Dr Resmi P Bhaskaran vs Union Of India & Ors on 21 March, 2022

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Delhi High Court - Orders

Dr Resmi P Bhaskaran vs Union Of India & Ors on 21 March, 2022

1. The video connection of the counsel for the petitioner is poor. We have earlier also made it clear to the counsels that those who wish to appear virtually should ensure that they have a good audio-video connectivity and when they appear virtually, they do so at their own peril. In these circumstances, we are inclined to proceed with the matter.

Signature Not Verified Digitally Signed By:SHALOO BATRA Signing Date:22.03.2022 17:21:27

2. The petitioner has preferred the present writ petition to seek the following reliefs:-

"i) Directing the Respondents to not to permit 'TechFins' to enter or operate into financial sector without establishing registered offices within the territory of India, and without prior registration/approval from the concerned Financial Regulators in India, and

ii) Directing the Respondents to immediately formulate comprehensive, detailed and strict legal framework for 'entry' as well as 'operations' of 'TechFins' in the Financial sector in India through any mode/mechanism, (including partnering with existing registered financial entities), and

iii) Directing the Respondents to formulate legal framework to ensure regular mandatory statutory audit of 'TechFins' by relevant statutory authorities:

iv) Directing Respondents to formulate a robust and strict framework to ensure privacy and security of sensitive financial data of customers collected while offering financial services, and to inflict Penal action against 'Techfins' operating in contravention of the said framework;

v) Directing the Respondents to formulate Regulations (in line with RBI's Data Localisation Norms for UPI platform) in order to ensure that entire data collected while providing financial services by Techfins or other entities are mandatorily stored in India only;

vi) Directing the Respondents No, 3 & 4 to ensures uniformity in rules, regulations and guidelines for all entities offering UPI services including Payment Service Providers (PSP) as well as by Third Party App Providers (TPA):"

3. The respondents have filed their counter affidavit. We may only refer Signature Not Verified Digitally Signed By:SHALOO BATRA Signing Date:22.03.2022 17:21:27 to the reply filed by the RBI, wherein the RBI has inter alia stated as follows:-

"4. It is respectfully submitted that the Reserve Bank of India is a Statutory Corporation constituted under the provisions of Section 3 of the Reserve Bank of India Act, 1934. In addition to its powers and responsibilities under the Reserve Bank of India Act 1934, RBI has also been, inter alia entrusted with the statutory obligation of administering the provisions of the Payment and Settlement Systems Act, 2007 (hereinafter also referred to as the "PSS Act"). The PSS Act is enacted to provide for the regulation and supervision of payment systems in India and consequently has designated the RBI as the authority for that purpose. Under the PSS Act, the RBI (i.e. the answering Respondent) has been vested with various powers, such as granting authorisation for payment systems as well as regulating and supervising of such payment systems, etc. xxxxxx

11. In exercise of the powers conferred upon RBI by Section 7 of the PSS Act, RBI grants authorisation to various entities to operate payment systems in India. Such authorised payment system operators are termed as system providers under the PSS Act. RBI has authorised, as payment system operators. National Payments Corporation of India (NPCI), Clearing Corporation of India Ltd., Pre-paid Payment Instrument (PPI) Issuers, Card Payment Network Operators, Cross-border in-bound Money Transfer Operators, Automated Teller Machine (ATM) Network Operators, InstantMoney Transfer Operator, Trade Receivables Discounting System (TReDS) Operators, While Label ATM Operators, and Bharat Bill Payment Operating Units.

12. TechFins as Third Party App Providers (TPAPs) of Unified Payments Interface (UPI)-

In terms of the authorisation granted by RBI and based on the approvals given by RBI from time to time, NPCI operates various retail payment systems, including UPI. Approval to go-live for UPI was Signature Not Verified Digitally Signed By:SHALOO BATRA Signing Date:22.03.2022 17:21:27 accorded by RBI to NPCI on August 24, 2016. True Copy of the letter dated August 24, 2016 is annexed herewith as ANNEXURE-1.

13. It is pertinent to mention here that UPI is a real- time payment system developed by the NPCI for facilitating inter-bank transactions and works by instantly transferring funds between two bank accounts on a mobile platform, UPI powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing and provide for merchant payments into one hood. Further, both person to person (i.e. P2P) and person to merchant (i.e. P2M) payment transactions can be done using a UPI application. UPI also permits real time push transactions, i.e. the customer initiates the transaction to pay the beneficiary; and pull transactions, i.e. the beneficiary initiates the request to receive or collect payment. UPI has many unique features including immediate money transfer through mobile device round the clock 24x7 and 365 days with single click 2 factor authentication. Different bank accounts can be accessed using a single UPI application and payment can be made using a Virtual Payment Address (VPA), wherein the customer need not part with any other confidential information such as Card number. Account number, IFSC code, etc.

14. That the various players in the UPI payment system are NPCI, payer Payment Service Provider (PSP), payee PSP, remitter bank, beneficiary bank, customer, merchant and TPAP. NPCI is the owner and operator of UPI, i.e. NPCI is the system provider as per the PSS Act. The system rules, principles and procedural guidelines for operation and participation in UPI are formulated by NPCI. This also includes decision to on-board an entity on to UPI, which is taken by NPCI in terms of the extant UPI procedural guidelines. PSPs provide the front-end / application for the customer. Only banks are allowed to act as PSPs and therefore, all the services under UPI are presently offered by banks in their capacity as PSP banks. PSP banks are the system participants of UPI.

Signature Not Verified Digitally Signed By:SHALOO BATRA Signing Date:22.03.2022 17:21:27

15. That as mentioned above, UPI operates on a bank-led model wherein only banks can become the members of UPI. Thus, any nonbank like Amazon Pay (India) Private Limited (hereinafter referred to as Amazon), Google India Digital Services Private Limited (hereinafter referred to as Google) or WhatsApp Application Services Private Limited (hereinafter referred to as WhatsApp) cannot be a direct participant but have to be sponsored by a bank. It is submitted that the NPCI initially launched UPI under the single PSP model, in terms of which, a third party could connect to the UPI platform through a single sponsor PSP bank. Subsequently, NPCI proposed multibank model in UPI which was taken note of vide letter dated August 22, 2017. Accordingly, NPCI introduced multibank model under UPI on September 15,2017, wherein a large merchant/ technology player, referred to as TPAP, having access to a large customer base, can connect to the UPI system operated by the NPCI through multiple PSP banks. The TPAPs provide the necessary customer interface, while the transactions are processed through the sponsor PSP banks. The decision to allow or otherwise an entity to operate on UPI is solely taken by NPCI as per the system rules / guidelines / procedures governing the UPI payment system, which have been framed by NPCI as an operator of UPI. NPCI has, accordingly, allowed Amazon under the single sponsor bank model of UPI, Google and WhatsApp under the multi-bank model to operate as TPAPs. True Copy of the letter dated August 22, 2017 addressed by RBI to NPCI is annexed herewith as ANNEXURE R-2.

16. TechFins as PPI Issuers-

That in terms of the powers conferred upon RBI under Section 7 of the PSS Act, RBI authorised various non- bank companies over a period of time to issue and operate semi-closed prepaid payment instruments (PPIs) in India. Amazon was one such non-bank company which was authorised on March 22, 2017 to issue and operate a semi-closed prepaid payment instrument in India. Thus, in addition to being a TPAP under UPI, Amazon also operates a digital wallet (a form of PPI). It is pertinent to mention that Signature Not Verified Digitally Signed By:SHALOO BATRA Signing Date:22.03.2022 17:21:27 there are specific regulatory directions and guidelines issued for issuance and operation of PPIs. True Copy of the Master Direction on Issuance and Operation of PPIs dated October 11, 2017 (amended from time to time) is annexed herewith and marked as ANNEXURE R- 3.

17. Reserve Bank of India, being the designated authority for the regulation and supervision of payment systems under powers conferred by PSS Act, regulates and supervises NPCI and PPI issuers like Amazon. It is important to note that the RBI does not give any approval / authorisation to TPAPs and thus they are not system providers as defined in Section 2(q) of the PSS Act, i.e. authorised payment system operators, and therefore they do not fall under the regulatory domain of RBI directly. However, these TPAPs are governed by the rules / guidelines framed by NPCI for the UPI payment system in its capacity as the system provider of UPI. The statement made by the petitioner that TechFins, despite being unregulated, are providing core banking activities by partnering with financial institutions, is totally baseless and unfounded. Such entities do not provide any core banking activity other than acting as an authorized payment system operator or providing interface to customers for linking to UPI system or acting as co-branding partner to an existing regulated entity."

4. We are refraining from quoting the other paragraphs from the counter affidavit of the RBI only for the sake of brevity, however, they are equally relevant.

5. In light of the stand taken by the respondent no. 3/RBI, we are of the view that the prayers made in the writ petition, insofar as prayer nos.(i), (ii),

(iii) and (vi), do not survive.

6. So far as prayer nos. (iv) and (v) are concerned, the submission of the learned counsel for the petitioner is that these issues are pending Signature Not Verified Digitally Signed By:SHALOO BATRA Signing Date:22.03.2022 17:21:27 consideration before the Supreme Court. We, therefore, are not inclined to go into depth on these prayers in this petition at this stage.

7. The petition is disposed of in the aforesaid terms.

ACTING CHIEF JUSTICE NAVIN CHAWLA, J MARCH 21, 2022/rv/AB Signature Not Verified Digitally Signed By:SHALOO BATRA Signing Date:22.03.2022 17:21:27

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Delhi High Court - Orders