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

PayQuick Ltd, a designated payment system, collects customer wallet balances. The RBI requires it to keep 100% of outstanding collected amounts in a separate account with a scheduled commercial bank. On 31 March, outstanding customer balances were Rs 40 crore. PayQuick later faces liquidation. Under Section 23A of the Payment and Settlement Systems Act, 2007, what is the position of the balance in that account?

Customers entitled to payment have a first and paramount charge on the escrow-type balance under Section 23A(3), overriding other laws including the IBC. The liquidator cannot use it for other purposes until those customers are paid in full or adequate provision is made.

  1. AIt is available to the liquidator for paying secured lenders first
  2. BIt can be used for PayQuick's operating expenses if RBI is informed
  3. CCustomers entitled to payment have a first and paramount charge on it, and the liquidator cannot use it for other purposes until they are paid in full or adequate provision is madeCorrect
  4. DIt is shared pro rata with all creditors under the Insolvency and Bankruptcy Code

Explanation

Section 23A(3) gives persons entitled to payment a first and paramount charge on the balance notwithstanding the Banking Regulation Act, Companies Act or IBC. The liquidator or receiver cannot use it for other purposes until they are fully paid or adequate provision is made. Pro rata sharing is therefore wrong.

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