The court affirmed that Payment Aggregators qualify as payment systems under the Payment and Settlement Systems Act, 2007, validating RBI's authority to impose authorization and financial regulations to protect customer interests.

JUDGMENT

[Physical Hearing/Hybrid Hearing (as per request)]

Rajiv Shakdher, J.

TABLE OF CONTENTS

Preface:

1. This writ petition seeks to assail three clauses of the circular dated 17.03.2020 issued by respondent no.2 i.e., the Reserve Bank of India [hereafter referred to as "RBI"], titled "Guidelines on Regulation of Payment Aggregators and Payment Gateways"[hereafter referred to as "the 2020 Guidelines"].

1.1. The three clauses, to which, challenge is laid by the petitioners are Clause 3, Clause 4 and Clause 8.

2. Briefly, Clause 3mandates,that insofar as non-banking entities which offer payment aggregation services are concerned, they would have to obtain "authorisation" from RBI to continue their operations. The criteria fixed for obtaining the authorisation are outlined in various sub-clauses i.e., subclause 3.1 to 3.6.

3. Clause 4, inter alia requires Payment Aggregators [hereafter referred to as "PAs"] that were existing on the date of issuance of the 2020 Guidelines, to achieve a net worth of Rs.15 crores by 31.03.2021, and to have the same scaled up to Rs.25 crores by the end of the third Financial Year ("FY") i.e., on or before 31.03.2023.The PAs are required to maintain a net worth of Rs.25 crores at all times after 31.03.2023. Pertinently, the timeline for applying for authorization and complying with the minimum positive net worth requirement of Rs.15 crores for the FY ending on March 31, 2020, was extended till 30.09.2021 because of the RBI circular dated 21.05.2021.

3.1. Insofar as new PAs are concerned, they are also required to have a minimum net worth of Rs.15 crores to be eligible for obtaining authorisation, which is required to be enhanced to Rs.25 crores by the end of the third FY of grant of authorisation. Such PAs are obliged to maintain a net worth of Rs.25 crores from that point onwards.

4. Clause 8 of the 2020 Guidelines, amongst others, mandates that all non-bank PAs shall ensure that the amount collected by them is placed in an escrow account, maintained with a scheduled commercial bank. Furthermore, this clause also provides, that for maintenance of the escrow account, the operations of the PAs shall be deemed to be "designated payment systems" under Section 23A of the Payment and Settlement Systems Act, 2007 [hereafter the "2007 Act"].

5. Importantly, Payment Gateways [hereafter referred to as "PGs"] which are considered as "technology providers" or 1/2utsourcing partners" of banks or non-banks are neither required to seek authorisation nor comply with the capital requirements stipulated in Clause 3 and 4 of the 2020 Guidelines.

Background:

6. Petitioner no.1 is a company which is engaged in the business of providing "recurring payment solutions" for businesses in India via an authorised payment system known as the National Automated Clearing House ("NACH"). Petitioner no.2 is the founder and Chief Executive Officer (CEO) of petitioner no.1 company. Therefore, unless the context requires otherwise, they shall be collectively referred to as "petitioners".

7. The petitioners have, as noticed above, assailed the aforementioned three clauses of the 2020 Guidelines, which essentially concern PAs. However, the stated position of the petitioners before us, is that petitioner no.1 is largely functioning as a PG, but because one of its ten NACH sponsor banks i.e., ICICI Bank does not have an internal NACH system, it would have to function as