Delhi High Court Seeks Finance Ministry's Response In PayPal’s Appeal Against Being Declared ‘Payment System Operator’ Under PMLA

The Delhi High Court has sought response of the Union Government on an appeal moved PayPal challenging a single judge order holding that the payment platform is liable to be viewed as a “payment system operator” and consequently obliged to comply with reporting entity obligations under the Prevention of Money Laundering Act, 2002.

A division bench comprising Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula impleaded the Union Ministry of Finance in the matter and directed it to file a detailed response.

The court had earlier sought response of Financial Intelligence Unit (FIU) India in the plea.

Senior Advocate Sandeep Sethi appearing for Paypal submitted that the payment platform is only a payment gateway and that it neither makes any payment nor receives the same.

On the other hand, ASG S V Raju appearing for representing Financial Intelligence Unit (FIU) India submitted that the officials of PayPal have themselves said that the payment platform “can be used for terror financing.”

"Suppose, someone from Lashkar-e-Taiba sitting in Pakistan sends money to a person in Delhi to get explosives…you will not have any way of knowing it," Raju said.

The matter will now be heard on October 18.

About Single Judge Order

Justice Yashwant Varma on July 24 had quashed the monetary penalty imposed by Financial Intelligence Unit India on PayPal in December 2020 for having failed to comply with the reporting obligations as placed under the Prevention of Money Laundering (Maintenance of Records) Rules 2005.

The FIUI had held PayPal to be a reporting entity under the PMLA. However, it was the case of the payment platform that it was not a "payment system operator” as defined under PMLA and that it would be erroneous for FIUI to hold it to be a reporting entity.

It was PayPal’s case that the FIUI had arbitrarily imposed the highest monetary penalty of Rs.1,00,000 for each of the three alleged offences for every month, stretching over a period of 32 months. According to PayPal, the quantification of penalty was clearly rendered unsustainable.

Granting relief to PayPal, the court had said that it found itself unable to sustain the imposition of penalty and thus, the same is liable to be quashed.

While partly allowing the plea, Justice Varma had discharged the bank guarantee of Rs. 96 lakhs submitted by PayPal with the Registrar General in terms of a court order passed on January 12, 2021.

Justice Varma had observed that all elements of the transaction comprised or connected with a payment being effected between two parties would appear to fall within the scope of the expression “payment system” as defined under Section 2(1)(rb) of the PMLA.

Case Title: PAYPAL PAYMENTS PRIVATE LIMITED v. FINANCIAL INTELLIGENCE UNIT INDIA & ANR.