One of my clients recently had a case which I am explaining below and if you are stuck in such similar situation, here is what to do.
Note: Due to attorney-client privilege, I cannot disclose complete case details or identify the actual parties involved. However, I am sharing the essential facts and legal approach so that if you find yourself in a similar situation, you can understand the available solutions and legal remedies.
TL;DR: Yes, under RBI circular DPSS.CO.PD No.629/02.01.014/2019-20, you can claim ₹100 per day compensation from your bank for delayed reversal of a failed merchant payment beyond T+5 days. This applies when your account is debited but the merchant does not receive payment, and the reversal is delayed beyond the stipulated timeline.
On 10 March 2025, Mr. Vikram Malhotra of Indore placed a food order on Flipkart using BHIM UPI linked to his HDFC Bank credit card. The payment of ₹850 was debited instantly. But the order failed. A payment gateway glitch was the culprit.
Flipkart's chatbot kept repeating the same message: the payment never reached them. After multiple emails, Flipkart finally confirmed on 18 March 2025 that the refund was processed. That's a delay of 8 days from the transaction date. Mr. Malhotra got his money back, but no compensation followed.
Frustrated, he tried his bank's customer care. No luck. Then he went to a local lawyer. That didn't work either. That's when he approached the Chamber of Advocate Sudhir Rao. His office examined the RBI circular on failed transactions. It was clear — this wasn't just about getting the refund. There was an auto-compensation mechanism he was entitled to.
Advocate Sudhir Rao and his office argued that the bank had failed its statutory duty under the RBI's mandate. The fund was reversed late. The compensation period kicked in automatically. The approach was methodical — a formal legal notice citing the specific circular, followed by escalation to the banking ombudsman. The outcome? The bank credited ₹300 as compensation for the 8-day delay, plus interest on the delayed amount. The domain expertise in handling such banking regulation matters made the difference here.
Key Facts of the Case
- Transaction date: 10 March 2025 — UPI payment via HDFC Bank credit card at Flipkart.
- Transaction failed due to payment gateway technical issue; amount of ₹850 debited from account.
- Refund was processed and credited only on 18 March 2025 — an 8-day delay from transaction date.
- RBI circular mandates auto-reversal of failed merchant payments within T+5 calendar days.
- Compensation of ₹100 per day is payable for delay beyond T+5 days from the transaction date.
- Under the circular, the bank is liable to pay compensation — not the merchant or payment aggregator.
- Successfully claimed ₹300 compensation (₹100 x 3 days beyond T+5) plus delayed interest.
- The matter was resolved through a detailed legal notice and escalation to Banking Ombudsman.
The Direct Legal Answer
Does the RBI circular apply to failed UPI payments at merchants?
Yes. The RBI circular DPSS.CO.PD No.629/02.01.014/2019-20 applies to all failed transactions at merchants where the customer's account has been debited but the merchant has not received the payment. UPI, debit cards, credit cards — all are covered. The clock starts ticking from the calendar date (T) of the transaction.
What is the timeline for auto-reversal?
The circular says the transaction must be auto-reversed within T+5 days. That means within 5 calendar days from the transaction date. If not, compensation kicks in. ₹100 per day of delay from T+6 onwards. The bank cannot hide behind technicalities here.
Can I claim this compensation from the bank or the merchant?
From the bank. The circular is addressed to all scheduled commercial banks. It is the bank's responsibility to ensure the reversal mechanism works. The merchant or payment gateway (like Flipkart here) is not directly liable under this circular — though you may have other consumer rights against them separately.
Advice in Such Cases
Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation to come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
Document everything. Keep screenshots of the transaction failure, chatbot conversations, email confirmations. The bank will try to claim they processed the reversal on time. Your proof matters. And here's the thing — this type of banking regulation matter involves nuanced procedural strategy. A general practitioner might miss the specific RBI circular language or the escalation route through the Banking Ombudsman. An advocate who regularly handles such consumer-banking disputes typically gets faster results.
Applicable Sections of Law
This is a civil/commercial matter grounded in regulatory law. The primary source is the RBI circular DPSS.CO.PD No.629/02.01.014/2019-20 on failed transaction reversals. Beyond that:
- Banking Regulation Act, 1949 — Section 35A gives RBI power to issue directions to banks, including on customer service standards.
- Consumer Protection Act, 2019 — Section 2(11) defines 'deficiency in service'; a delayed reversal without compensation qualifies.
- Indian Contract Act, 1872 — Section 73 covers compensation for loss or damage caused by breach of contract; the bank's failure is a breach of its statutory obligation.
- Banking Ombudsman Scheme, 2006 — Provides for dispute resolution without going to court; the ombudsman can award compensation up to ₹20 lakh for deficiency.
Jurisdiction — Where to File the Case
For claims under the Banking Ombudsman Scheme, you file with the Banking Ombudsman of the region where the bank branch is located. No court fee needed. For consumer complaints, the District Consumer Disputes Redressal Commission has jurisdiction if the claim (including compensation) is up to ₹1 crore. Territorial jurisdiction lies where the cause of action arose — typically where the transaction happened or where the bank branch is situated. Getting the jurisdiction right matters. A wrong forum wastes time and money.
Limitation Period
Under the Banking Ombudsman Scheme, the complaint must be filed within one year from the date of receipt of the bank's final response (or from the date the bank should have responded). For a consumer complaint under the Consumer Protection Act, 2019, the limitation period is two years from the date of the cause of action — here, the date the bank failed to pay compensation. Missing the limitation can be fatal. Condonation of delay is possible but not automatic — the forum must be satisfied that there was sufficient cause for the delay.
Interim Reliefs Available
In consumer forum proceedings, you can seek interim orders including direction to the bank to process the refund (if not already done) and to preserve relevant transaction logs. The forum may also issue a stay on any adverse action by the bank. For the Banking Ombudsman route, interim relief is less formal — the ombudsman typically takes up the matter for conciliation or settlement first. The key is to act early. If the bank is delaying, an interim application to the consumer forum can push them to act.
If You Are the Victim
- Immediately write to your bank's grievance officer. Cite the RBI circular. Demand the refund plus ₹100 per day compensation.
- Keep a paper trail — screenshots, email copies, transaction reference numbers. This is your evidence.
- If the bank refuses or ignores, escalate to the Banking Ombudsman of your region. No lawyer needed for this step.
- If the ombudsman route fails or the claim is large, file a consumer complaint before the District Consumer Forum.
- Do not settle for just the refund. Demand what the law says you are entitled to.
Documents You Must Keep Ready
- Identity proof — Aadhaar card, PAN card, or passport.
- Bank statement showing the debit and the credit reversal.
- Screenshots of the failed transaction from the app or UPI interface.
- Email or chat records showing communication with the merchant and bank.
- Copy of the bank's final response (if any) refusing or delaying compensation.
- Transaction reference number (UTR) for the failed payment.
- Copy of the RBI circular (download from RBI website).
What Evidence Is Required?
- Primary evidence: bank statement showing debit date and credit date.
- Secondary evidence: screenshots of the transaction failure screen from the merchant app.
- Email correspondence with the merchant and bank establishing the delay.
- The RBI circular itself — it's a public document and can be submitted.
- If available, a system-generated message from the payment gateway confirming the failure.
- A timeline chart showing the gap between transaction date and reversal date.
How Courts Typically Approach Such Cases
Consumer forums and the Banking Ombudsman take a pro-consumer stance on these matters. The RBI circular is unambiguous. The bank's standard defence is "the merchant initiated the reversal late." But the circular clearly puts the obligation on the bank. The courts have consistently held that the bank cannot pass the buck to the merchant. They look at the date of debit versus the date of credit. If that exceeds T+5, compensation is due. The approach is factual and straightforward — no complicated legal arguments needed.
Timeline of Legal Process
- Step 1 (Day 1-3): File complaint with bank's internal grievance officer.
- Step 2 (Day 4-30): Wait for bank response. Bank must respond within 30 days under RBI guidelines.
- Step 3 (Day 31-45): If no response or unsatisfactory response, file complaint with Banking Ombudsman (online or by post).
- Step 4 (Day 46-90): Ombudsman attempts conciliation. Award typically within 2-3 months from filing.
- Step 5 (Alternative): File consumer complaint in District Consumer Forum — takes 6-12 months for first hearing.
- Appeal: Appeal from Ombudsman's award to High Court within 30 days; from consumer forum to State Commission within 45 days.
Understanding the Costs
The total cost of a matter like this varies significantly from one case to the next — it depends on the complexity of the dispute, the forum involved, the number of hearings, and the specific facts of your situation. There is no single fixed figure that applies to everyone.
A professional advocate can give you an accurate estimate only after reviewing all your facts and documents in a consultation.
Can the Matter Be Settled Out of Court?
Yes. Most such cases get resolved through the Banking Ombudsman's conciliation process. The bank typically offers to settle by paying the compensation to avoid litigation. You can also opt for Lok Adalat if the matter is pending before a consumer forum. Since the claim is purely monetary, a negotiated settlement works well — you get the compensation without the wait. But do not settle for less than what the law entitles you to. The RBI circular's compensation amount is mandatory, not discretionary.
Common Mistakes People Make
- Delaying action: Waiting weeks or months. The bank's liability is clear; act immediately after the reversal is delayed beyond T+5.
- Engaging a lawyer without domain expertise: Many general practitioners treat it as a simple bank complaint. The RBI circular, Banking Ombudsman route, and consumer forum strategy require specific knowledge. A specialist in consumer-banking disputes handles these nuances naturally.
- Destroying evidence: Deleting the failed transaction screenshot or the bank's email response. Keep everything.
- Speaking to the bank without documenting: Oral promises mean little. Get everything in writing.
- Settling for just the refund: The law gives you compensation. Do not take a partial settlement.
- Posting on social media prematurely: It can prejudice your case. Let the legal process work first.
FAQs People Normally Have
Does the ₹100 per day compensation apply to all failed payments?
Yes, for failed merchant payment transactions where the customer's account is debited but the merchant does not receive payment. Peer-to-peer UPI transfers are covered under a different timeline (T+1 day with ₹100 per day compensation beyond that).
Can I claim compensation if the refund was processed on T+5 itself?
No. The compensation applies only from T+6 onwards. T+5 is the permissible maximum delay without penalty. If the reversal happens exactly on T+5, no compensation is payable.
Who is liable — the bank or the payment app (like Flipkart)?
The bank is liable. The RBI circular is addressed to banks. The merchant or aggregator may have separate contractual obligations, but the compensation mechanism is against the bank that holds your account.
What if the bank says the merchant initiated the refund late?
The bank cannot escape liability by blaming the merchant. The circular requires the bank to ensure auto-reversal within T+5. The bank and the merchant have their own settlement agreements — that is not your concern. Your claim is against the bank.
Is there a limit on how much compensation I can claim?
The circular states ₹100 per day of delay. There is no stated cap on the number of days. However, the Banking Ombudsman can award compensation up to ₹20 lakh. For claims beyond that, the consumer forum route is appropriate.
This article is general legal information, not legal advice. Consult a qualified advocate about your specific situation.
Advocate Sudhir Rao, Supreme Court of India
Facing a similar matter? Speak to a criminal advocate in Delhi — Advocate Sudhir Rao appears in bail, trial and appellate matters before the Delhi District Courts, the Delhi High Court and the Supreme Court of India.