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CS Professional · Banking and Insurance - Laws and Practice · Digital Banking

A wallet operator, designated by the RBI under the Payment and Settlement Systems Act, 2007, collects customer funds and is later wound up. A liquidator wants to use the money held in the separate account kept under Section 23A to pay the operator's trade creditors. Which statement is correct?

Customers have a first and paramount charge on the balance. Under Section 23A(3), the liquidator cannot use the account for other purposes until entitled persons are paid in full or adequate provision is made, regardless of the Companies Act or insolvency law.

  1. ATrade creditors rank equally with customers on the balance
  2. BThe liquidator may use it after paying employees' dues
  3. CCustomers entitled to payment have a first and paramount charge, and the balance cannot be used for other purposes until they are paid in full or adequately provided forCorrect
  4. DThe balance belongs to the scheduled commercial bank holding it

Explanation

Section 23A(3) gives persons entitled to payment a first and paramount charge on the balance, notwithstanding the Companies Act, IBC or any other law. The liquidator cannot use it for other purposes until they are paid in full or adequate provision is made.

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