LOK SABHA

————

The following Bill was introduced in Lok Sabha on 8th December, 2014:—

BILL NO. 182 OF 2014

A Bill to amend the Payment and Settlement Systems Act, 2007.

BE it enacted by Parliament in the Sixty-fifth Year of the Republic of India as follows:—

1. (1) This Act may be called the Payment and Settlement Systems (Amendment)

Act, 2014.

(2) It shall come into force on such date as the Central Government may, by

notification in the Official Gazette, appoint and different dates may be appointed for

different provisions of this Act, and any reference to the commencement in any such

provision of this Act shall be construed as a reference to the commencement of that

provision.

Short title

and com-

mencement.

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PART II — Section 2

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No. 36] NEW DELHI, MONDAY, DECEMBER 8, 2014/AGRAHAYANA 17, 1936 (SAKA)

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Separate paging is given to this Part in order that it may be filed as a separate compilation.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

2. In section 2 of the Payment and Settlement Systems Act, 2007 (hereinafter

referred to as the principal Act),—

(i) after clause (d), the following clauses shall be inserted, namely:––

‘(da) “issuer” means a person who issues a legal entity identifier or such

other unique identification (by whatever name called), as may be specified by

the Reserve Bank from time to time;

(db) “legal entity identifier” means a unique identity code assigned to a

person by an issuer for the purpose of identifying that person in such derivatives

or financial transactions, as may be specified by the Reserve Bank from time to

time;’;

(ii) after clause (q), the following clause shall be inserted, namely:––

‘(r) “trade repository” means a person who is engaged in the business of

collecting, collating, storing, maintaining, processing or disseminating electronic

records or data relating to such derivatives or financial transactions, as may be

specified by the Reserve Bank from time to time.’.

3. In section 23 of the principal Act,––

(i) in sub-section (1), after the words “to a payment system” occurring at the

end, the words “under section 7, or, such gross or netting procedure as may be

approved by it under any other provisions of this Act.” shall be inserted;

(ii) for sub-section (4), the following sub-section shall be substituted, namely:—

“(4) Where, by an order of a court, Tribunal or authority––

(a) a system participant is declared as insolvent or is dissolved or

wound up; or

(b) a liquidator or receiver or assignee (by whatever name called),

whether provisional or otherwise, is appointed in a proceeding relating to

insolvency or dissolution or winding up of a system participant,

then, notwithstanding anything contained in the Banking Regulation Act,1949

or the Companies Act,1956 or the Companies Act, 2013 or any other law for the

time being in force, such order shall not affect any settlement that has become

final and irrevocable prior to such order or immediately thereafter, and the right of

the system provider to appropriate any collaterals contributed by the system

participants towards its settlement or other obligations in accordance with the

rules, regulations or bye-laws relating to such system provider.”;

(iii) after sub-section (4), the following sub-sections shall be inserted, namely:—

“(5) Where an order referred to in sub-section (4) is made with respect to

a central counter party, then, notwithstanding such order or anything contained

in the Banking Regulation Act,1949 or the Companies Act,1956 or the Companies

Act, 2013 or any other law for the time being in force, the payment obligations

and settlement instructions between the central counter party and the system

participants including those arising from transactions admitted for settlement at

a future date, shall be determined forthwith by such central counter party in

accordance with the gross or netting procedure, as the case may be, approved

by the Reserve Bank, while issuing authorisation or under any other provisions

of this Act, and such determination shall be final and irrevocable.

(6) Notwithstanding anything contained in the Banking Regulation

Act,1949 or the Companies Act, 1956 or the Companies Act, 2013 or any other

law for the time being in force, the liquidator or receiver or assignee (by whatever

name called) of the central counter party, whether appointed as provisional or

otherwise, shall––

(a) not re-open any determination that has become final and

irrevocable;

Amendment

of section 23.

10 of 1949.

1 of 1956.

18 of 2013.

10 of 1949.

1 of 1956.

18 of 2013.

10 of 1949.

1 of 1956.

18 of 2013.

Amendment

of section 2.

51 of 2007.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

(b) after appropriating in accordance with the rules, regulations or

bye-laws of the central counter party, the collaterals provided by the system

participants towards their settlement or other obligations, return the

collaterals held in excess to the system participants concerned.”;

(iv) the existing Explanation shall be numbered as Explanation 1 thereof and

after Explanation 1, as so numbered, the following Explanation shall be inserted,

namely:––

‘Explanation 2.––For the purposes of this section, the expression “central

counter party” means a system provider who by way of novation interposes

between system participants in the transactions admitted for settlement, thereby

becoming the buyer to every seller and the seller to every buyer, for the purpose

of effecting settlement of their transactions.’.

4. After section 23 of the principal Act, the following section shall be inserted,

namely:—

‘23A. (1) The Reserve Bank may, in public interest or in the interest of the

customers of designated payment systems or to prevent the affairs of such designated

payment system from being conducted in a manner prejudicial to the interests of its

customers, require system provider of such payment system to––

(a) deposit and keep deposited in a separate account or accounts held in

a scheduled commercial bank; or

(b) maintain liquid assets in such manner and form as it may specify from

time to time,

of an amount equal to such percentage of the amounts collected by the system provider

of designated payment system from its customers and remaining outstanding, as may

be specified by the Reserve Bank from time to time:

Provided that the Reserve Bank may specify different percentages and the manner

and forms for different categories of designated payment systems.

(2) The balance held in the account or accounts, referred to in sub-section (1),

shall not be utilised for any purpose other than for discharging the liabilities arising

on account of the usage of the payment service by the customers or for repaying to

the customers or for such other purpose as may be specified by the Reserve Bank

from time to time.

(3) Notwithstanding anything contained in the Banking Regulation Act, 1949 or

the Companies Act, 1956 or the Companies Act, 2013 or any other law for the time being

in force, the persons entitled to receive payment under sub-section (2) shall have a

first and paramount charge on the balance held in that account and the liquidator or

receiver or assignee (by whatever name called) of the system provider of the designated

payment system or the scheduled commercial bank concerned, whether appointed as

provisional or otherwise, shall not utilise the said balances for any other purposes

until all such persons are paid in full or adequate provision is made therefor.

Explanation.––For the purposes of this section, the expressions––

(a) “designated payment system” shall mean a payment system or a class of

payment system, as may be specified by the Reserve Bank from time to time,

engaged in collection of funds from their customers for rendering payment service;

(b) “scheduled commercial bank” shall mean a “banking company”,

“corresponding new bank”, “State Bank of India” and “subsidiary bank” as

defined in section 5 of the Banking Regulation Act, 1949 and included in the

Second Schedule to the Reserve Bank of India Act,1934.’.

Insertion of

new section

23A.

10 of 1949.

1 of 1956.

18 of 2013.

10 of 1949.

1 of 1934.

Protection of

funds collected

from customers.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

5. After section 34 of the principal Act, the following section shall be inserted,

namely:—

‘34A. (1) The provisions of this Act shall apply to, or in relation to, a designated

trade repository or issuer, as they apply to, or in relation to, payment systems to the

extent applicable, subject to the modification that, throughout this Act, unless the

context otherwise requires,—

(a) references to a “payment system” or “system provider” shall be

construed as references to a “designated trade repository” or “issuer”, as the

case may be;

(b) references to “commencement of this Act” shall be construed with

reference to––

(i) a designated trade repository, as references to the date on which

a trade repository is specified by the Reserve Bank as a designated trade

repository; and

(ii) an issuer, as references to commencement of the Payment and

Settlement Systems (Amendment) Act, 2014.

(2) The Reserve Bank may, on an application by a designated trade repository or

otherwise, permit or direct the designated trade repository to provide such other services

as are deemed necessary from time to time.

Explanation.––For the purposes of this section, the expression “designated

trade repository” shall mean a trade repository or a class of trade repositories, as may

be specified by the Reserve Bank from time to time.’.

Insertion of

new section

34A.

Act to apply

to designated

trade

repository

and issuer.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

STATEMENT OF OBJECTS AND REASONS

The Payment and Settlement Systems Act, 2007 (the said Act) was enacted for the

regulation and supervision of payment systems in India and to designate the Reserve Bank

of India as the authority for that purpose and for matters connected therewith.

2. Subsequent to the enactment of the said Act, the country has witnessed orderly

growth of payment systems, and these payments systems are granted authorisation on the

principles of safety, security, soundness, efficiency and accessibility. After the global

financial crisis in 2007-08, several developments took place, driven primarily by the G20,

for reforming the Over the Counter derivatives markets. Some of these new initiatives

include setting up of Trade Repositories and Legal Entity Identification System.

3. The Trade Repositories have emerged as a new type of Financial Market

Infrastructure and are growing in importance, particularly in the Over the Counter derivatives

market. However, there is no specific legal provision in any of the laws administered by

the Reserve Bank of India to regulate and supervise the Trade Repositories in India.

Therefore, compliance of the Trade Repositories with international norms needs to be

ensured by the regulator through appropriate legal powers. In line with the G20 commitment

and the global developments, the Reserve Bank of India has designated the Clearing

Corporation of India Limited as a Trade Repository.

4. The global financial crisis in 2007-08 and the resultant difficulties experienced

by banks and regulatory agencies to identify the complicated business ventures and to

efficiently establish connections between issuers and securities brought forth the need

for a standard uniform code to properly attribute Over the Counter derivatives activity to a

party or group. Recognising the importance of a global identifier as a key component of

necessary improvements in financial data systems, the G20 endorsed the development and

maintenance of a global Legal Entity Identifier system. The Legal Entity Identifier is a

20-character unique identity code assigned to entities which are parties to a financial

transaction and would be unique across the globe. Currently, there is no legal provision

under any of the laws administered by the Reserve Bank of India for regulation and oversight

of the Legal Entity Identifier issuer. The Reserve Bank of India has selected the Clearing

Corporation of India Limited to act as a Local Operating Unit for issuing globally compatible

Legal Entity Identifier in India. The use of the Legal Entity Identifier numbers is likely to

be mandated for Over the Counter derivative transactions and large borrowers in a phased

manner.

5. Given the markets being served by the Clearing Corporation of India Limited, the

participating banks run significant exposures against the said Corporation, in its role as

central counter party. Hence, it is necessary to provide a sound and enforceable legal basis

for "netting" of banks exposures to said Corporation so that their exposure is reduced

significantly. The said Act, though providing for netting protection and settlement finality

in the event of insolvency or dissolution of system participants, does not expressly

contemplate a situation which may warrant netting on account of insolvency or dissolution

of the central counter party itself. The proposed amendments on enforceability of netting

in the event of insolvency or dissolution of the system provider would provide finality to the

determination of the payment obligations and settlement instructions between a central

counter party and system participants in the event of insolvency, dissolution or winding up

of a central counter party.

6. Further, there are some legal difficulties in securing the customers' interest held in

escrowed accounts in the event of insolvency or bankruptcy of prepaid instruments,

operators, which are required to be addressed.

THE GAZETTE OF INDIA EXTRAORDINARY

[PART II—

7. The amendments to the said Act have been proposed to increase transparency and

stability of Indian financial markets in line with globally accepted norms. The Payment and

Settlement Systems (Amendment) Bill, 2014, inter alia, proposes:—

(a) to substitute sub-section (4) of section 23 of the said Act so as to provide

that where by an order of the court, Tribunal or authority, the system participant is

declared as insolvent or is dissolved or wound up, such order shall not affect any

settlement that has become final and irrevocable prior to such order or immediately

thereafter;

(b) to insert a new sub-section (5) in section 23 of the said Act so as to provide

that where an order under sub-section (4) of section 23 is made with respect to a

"central counter party", the payment obligations and settlement instructions between

the central counter party and the system participants shall be determined by such

central counter party in accordance with the gross or netting procedure, as the case

may be, approved by the Reserve Bank of India;

that the liquidator or receiver of the central counter party shall not re-open the

determination which has become final and irrevocable and after appropriating the

collateral provided by system participants towards their settlement obligations, return

the excess collaterals to system participants;

(d) to insert a new section 23A relating to "protection of funds collected from

the customers by the payment system providers";

(e) to insert a new section 34A so as to apply the said Act to the designated

trade repository and legal entity identifier issuer.

8. The Bill seeks to achieve the above objects.

NEW DELHI;

ARUN JAITLEY

The 1st December, 2014.

SEC. 2]

THE GAZETTE OF INDIA EXTRAORDINARY

ANNEXURE

EXTRACT FROM THE PAYMENT AND SETTLEMENT SYSTEMS ACT, 2007

(51 OF 2007)

23. (1) The payment obligations and settlement instructions among the system

participants shall be determined in accordance with the gross or netting procedure, as the

case may be, approved by the Reserve Bank while issuing authorisation to a payment

system.

(4) Where a system participant is declared by a court of competent jurisdiction as

insolvent or is dissolved or wound up, then notwithstanding anything contained in the

Companies Act, 1956 or the Banking Regulation Act, 1949 or any other law for the time being

in force, the order of adjudication or dissolution or winding up, as the case may be, shall not

affect any settlement that has become final and irrevocable and the right of the system

provider to appropriate any collaterals contributed by the system participant towards its

settlement or other obligations in accordance with the rules, regulations or bye-laws of such

system provider.

Explanation.—For the removal of doubts, it is hereby declared that the settlement,

whether gross or net, referred to in this section is final and irrevocable as soon as the

money, securities, foreign exchange or derivatives or other transactions payable as a result

of such settlement is determined, whether or not such money, securities or foreign exchange

or derivatives or other transactions is actually paid.

————

ANOOP MISHRA,

Secretary-General.

Settlement

and netting.

1 of 1956.

10 of 1949.

GMGIPMRND—3436GI(S3)—11.12.2014.

PRINTED BY DIRECTORATE OF PRINTING AT GOVT. OF INDIA PRESS, MINTO ROAD, NEW DELHI

AND PUBLISHED BY THE CONTROLLER OF PUBLICATIONS, DELHI—2014.