.