RBI’s Ombudsman Scheme for Digital Transactions

[Falaq Patel is a 4th Year BBA-LLB student at Symbiosis Law School, Hyderabad]

The Payment and Settlement Systems Act, 2007 (the ‘Act’) is a legislation designed to provide the Reserve Bank of India (‘RBI’) with regulatory and supervisory powers over all payment systems in India and authorise it to set up a committee of its central board, known as the Board for Regulation of Payment and Settlement Systems. Its scope covers various systems carrying out clearing, settlement, payment, or a combination of these operations. Such systems are termed as system providers and include money transfer systems and card payment systems as well. The Act came into force at a time where an average person in India was opening up to new forms of transaction enablers on digital platforms. The RBI plays a regulator of all these system providers.

On 5 December 2018, the RBI announced the various developmental and regulatory policy measures it vouched to undertake for strengthening regulation and supervision; broadening and deepening of the financial markets and enhancing customer education, protection and financial inclusion. As a part of this Monetary Policy Statement, the RBI launched the Ombudsman Scheme for Digital Transactions (‘OSDT’) in exercise of the powers conferred by section 18 of the Act by way of a notification dated 31 January 2019. The OSDT defines a digital transaction as a “payment transaction in a seamless system effected without the need for cash at least in one of the two legs, if not in both. This includes transactions made through digital/ electronic modes wherein both the originator and the beneficiary use digital/ electronic medium to send or receive money.”

With this scheme, the RBI takes under its purview the operations of digital transaction system participants and reserves the right to offer redressal to customers and penalise defaulters. A system participant is defined as “any person other than a bank participating in a payment system as defined under Section 2 of the Payment and Settlement Systems Act, 2007 excluding a ‘System Provider”. Under this scheme, the RBI may appoint one or more officers as Chief General Managers or General Managers to be known as Ombudsman for Digital Transactions to oversee the application of the provisions under this scheme. Such appointments are not to exceed a maximum period of three years at a time.  

Jurisdiction, Powers and Duties of the Ombudsman for Digital Transactions

Territorial limits to which the designated authority will be extended is to be specified by the Bank. He ombudsman undertakes the task of receiving complaints and disposing them off either through settlement by agreement between the parties with conciliation and mediation or through an award as per the scheme. This is irrespective of the pecuniary value involved in the complaint. Such complaints can be made free of cost with the Ombudsman in ones’ jurisdiction and extend to the following matters:

1. Prepaid Payment Instruments (‘PPIs’) – PPIs are defined in clause 2.3 of the Master Directions for Issuance and Operation of PPIs as payment instruments that facilitate purchase of goods and services, including financial services, remittance facilities, etc., against the value stored on such instruments. PPIs that can be issued in the country are classified under three types viz. (i) Closed System PPIs, (ii) Semi-closed System PPIs, and (iii) Open System PPIs. These directions are applicable to all PPI issuers, system providers and system participants and not only work as regulations for control but also means to ensure healthy competition and encourage innovation for PPIs to serve the customers better and ensure security throughout the process. The grounds for alleging incompetent service for PPIs have been listed out in detail therein.

2. Mobile/Electric Funds Transfer – The RBI with its Master Circular on Mobile Banking Transactions in India – Operative Guide dated July 1, 2016, issued guidelines to facilitate banks and other stakeholders to have all the required know-how as to the subject of mobile transactions. This circular identifies those banking transactions carried out by customers such as accessing credit or debit as mobile banking transactions. According to the OSDT guidelines, certain types of failures and any other non-adherence to RBI instructions will be dealt with by the ombudsman.

3. Non-adherence to instructions of Reserve Bank/respective System Provider to System Participants on payment transactions through Unified Payments Interface (UPI)/ Bharat Bill Payment System (BPSS)/ Bharat QR Code/ UPI QR Code.

Procedure for Filing a Complaint

In case a customer is experiencing any issues as mentioned above, the person may make a complaint in writing submitting all personal details and attaching copies of the transactions failure/ any other query that arises to the Ombudsman in the jurisdiction of the complainant. The OSDT also provides for an upper cap in the time period within which such complaints can be made, one year; however, exceptions are considered in situations where a complaint can be made before the limitation period set out in the Indian Limitation Act, 1963 for such claims.

The complaint cannot be with respect to something that has already been dealt with by the Ombudsman in previous proceedings or pertaining to the same cause of action for which proceedings have taken place in any court, tribunal or arbitrator or any other forum where it is pending or a decree or award has been passed. The nature of the complaint must not be frivolous or vexatious and not fall under the disputes covered under section 24 of the Act. The OSDT also does not entertain disputes regarding digital transactions which arise between customers.

The Ombudsman has the power to call for information regarding the complaint from the person against whom a complaint is made (SPs). In case system participants fail to comply with such requests, the Ombudsman can infer that such actions deem the SP to be the wrong-doer and subject them to whatever penalty they deem fit as per the guidelines provided.

Settlement by Agreement and Award

The first step in the redressal process of the OSDT is sending a copy of the complaint to the System Participant. The Ombudsman will initiate the process by promoting the idea of settlement through conciliation or mediation and is not bound by the rules of evidence to do the same. A complaint is deemed to be resolved if – a) the grievance of the complainant is tackled by the SP; b) the complainant agrees to whatever resolution is reached with efforts of the Ombudsman; c) if SP has been adhering to the norms set out for its practice and the objections of the complainant do not reach the ombudsman within the timeframe allotted.

If a complaint is not settled by agreement within a period of one month from the date of receipt of the complaint or such further period as the Ombudsman for Digital Transactions may allow the parties, he may, after affording the parties a reasonable opportunity to present their case, pass an award. However, the Ombudsman has no right to award a compensation which is more than the actual loss suffered or two million rupees, whichever is lower. The award, however, will lapse unless the complainant provides the SP a copy of the award within a period of 30 days from receipt. The SP is also obligated to abide by the award made and must send a report regarding the same to the RBI within 15 days of the award becoming final. In case of non-adherence to this, the complainant may approach the RBI and the RBI can initiate any action it deems fit to apply in the case. The Scheme also provides for an appellate mechanism under which the complainant / System Participant has the option to appeal against the decision of the Ombudsman before the Appellate Authority.


This Scheme is a step forward in forming a regulatory framework for an emerging transaction system in India. While this is applicable to all System Participants under the control of the RBI, the central bank is also considering ways to bring all payment mechanisms under its direct control and ensure further protection of customers from frauds and technical glitches which cost people their money. The RBI Governor, Shatikanta Das, reiterating the country’s growing fascination and reliance on digital payment systems and online payment mechanisms, concluded his Sixth Bi-monthly Monetary Policy Press Conference for 2018-19 speech on 7 February 2019 by saying –

“On the payment systems, the feasibility of bringing payment related activities of Payment Gateway Service Providers and Payment Aggregators under the direct regulatory ambit of the Reserve Bank will be examined, given their increasing importance in the evolving structure of payment systems in the country and the fact that at present, they are essentially regulated indirectly through the banks with whom they have a tie-up.”

While some e-payment gateway companies feel that there are already enough regulations over their sector, some believe that this step will promote stability and security in the e-payments ecosystem, which has expanded rapidly over the last couple of years that regulatory attention is crucial.

Falaq Patel

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