Safeguarding Your Digital Assets: Legal Defenses Under Section 25 of the PSS Act

In our current era of instantaneous digital payments—whether via UPI, NEFT, IMPS, or NACH—funds move in seconds. However, when these transfers fail due to a lack of funds or a breach of account limits, the legal fallout can be immediate and severe.

Section 25 of the Payment and Settlement Systems Act, 2007 (PSS Act) criminalizes the dishonor of Electronic Funds Transfers (EFTs). This provision carries penalties identical to cheque bounce cases under Section 138 of the NI Act. However, an accusation is not a conviction. As a seasoned advocate in Kota, Prakhar Gupta specializes in identifying procedural loopholes and substantive defenses to protect clients from criminal liability.


Understanding the Charge: The Framework of Section 25
To mount an effective defense, one must first understand the legal components of the accusation. Under Section 25, an offense is deemed committed if:
  • A person initiates an electronic fund transfer from their account.
  • The transaction is not executed because of insufficient funds or because it exceeds a pre-arranged limit.
  • The transfer was intended to satisfy a legally enforceable debt or liability.
  • A statutory demand notice was sent within 30 days of the dishonor.
  • The sender failed to make the payment within 15 days of receiving that notice.

Key Legal Defenses Against Section 25 Allegations

If you are facing litigation, Advocate Prakhar Gupta suggests exploring these ten strategic defenses:

1. Absence of a Legally Enforceable Debt
The most potent defense is proving that no legal liability existed. Section 25 only applies if the transfer was meant to settle a valid debt.
  • Strategy: Demonstrate that the transaction was a gift, a friendly loan without a contract, or an unauthorized debit.
  • Evidence: Use chat logs, emails, or witness testimony to show the debt was disputed or time-barred.
2. Procedural Lapses by the Complainant
The law mandates a strict "procedural roadmap." Any deviation can result in the dismissal of the complaint.

Strategy: Challenge the validity of the demand notice. Was it sent within 30 days? Was it sent to the correct address? Was the case filed before the 15-day "cure period" ended?

3. Transaction Not Initiated by the Accused
In an age of cyber fraud, this is a critical factual defense.
  • Strategy: Argue that the EFT instruction was the result of hacking, phishing, or a failure in the bank's security protocols.
  • Evidence: Provide FIR copies, cybercrime complaints, and technical logs showing device or IP address mismatches.
4. Technical System Errors
A "dishonor" isn't always the user's fault. It could be a server crash or a network bug.
  • Strategy: Request bank system logs to prove the failure was due to technical downtime rather than a lack of funds.
5. Payment Made Post-Dishonor
Criminality only attaches if the accused fails to pay within 15 days of the notice.
  • Strategy: Provide proof that the dues were cleared within the statutory window, or use subsequent payment as a mitigating factor.
6. Lack of Mens Rea (Criminal Intent)
While it is a statutory offense, courts often consider if the failure was accidental—such as an unexpected auto-debit depleting the balance.
  • Strategy: Show "good faith" efforts to resolve the issue or prove that funds were sufficient just prior to the failed transfer.
7. Violation of RBI or PSS Guidelines
All electronic transfers must follow strict security protocols (like Two-Factor Authentication).
  • Strategy: If the complainant or the bank bypassed RBI-mandated security steps (like OTP verification), the transaction itself may be deemed invalid.
8. Statutory Time-Bar (Limitation)
Legal actions must be timely. A case can be quashed under Section 482 CrPC if:
  • The notice was late (beyond 30 days).
  • The complaint was filed after the 30-day window following the notice period.
9. Lack of Territorial Jurisdiction
The case must be filed in a court that has the authority to hear it.
  • Strategy: Object if the court where the case is filed has no connection to the bank's location, the accused’s residence, or where the cause of action arose.
10. Pre-existing Disputes
If the parties were already in a legal battle or arbitration regarding the amount, the dishonor may be seen as a contractual dispute rather than a criminal offense.

The Burden of Proof: Rebutting Presumptions

While the prosecution must prove the basics of the failure, the accused has the opportunity to rebut the "presumption of debt." In these cases, the defense only needs to meet the standard of "preponderance of probabilities" (raising a reasonable doubt), whereas the prosecution must prove guilt "beyond reasonable doubt."

Settlement and Compounding: Section 31

The PSS Act allows for the compounding of offenses. This means the matter can be settled and the charges dropped if both parties agree, often through an application to an RBI-authorized officer or the court.

Why Consult Advocate Prakhar Gupta in Kota?

Dealing with the PSS Act requires a lawyer who understands both the IT Act and Financial Laws. Advocate Prakhar Gupta provides expert guidance in Kota to ensure that technical errors or procedural mistakes by complainants do not lead to a criminal record.

FAQs

1. What is the difference between Section 25 of the PSS Act and Section 138 of the NI Act? 

While both deal with payment failures, Section 138 of the Negotiable Instruments (NI) Act specifically governs physical cheques. Section 25 of the Payment and Settlement Systems (PSS) Act is the digital equivalent, governing failed electronic transfers like UPI, NACH, and ECS auto-debits.

2. Can I go to jail for a failed UPI or auto-debit transaction? 

Yes. If the transaction was for a legally enforceable debt and failed due to insufficient funds, it is a criminal offense under Section 25. Punishment can include imprisonment for up to 2 years, a fine of up to twice the amount, or both.

3. What should I do if I receive a legal notice under Section 25? 

Do not ignore it. You have a 15-day "cure period" from the date of receipt to pay the amount and avoid criminal prosecution. If the debt is disputed, you must draft a formal legal reply within this window.

4. Is a Section 25 offense bailable?

 Yes, offenses under the PSS Act are generally bailable. However, you must appear before the court to secure bail once a summons or warrant is issued to avoid further legal complications.

Advocate Prakhar Gupta | Advocate in Kota | Lawyer in Kota | Lawfirm in Kota Legal Disclaimer: The information provided in this article (and any related content) is for general educational and informational purposes only. It does not constitute legal advice, nor does it create an attorney-client relationship between the reader and the author or the firm. For specific legal queries or urgent advice regarding your rights and options, please consult with a qualified lawyer to ensure your interests are protected based on the most current laws and your specific situation.
Location: 291, Rajeev Gandhi Nagar, Instrumentation Limited Colony, Kota, Rajasthan 324005, India

Popular posts from this blog

Can Legal Heirs Contest a Gift Deed? A Comprehensive Guide to Indian Property Laws

Image
In the landscape of Indian property law, a gift deed is a powerful document used to transfer ownership without any monetary exchange. However, it is a common misconception that once a gift deed is registered, it becomes absolute and untouchable. Legal heirs in India possess the right to challenge a gift deed if the transfer appears suspicious or violates statutory requirements. Whether it is a question of undue influence, fraud, or mental incapacity, the law provides a pathway for aggrieved heirs to seek justice. Understanding the Legal Foundation of Gift Deeds A gift deed is governed primarily by the Transfer of Property Act, 1882, and the Registration Act, 1908. To be considered legally "watertight," a gift must fulfill several mandatory criteria: Voluntary Transfer: The donor must act of their own free will. No Consideration: No money should change hands. Acceptance: The person receiving the gift (donee) must accept it during the donor's life...
Read more

Winning Strategies to Defend Against Cheque Bounce Cases: Guide by Advocate Prakhar Gupta

Image
Facing a legal notice under Section 138 of the Negotiable Instruments Act can be a daunting experience. In India, a bounced cheque is not just a banking error; it is a criminal offense that carries the risk of imprisonment for up to two years, heavy fines, or both. However, being served a notice does not mean you are guilty. With a strategic legal defense and a deep understanding of the law, you can protect your reputation and finances. For residents in Rajasthan, consulting a specialized advocate in Kota like Advocate Prakhar Gupta can make the difference between a conviction and an acquittal. Understanding the Legal Framework of Section 138 Before building a defense, it is crucial to understand when a cheque bounce actually becomes a crime. According to the law, specific conditions must be met: Legal Debt: The cheque must have been issued to discharge a "legally enforceable debt." Timely Presentation: The cheque must be presented to the bank within its validity period (usua...
Read more

Defending Section 138: A Legal Guide by Advocate Prakhar Gupta

Image
Facing a cheque bounce case under Section 138 of the Negotiable Instruments (NI) Act can be a stressful experience, involving potential jail time and heavy fines. However, with the right legal strategy and an expert like Advocate Prakhar Gupta, an experienced advocate in Kota, you can effectively challenge these allegations. Below is a guide on how to navigate and defend against cheque bounce charges in 2025. Understanding Section 138 of the NI Act In India, a cheque bounce is not just a banking error; it is a quasi-criminal offense. For a case to be valid under Section 138, several conditions must be met: Legally Enforceable Debt: The cheque must have been issued to pay back a valid debt or liability. Validity Period: The cheque must be presented within three months of its date. Statutory Notice: If a cheque bounces, the payee must send a legal notice within 30 days of receiving the dishonor memo. The 15-Day Grace Period: The drawer has 15 days from the receipt of the notice to pa...
Read more