Section 25 of the Payment and Settlement Act makes it an offence if an electronic payment, like an EMI through ECS or NACH, bounces due to insufficient funds and you don’t pay after getting a formal notice. It works much like a cheque bounce case under Section 138. The key point: if you pay the amount within 15 days of receiving the notice, no offence is made out.
So a notice is serious. But in most cases, it’s also fixable.
What Is the Payment and Settlement Systems Act?
The Payment and Settlement Systems Act, 2007 governs electronic payment systems in India. This includes ECS, NACH, NEFT, and other auto-debit methods.
Most loan EMIs today are collected through a NACH or ECS mandate. You sign it once. Then the lender auto-debits your EMI every month.
Section 25 of the Payment and Settlement Systems Act rules deal with what happens when that auto-debit fails because your account doesn’t have enough money.
When Does Section 25 Apply?
Not every EMI bounce leads to a case under Section 25 of the Payment and Settlement Systems Act. Several conditions must be met:
- The debit was for a legal debt, like your loan EMI.
- It failed due to insufficient funds, or it exceeded the agreed amount.
- The lender sent you a written notice demanding payment within 30 days of learning about the bounce.
- You didn’t pay within 15 days of receiving that notice.
Only when all of these happen can the lender file a complaint in court.
Penalty Under Section 25 Payment and Settlement Act
If the offence is proven, the law allows:
| Penalty | Limit |
|---|---|
| Imprisonment | Up to 2 years |
| Fine | Up to twice the bounced amount |
| Or both | At the court’s discretion |
That sounds scary. But remember, cases under Section 25 of the Payment and Settlement Act mostly arise when a borrower ignores the notice completely.
Section 25 vs Section 138: What’s the Difference?
People often mix these up. Here’s a simple comparison:
| Feature | Section 25, PSS Act | Section 138, NI Act |
|---|---|---|
| Covers | Electronic payments (ECS, NACH) | Cheques |
| Trigger | Auto-debit fails | Cheque bounces |
| Notice period to pay | 15 days | 15 days |
| Maximum jail term | 2 years | 2 years |
| Maximum fine | Twice the amount | Twice the amount |
Both are built on the same idea. If a payment you promised bounces, you get a fair chance to pay before any case is filed.
What Happens After an EMI Bounce?
Here’s the usual sequence:
- EMI auto-debit fails. Your bank charges a return fee.
- The lender adds a bounce charge and sometimes penalty charges.
- Reminder calls and messages begin.
- A legal notice under Section 25 of the Payment and Settlement Act may arrive, often by post, email, or WhatsApp.
- You get 15 days from receipt to pay.
- If unpaid, the lender may file a complaint in a magistrate’s court.
Most borrowers never reach step 6. They pay, or work out a plan, before that.
How to Respond to a Section 25 Notice
Here’s what we recommend. Stay calm and act fast.
Check That the Notice Is Genuine
Look for the lender’s name, loan account number, bounced amount, and date. Call the lender’s official customer care to confirm. Fake legal notices are sadly common.
Pay Within 15 Days if You Can
This is the simplest fix. Pay the bounced EMI plus charges through the lender’s official channel. Save the receipt.
If You Can’t Pay the Full Amount
Contact the lender in writing. Explain your situation. Propose a realistic plan, like partial payment now and the rest in a few weeks.
Consider a Legal Reply
If the amount is wrong, or you already paid, send a written reply. A lawyer can help draft it.
Keep Every Record
Save the notice, envelope, emails, payment proofs, F FSs,s and call details. They matter if things escalate.
How to Avoid Section 25 Payment and Settlement Act Notices
Prevention is easier than defence:
- Keep a buffer in your EMI account, at least one EMI’s worth.
- Align EMI dates with your salary date. Many lenders allow a change.
- Set reminders two days before each EMI.
- Tell your lender early if you expect a shortfall.
- Reduce your EMI load if bounces keep happening.
Repeated bounces are a sign that your EMIs don’t fit your income anymore. That’s worth fixing at the root.
When Bounces Keep Happening
If you’re bouncing EMIs often, the problem isn’t the auto-debit. It’s the structure of your debt.
Options that can help:
- Loan restructuring with a longer tenure
- Balance transfer to a lower rate
- Debt consolidation to merge several EMIs into one
- A secured loan, like a gold loan, to clear costly debt
At TapTap Loans, we often meet people after their second or third bounce notice. The relief usually comes from one honest conversation about their numbers. You don’t have to wait for a court notice to have it.
Frequently Asked Questions
Section 25 of the Payment and Settlement Act makes it an offence when an electronic debit, like an EMI via ECS or NACH, bounces due to insufficient funds and the payer doesn’t pay within 15 days of a formal notice.
The law allows up to two years of imprisonment, a fine up to twice the amount, or both. But this applies only if you ignore the notice and the lender proves the case in court.
You get 15 days from the date you receive the notice to pay the bounced amount. Paying within this time usually means no offence is made out.
They’re very similar. Section 138 covers cheques, while Section 25 covers electronic payments like ECS and NACH. The notice period and penalties are nearly the same.
Confirm it by calling your lender’s official customer care. If it’s fake, don’t pay anyone. Report it at cybercrime.gov.in or call 1930.
Conclusion
A notice under Section 25 (t) of the Payment and Settlement Act is serious, but it isn’t the end. The law gives you 15 days to pay. Most people who respond in time never see a courtroom.
Verify the notice, pay if you can, and talk to your lender if you can’t. Then look at why the bounce happened, and fix that too.
