Satyanarayan Shet
Asked September 04, 2016

Issuance and distribution of discount coupons offline

  • 1 Answer
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Hi Legalfarm Team, We need some legal guidance on issuance and distribution of "Discount" coupons (offline) through affiliate marketing programs. We won't be dealing with "Gift" coupons. Kindly let us know whether we need to acquire publishing license from the "Office of the Registrar of Newspapers for India" or any approvals from the RBI. We understand that Discount coupons don't come under the purview of the RBI. Please clarify. Thanks & Regards, S G Shet

Answer 1

The business of issuance and distribution of the “Discount” coupons (offline) requires certain regulatory approvals before commencement.  One needs to get a clearance in the form of authorisation (and not a publishing license) by the RBI for issuing the aforementioned coupons or vouchers as per section 7 of the Payment and Settlement Systems Act, 2007. The specific laws in support to your query are mentioned below:

Provisions under Law 

The Payment and Settlement Systems Act, 2007

Section 7: Issue or Refusal of Authorisation

(1) The Reserve Bank may, if satisfied, after any inquiry under section 6 or otherwise, that the application is complete in all respects and that it conforms to the provisions of this Act and the regulations issue an authorisation for operating the payment system under this Act having regard to the following considerations, namely:— (i) the need for the proposed payment system or the services proposed to be undertaken by it; (ii) the technical standards or the design of the proposed payment system; (iii) the terms and conditions of operation of the proposed payment system including any security procedure; (iv) the manner in which transfer of funds may be effected within the payment system; (v) the procedure for netting of payment instructions effecting the payment obligations under the payment system; (vi) the financial status, experience of management and integrity of the applicant; (vii) interests of consumers, including the terms and conditions governing their relationship with payment system providers; (viii) monetary and credit policies; and Application for authorisation Inquiry by the Reserve Bank Issue or refusal of authorisation (ix) such other factors as may be considered relevant by the Reserve Bank.

(2) An authorisation issued under sub-section (1) shall be in such form as may be prescribed and shall— (a) state the date on which it takes effect; (b) state the conditions subject to which the authorisation shall be in force; (c) indicate the payment of fees, if any, to be paid for the authorisation to be in force; (d) if it considers necessary, require the applicant to furnish such security for the proper conduct of the payment system under the provisions of this Act; (e) continue to be in force till the authorisation is revoked.

(3) Where the Reserve Bank considers that the application for authorisation should be refused, it shall give the applicant a written notice to that effect stating the reasons for the refusal: Provided that no such application shall be refused unless the applicant is given a reasonable opportunity of being heard.

(4) Every application for authorisation shall be processed by the Reserve Bank as soon as possible and an endeavour shall be made to dispose of such application within six months from the date of filing of such application.[1]

 

Issuance and Operation of Pre-paid Payment Instruments in India (Reserve Bank) Directions, 2009

2.3 Pre-paid Payment Instruments: Pre-paid payment instruments are payment instruments that facilitate the purchase of goods and services against the value stored on such instruments. The value stored on such instruments represent the value paid for by the holders by cash, by debit to a bank account, or by credit card. The pre-paid instruments can be issued as smart cards, magnetic stripe cards, internet accounts, internet wallets, mobile accounts, mobile wallets, paper vouchers and any such instrument which can be used to access the pre-paid amount (collectively called Payment Instruments hereafter). The pre-paid payment instruments that can be issued in the country are classified under three categories viz. (i) Closed system payment instruments (ii) Semi-closed system payment instruments and (iii) Open system payment instruments. [2]

 

Case Law

Sodexo Svc India Pvt. Ltd vs State Of Maharashtra And Ors[3]

The authorization is only for issue of meal vouchers and gift vouchers in the form of 'Paper based vouchers' and 'Smartcard' or 'Smart Meal Card' and subject to adherence to the 'Policy Guidelines for issuance and operation of Pre-paid Payment Instruments in India' (unless specific relaxation has been permitted by the RBI). Sodexo shall adhere to the provisions of the prevention of Money Laundering Act and ruled framed thereunder.

 

[1] https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/86706.pdf

[2]http://www.mpf.org.in/pdf/Issuance%20and%20Operation%20of%20Prepaid%20Payment%20Instruments%20in%20India.pdf

[3] Civil Appeal Nos. 4385-4386 of 2015,judgement dated 09-12-2015(Supreme Court)

 

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