1. What is Dormant in Wallet vs Bank?

Bank Dormant: Savings/Current account with no customer-induced transaction for 2 years = Inoperative. After 10 years unclaimed = transfer to DEAF - Depositor Education and Awareness Fund maintained by RBI. Customer can still claim back with KYC/Video-KYC. No charges for activation.

PPI / Wallet Dormant: Definition is stricter.

As per RBI FAQ and Master Direction:

A PPI with no financial transaction for a consecutive period of one year shall be made / treated inactive after sending a notice to the PPI holder.

As per Draft PPI Master Direction 2026:

PPIs with no transactions for one year be classified as inactive and closed after another year if not reactivated. The balance transferred back to source account.

And ET summary:

PPIs with no transactions for one year be classified as inactive and closed after another year if not reactivated.

So timeline is: 0-12 months no txn = Inactive + Notice. 12-24 months still inactive = Must be closed and balance refunded. This is a shift - 2021 Directions recognized inactivity but did not prescribe closure timeline.

2. Who is Liable for Dormant Balance?

Principle 1: Balance Never Belongs to PPI Issuer. It is a Liability in Escrow.

Under PSS Act, 2007, all PPI issuers (bank and non-bank like Paytm, PhonePe, Amazon Pay) must maintain escrow account with a scheduled commercial bank. Wallet balance = Outstanding liability to holder, parked in escrow. Issuer cannot use it for business.

Issuers shall clearly indicate expiry period of PPI at time of issuancebut expiry of instrument does NOT extinguish liability.

Principle 2: No Forfeiture / No Automatic Lapse.

RBI has categorically said: Users won't lose money in wallets for KYC non-compliance. Deputy Governor B P Kanungo clarified - not obtaining KYC will not lead to loss of money. Users will be able to undertake transactions for purchases with available balance, only reload stops.

Same applies to dormancy. Issuer cannot forfeit, cannot levy inactivity charges to zero out balance. If scheme is wound-up or directed by RBI to be discontinued, holders shall be permitted to redeem outstanding balance.

Principle 3: Refund Path

• 2021 Regime: Keep inactive, allow reactivation after fresh KYC, refund on closure to source bank account / holder's bank account.
• 2026 Draft Regime: Mandatory closure after 2 years inactivity, balance returned to customer's pre-designated bank account or source account. Also, refunds for failed/cancelled transactions must be credited back to PPI immediately.

If source account closed, issuer must keep amount in escrow and pay on demand after KYC - liability continues.

3. Types of Dormant Wallet Liability

a) Minimum KYC PPI (Rs 10,000 limit): Earlier many wallets were minimum KYC. Even if not upgraded to Full KYC in 12 months, balance cannot be forfeited. Must be allowed for purchase.

b) Full KYC PPI (Rs 2 lakh limit): Full KYC + interoperability. Dormant liability same but reactivation requires Video KYC.

c) Closed Wallet / Gift / Meal Vouchers: If voucher expires, RBI says issuer must have policy for refund / revalidation. Unutilized gift card balance beyond 1 year cannot be kept as income - must be kept as liability for 3 years as per Contract Act.

4. Case Laws and Regulatory Actions

There is no direct Supreme Court case on "wallet dormancy" but liability is built from three lines of case law:

1. RBI Consumer Protection Assurance - Paytm KYC Case (2018)
RBI press briefing after PPI KYC deadline: Users won't lose money in wallets for KYC non-compliance. This became regulatory estoppel - no PPI issuer can argue forfeiture for KYC or dormancy. Used in all Consumer Forum cases against wallets.

2. Consumer Forum Cases - Funds Stuck in Digital Wallet
District Consumer Commissions have held freezing wallet balance without notice = deficiency in service under CPA 2019. Legal steps recognized: Terms and conditions + consumer complaint 6 months to 2 years timeline. NCDRC has awarded refund + compensation for arbitrary freezing.

Example: Many Paytm, Mobikwik cases where wallet blocked for "suspicious activity" - Forums ordered immediate refund of balance + 9% interest, holding that balance is customer's money held in trust, not issuer's asset.

3. Forfeiture Must Be Reasonable - Supreme Court Analogy
Supreme Court on Earnest Money Forfeiture (2024)
Court held to justify forfeiture, terms must be clear and explicit. Even where contract has forfeiture clause, forfeiture must be reasonable and proportionate. Agreement tilted in favour of one party is unfair.

NCDRC applied same to wallets: Forfeiture of amount in case of breach must be reasonable. Hence clause saying "dormant balance will lapse after 1 year" = Unfair contract under CPA Sec 2(46), void.

4. Bank Dormant Analogy - DEAF Cases
SC and RBI circular: Even after 10 years transfer to DEAF, customer right to claim never extinguishes. Banks must display list of unclaimed accounts, attempt contact. Same principle extended to PPI by RBI Internal Ombudsman Scheme for PPIs.

5. Limited Liability for Unauthorized Transactions
RBI Circular on Customer Liability in Unauthorized Electronic Banking Transactions applies to PPI too. If dormant wallet is hacked and used, if customer reports within 3 days - zero liability. This is where most litigation happens - dormant wallets targeted for fraud.

5. Compliance Checklist for PPI Issuer (What RBI Will Audit)

1. Notice before marking inactive - SMS/Email 30 days, 7 days, 1 day.
2. No debit for "inactivity fee" that reduces balance to zero.
3. Maintain escrow + daily reconciliation + auditor certification for inter-escrow transfer.
4. On closure after 2 years: transfer to source account, if fails - keep in special liability account, file monthly return to RBI.
5. Reactivation: Simple OTP + Full KYC if needed, no charges.
6. Grievance: Access to RBI Integrated Ombudsman for PPI.

Customer Action if Balance Forfeited:

1. Complain to PPI issuer nodal officer - 30 days.
2. Escalate to RBI CMS portal - Ombudsman for Digital Transactions.
3. Consumer Complaint under CPA 2019 - deficiency + unfair trade practice - ask for refund + interest + compensation.
4. For amount > Rs 20 lakh, file with NCDRC.

Current draft 2026 proposes Rs 2 lakh limit for Full KYC PPI and mandatory UPI interoperability, which will reduce dormancy because wallet can be used anywhere on UPI.