IntroductionThe development of a country depends upon the financial stability of that country. The government or central authority of country formulates the schemes which can work efficiently and adequately for the proper functioning of the financial sector of a country. The financial sector of India has undergone drastic change in the last two decades. Payment plays a vital role in the financial sector and it is considered as indispensable part in everyday transactions. A payment system is a mechanism that facilitates transfer of value between a payer and a beneficiary by which the payer discharges the payment obligations to the beneficiary. The payment and settlement system serve as a backbone of financial system of a country. Payment increases the GDP of the country therefore the payment system of country should be safe, secure, efficient and accessible. A safe and efficient payment and settlement system is sine qua non for the proper functioning of the financial system and it also plays an important role in the implementation of monetary policy as they provide conduit through which policy signals are transmitted. Generally the central bank of any country works for the development of national payment system. The Reserve Bank of India (RBI), like other central banks, has been endeavoring to develop the payment and settlement system in India on a safe, sound, secure and efficient basis. The Indian payment system is based on the paper- transaction but with the changing time the situation has changed. An alternative method of payment has been encouraged by reserve Bank of India which will make the process of banking system easier and bring safety, security and efficiency in the payment system. With the efforts of the Reserve Bank of India, the Indian banking sector has been progressing and trying to adopt and implement electronic payment to enhance the banking system. The Reserve Bank of India has introduced Real Time Gross Settlement (RTGS) and National Electronic Funds Transfer (NEFT) and National Electronic Clearing Services which facilitates customer to adopt electronic method of payment. It is confirmed by the survey that use of electronic method of payment has increased over a period of time. The reason behind this is advancement in the technology, increasing awareness among the consumers and internet accessibility. The Reserve Bank of India has played pivotal role in the implementation of electronic payment system. The payment and settlement system works efficiently and smoothly if is maintained by a sound legal framework. The major step in this direction is the enactment of the Payment and Settlement Act of 2007. The payment and Settlement Act, 2007 was declared in 2007 but came into effect on August 12, 2008. The Act authorizes Reserve Bank of India to regulate and supervise the payment system in India. In India, the payment and settlement system is regulated by the Payment and Settlement Act of 2007.
History Of The LegislationThe Payment and Settlement draft Bill was prepared in 2002 under the chairmanship of Dr. RH Patil. The committee was formed by the Reserve Bank of India to examine the various aspects of the payment system related to the legal basis of the system. The terms of reference of the committee set up by the Reserve Bank of India were as follows:- 
- â€œTo examine the adequacy of legal basis for payment system;
- To suggest appropriate legislative changes for regulation of payment systems;
- To suggest an administrative set-up within the bank for administering regulation and supervision of payment systems;
- Any other related matter.â€
Payment And Settlement Act 2007 â€“ Critical StudyThe Act constitute of the eight chapters and thirty- eight sections. Two regulations have been notified by the Reserve Bank of India in 2008 under the Payment and Settlement Act. These regulation are;-
- Board for Regulation and Supervision of Payment and Settlement System Regulations 2008 (BPSS).
- Payment and Settlement Systems Regulations (2008).
- Composition of the Board;
- Functions and powers of the Board;
- Powers to be exercised on behalf of the Board;
- Constitution of sub- committees.
- Authorization of payment systems including submission of application for authorization for commencing or carrying on a payment systems, grant of authorization certificates, certificate formats, etc.;
- Payment instructions and determination of standards;
- Furnishing of returns, documents and other information;
- Furnishing of audited balance sheets, etc.
- It is the responsibility to RBI to check the payment and settlement system across the country including card companies, Clearing Corporation of India etc.
- The RBI should lay down the procedure for authorization of payment system and also for the revocation of the payment system.
- The RBI should give directions and guidelines to system providers.
- The RBI should maintain operational and technical standards for payment system.
- To call for information and furnish returns and documents from the service providers.
- To audit and inspect the systems and premises of the system providers
- To make legislation for carrying out the provision of the proposed legislation
- To impose fines and penalties for not providing information or documents or wrongfully disclosing information, etc.
Board For Regulation And Supervision Of Payment And Settlement System (BPSS)The board for regulation and supervision of payment and settlement system is constituted under the section 3(2) of the Act for the regulation and supervision of the payment system. The board constituted shall consist of the following members;
- Governor, Reserve Bank, who shall be the chairperson of the board;
- Deputy Governors, Reserve Bank, out of whom the Deputy Governor who is in- charge of the Payment and Settlement System, shall be the Vice- President of the Board;
- Not exceeding three Directors from the Central Board of the Reserve Bank of India to be nominated by the governor, Reserve Bank.
- Board should lay down the policies for the regulation and supervision of the payment and settlement system.
- Board should lay down the standards for existing as well as for the future payment and settlement system.
- The authorization of payment and settlement system.
- The board to decide the criteria for membership of payment and settlement system.
- Board to examine the rule and regulations framed under any statutes for giving direction from time to time.
- Board should take major and effective steps for proper regulation and supervision of the payment and settlement system.
- The board should create the essential administering structure within the existing rules and regulations for effective regulation and supervision of the payment and settlement system.
Authorization Of Payment SystemChapter 3 deals with the authorization of payment system. Section 4 of the Act states that no person can operates the payment system without obtaining authorization from Reserve Bank of India. Under the Act the RBI is empowered to act as designating authority to regulates and supervise the payment system. Section 4 conveys that person can operates the payment and settlement system after obtaining authorization from the RBI. The Reserve Bank of India can authorizes a person to operate or regulate the existing houses or new clearing houses of banks in order to have a common retail clearing house throughout the country. Under section 5 of the Act person who wants to operate the payment system can apply for authorization. The application for the authorization should be
 M.L. Tannan, Tannanâ€™s Banking Law And Practice In India 354 (25th ed. Lexis Nexis Butterworths Wadhwa 2012)  M.A. Rashid, Law Relating To Electronic Transfer Of Money 11 (1st ed. Lexis Nexis Butterworths Wadhwa 2010)  N.S. Toor, Handbook Of Banking Information 58 (31st ed. Skylark Publications 2010)  M.L. Tannan, Tannanâ€™s Banking Law And Practice In India 355 (25th ed. Lexis Nexis Butterworths Wadhwa 2012)  Ibid  M.A. Rashid, Law Relating To Electronic Transfer Of Money 11 (1st ed. Lexis Nexis Butterworths Wadhwa 2010)  Ibid  N.S. Toor, Handbook Of Banking Information 58 (31st ed. Skylark Publications 2010)  supra note 6  Ibid  Payment and Settlement Act, 2007 2(c)  supra note 2  Payment and Settlement Act of 2007 3(2).  M.L. Tannan, Tannanâ€™s Banking Law And Practice In India 354 (25th ed. Lexis Nexis Butterworths Wadhwa 2012)  Payment and Settlement Act of 2007 4(2)