Payment Aggregators Fall Within Definition Of Payment System, RBI Can Issue Guidelines For Efficient Management: Delhi High Court

The Delhi High Court has ruled that payment aggregators fall within the definition of designated payment system under Section 23A of the Payment and Settlement Systems Act, 2007 and that the Reserve Bank of India (RBI) has the power to issue guidelines for efficient management for such payment systems.

A division bench comprising of Justice Rajiv Shakdher and Justice Tara Vitasta Ganju passed the ruling while dismissing a plea filed by Lotus Pay Solutions Private Limited, a company engaged in the business of providing recurring payment solutions for businesses through an authorised payment system, challenging Clauses 3, 4 and 8 of the circular dated March 17, 2020 issued by RBI titled "Guidelines on Regulation of Payment Aggregators and Payment Gateway".

Clause 3 of the guidelines mandates that non-banking entities offering payment aggregation services would have to obtain "authorisation" from RBI to continue their operations.

Clause 4 of the guidelines requires Payment Aggregators existing on the date of issuance of the 2020 Guidelines, to achieve a net worth of Rs. 15 crores by March 31, 2021 and to have the same scaled up to Rs. 25 crores by the end of the third Financial Year, on or before March 31, 2023.

Clause 8, on the other hand, mandates that all non-bank Payment aggregators shall ensure that the amount collected by them is placed in an escrow account, maintained with a scheduled commercial bank. The said clause also provides that for maintenance of the escrow account, the operations of payment aggregators shall be deemed to be "designated payment systems" under the Payment and Settlement Systems Act, 2007.

The petitioner company contended that payment aggregators, performing work of intermediaries, do not fall within the scope and ambit of the definition of "payment system" under the Act.

Both the petitioner company as well as the RBI relied upon the latter's Discussion paper, published on its website on September 17, 2019, which defines a payment aggregator as "an intermediary in an online payment transaction accepting payments on behalf of the merchant from the customers and then transferring the money to the merchant's account."

Taking note of the same, the Court observed:

"The PAs, thus, not only provide, an integration system but also handle the funds of the customer. The definition of a PA, according to us, would include this work function. A close perusal of the definition of payment system would show, that it is meant to include a system, that enables, firstly, payment to be effected between a payer and a beneficiary and secondly, concerns clearing, payment or settlement service or all of them, but does not include a stock exchange."

While observing that there is no definition of a payment service, the Court said that the services offered by payment aggregators to the payer and beneficiary through use of technology should fall within the ambit of the payment system.

"It is pertinent to note, that because PGs do not handle funds, and are only concerned with providing technology infrastructure to route and/or facilitate the processing of online payment transactions, the impugned clauses of the 2020 Guidelines i.e., Clauses 3, 4 and 8 are not made applicable to them," it was observed.

The Bench also found merit in the responses received by the RBI to its Discussion paper to the effect that separate legislation may have to be enacted for payment services.

However, the Court said that the aspect of framing a legislation falls within the domain of legislators and the executive can consider the suggestion and initiate necessary steps regarding the same.

"…once it is held, that the work function of the PAs comes within the definition of a payment system, then axiomatically, the power to have them seek authorization from the RBI for operating as PAs gets traced to section 4 of the 2007 Act," the Court held.

It added "The RBI, thus, in consonance with the provisions of section 23A of the 2007 Act has provided, via clause 8 of the 2020 Guidelines, that PAs would deposit payments received from customers in an escrow account maintained with a scheduled commercial bank. There can be no doubt about RBI being invested with such power. There is also no doubt, that PAs would be operating a designated payment system, as defined in explanation (a) to section 23A of the 2007 Act."

While upholding the impugned clauses, the Court dismissed the plea observing that the public interest element imbued in the framing of the 2020 Guidelines, trumps the concerns raised by the petitioner company.

"The difficulties put forth on behalf of PAs, perhaps are a small wrinkle, which cannot be the reason for striking down the impugned clauses of the 2020 Guidelines," the Bench ruled.

Title: LOTUS PAY SOLUTIONS PVT LTD. & ANR. v. UNION OF INDIA & ORS.

Citation: 2022 LiveLaw (Del) 884

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