Delhi High Court seeks Finance Ministry’s Response to PayPal’s Appeal against ‘Payment System Operator’ Tag under PMLA

Delhi High Court seeks Finance Ministry’s Response to PayPal’s Appeal against ‘Payment System Operator’ Tag under PMLA

The matter will be heard on 18 October

The Delhi High Court has sought the response of the Government of India on an appeal filed by PayPal challenging a single-judge order. The bench held that the payment platform was a ‘system operator’, therefore, it was 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 Ministry of Finance to file a detailed response in the matter.

Earlier, the Court had sought a response from the Financial Intelligence Unit (FIU), India, in the plea. The FIUI had held PayPal to be a reporting entity under PMLA. However, PayPal reiterated that it was not a ‘system operator’ as defined under PMLA.

Appearing for PayPal, Senior Advocate Sandeep Sethi submitted that the payment platform was only a gateway and that it neither made nor received payments.

While representing FIU in the case, ASG S V Raju submitted that the officials of PayPal had admitted that the payment platform “can be used for terror financing.” He added, "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.”

In 2020, the Single-Judge Bench of Justice Yashwant Varma had quashed the monetary penalty imposed on PayPal by FIU for non-compliance with the reporting obligations as placed under the Prevention of Money Laundering (Maintenance of Records) Rules 2005.

PayPal stated that FIUI arbitrarily imposed the highest monetary penalty of Rs.1,00,000 every month for the three alleged offenses, stretching over a period of 32 months. It said that the quantification of the penalty was clearly rendered unsustainable.

While finding itself unable to sustain the imposition of penalty, the court quashed it and granted relief to PayPal.

Justice Varma had discharged the bank guarantee of Rs.96 lakhs submitted by PayPal with the Registrar General in terms of a January 2021 court order.

The Judge had observed that all elements of the transaction connected with a payment between two entities would fall under the ‘payment system’ as defined under Section 2(1)(rb) of the PMLA.