PayPal Moves Delhi High Court Against Single Judge Order Holding It As A ‘Payment System Operator’

Paypal has moved the Delhi High Court 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 asked the Union Government’s standing counsel to obtain instructions in the matter and listed it for hearing in September first week.

Senior Advocates Mukul Rohatgi and Sajan Poovayya representing Paypal requested for interim relief and submitted that the order of the single judge cannot stand in view of a recent judgment delivered by the Chief Justice led bench in Google Pay case.

Rohatgi referred to a judgment passed on August 07 by a division bench of Chief Justice Sharma and Justice Subramonium Prasad dismissing two PILs against Google Pay alleging that the payment platform violated regulatory and privacy norms under the Indian law. 

It was held that Google Pay is a mere third party app provider for which no authorisation is required from RBI under the provisions of Payments and Settlement Systems Act, 2007. It was also observed  that NPCI is the operator of UPI system for transactions in India and is a “system provider” authorized by RBI to extend its services for facilitating transactions.

“The order says that PayPal, Google Pay, Apple Pay etc are not payment system operators. After this judgment, that judgment [of single judge] cannot stand,” Rohatgi contended.

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.