A Delhi High Court Division Bench has issued notices to Paytm and the Reserve Bank of India (RBI), to offer responses on the Public Interest Litigation (PIL) filed against Paytm Payments Bank by economist Abhijit Mishra. The PIL questions the legality of operations of the postpaid service offered by Paytm Payments Bank, and claims that the service is actually in violation of the regulations put forth by RBI on the scope of operations of payments banks.
According to the litigation, Mishra claims that the postpaid (or pay-later) operations being executed by the Paytm Payments Bank is illegal, since it offers credit and lending services to its customers. The plea also claims that Paytm has not notified the national banking regulator of its lending operations, which is in violation of RBI’s issued code of conduct for payments banks.
The filing further states that operations of the postpaid facility are wholly handled by a third party vendor Clix Finance India Pvt — a Delhi-based non-banking financial company (NBFC) that specialises in personal, commercial and retail lending. However, while Clix Finance has been a long-established financial services firm, the litigation states that there has been no public disclosure that Paytm allows a third party firm to handle the private financial data of its consumers, and hence stands in breach of the constitutional right to privacy.
The primary grounds of the litigation falls under Section 1.6 of RBI’s operational guidelines issued to payments bank organisations. These guidelines clearly forbid any payments bank from performing any non-banking financial activity, as well as undertake lending of any form or kind to anyone, including its board of directors.
The primary factor that differentiates Paytm’s postpaid service from other postpaid short-credit services such as LazyPay and Simpl is its Payments Bank wing. With Paytm presently being one of the seven sanctioned payments bank institutions in India, it is governed by a different set of laws in pertinence to it. However, Paytm also simultaneously operates its digital Wallet service, which differs from the payments bank in terms of charges levied and interest issued.
It is not yet clear if the postpaid service falls under Paytm’s digital wallet division, or is incorporated under the Payments Bank service. The murky area of cross-understanding gives rise to confusion, wherein Paytm may claim that its postpaid services are actually independent of its payments bank operations. While the company would still have to answer about its third-party outsourcing of the financial operations, it remains to be seen what responses to either Paytm or RBI issue, in accordance to the Delhi HC’s notice.
News18 has reached out to Paytm for its response on the issued notice. However, a company spokesperson wasn't immediately available for comment, as of publishing the story.
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