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    Question

    Under Section 22 of the Payment and Settlement Systems

    Act, 2007, Mr. A, an employee of a payment system operator, learns from system operations data that a particular business entity is making unusually large fund transfers to foreign accounts before a major negative announcement is likely to be made public. Mr. A shares this non-public sensitive information with his friend, Mr. B, a securities trader, suggesting potential market implications. Mr. B profits from trading on this information. Which of the following correctly determines liability under Section 22?
    A Mr. A is not liable because Section 22 applies only to disclosure of customer identity, not trading information Correct Answer Incorrect Answer
    B Mr. A is liable under Section 22 because he disclosed information whose disclosure is prohibited under that section, specifically system participant information obtained through his operational role, without legal authority or consent Correct Answer Incorrect Answer
    C Mr. A is liable only under securities laws; the Payment and Settlement Systems Act does not address insider trading scenarios Correct Answer Incorrect Answer
    D Mr. B is liable under Section 22 for receiving the information, while Mr. A has no liability as a mere discloser Correct Answer Incorrect Answer
    E Disclosure is permissible if information relates to illegal activity; Mr. A's disclosure is protected as whistle-blowing Correct Answer Incorrect Answer

    Solution

    Explanation: Section 22(1) of the PSSA, 2007 provides: "No system provider, operator, member or employee of a payment system shall disclose any information relating to the operation of a payment system, the identity and dealings of a system participant or the identity of a beneficiary or payor in a transaction unless the disclosure is made with express or implied consent...or...in obedience to orders passed by a court or statutory authority." The provision covers a broad category of information: operational data, participant identity, transaction details. While Section 22 primarily addresses customer confidentiality/privacy, it also protects information derived from system operations. Mr. A's disclosure of transaction patterns and fund flows involving a specific entity constitutes disclosure of "dealings of a system participant" and transaction-related information, prohibited by Section 22. The statute does NOT require proof of express motive to cause market harm; mere disclosure itself constitutes the offence. Section 26(4) provides: "If any person discloses any information, the disclosure of which is prohibited under section 22, he shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five lakh rupees or an amount equal to twice the amount of the damages incurred by the act of such disclosure, whichever is higher or with both." While Mr. B's trading may attract securities law liability, Mr. A faces liability under Section 22 for the prohibited disclosure itself. The whistle-blowing defence does not apply absent statutory safeguards or legal authority. Thus, option (B) correctly applies Section 22.

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