Under Sections 26(1) and (5) of the Payment and

Solution

Section 26(1) of the PSSA provides: "Where a person contravenes the provisions of section 4 or fails to comply with the terms and conditions subject to which the authorisation has been issued under section 7, he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years or with fine which may extend to one crore rupees or with both and with a further fine which may extend to one lakh rupees for every day, after the first during which the contravention or failure to comply continues." Section 26(5) further provides: "Where a direction issued under this Act is not complied with within the period stipulated by the Reserve Bank or where no such period is stipulated, within a reasonable time or where the penalty imposed by the Reserve Bank under section 30 is not paid within a period of thirty days from the date of the order, the system provider or the system participant which has failed to comply with the direction or to pay the penalty shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years, or with fine which may extend to one crore rupees or with both and where the failure to comply with the direction continues, with further fine which may extend to one lakh rupees for every day, after the first during which the contravention continues." In Company C's case: (1) Section 26(1) liability attaches from January 1 (commencement without authorization) with continuing violations through March 10 (69 days). Base penalty: 1 month-10 years imprisonment and/or fine up to ₹1 crore. Daily fine: ₹1 lakh × 68 days (excluding first) = ₹68 lakhs. (2) Section 26(5) liability attaches from January 22 (day 8, after the 7-day direction deadline) through March 10 (53 days of non-compliance). Base penalty: 1 month-10 years imprisonment and/or fine up to ₹1 crore. Daily fine: ₹1 lakh × 52 days (excluding first) = ₹52 lakhs. Total exposure: Fine up to ₹2 crores (₹1 crore × 2 provisions) plus ₹120 lakhs in daily penalties, plus potential imprisonment up to 20 years (10 years × 2 provisions). The statute contemplates cumulative penalties for compounded violations. Thus, option (B) correctly applies the dual penalty structure of Sections 26(1) and (5).