Case Law Details
Paypal Payments Private Limited Vs Financial Intelligence Unit India & Anr (Delhi High Court)
Delhi High Court held that PayPal is liable to be viewed as “payment system operator” and obliged to comply with reporting entity obligation as placed under Prevention of Money Laundering Act, 2002 (PMLA).
Facts- PayPal Payments Private Limited, the petitioner impugns the order passed by the first respondent the Financial Intelligence Unit India holding it to be a “reporting entity” under the Prevention of Money Laundering Act 2002 and consequently proceeding to impose monetary penalties for it having failed to comply with the reporting obligations as placed under the Prevention of Money Laundering (Maintenance of Records) Rules 2005.
PayPal asserts that it is not a “payment system operator” as defined under the PMLA and consequently it would be erroneous for FIU-IND to hold it to be a Reporting Entity. This is asserted on the basis of it not being engaged in rendering services relating to clearing, payment or provision of settlement between a payer and a beneficiary. It essentially avers that it merely provides a technological interface enabling export related transactions that may be undertaken by an Indian exporter and an overseas buyer. It is its categorical case that in the chain of transaction which ensues between the Indian exporter and an overseas buyer, PayPal is at no stage engaged in the actual handling of funds. According to it, the transmission of funds occurs between the constituent Authorised Dealer Category-1 Schedule Commercial Banks which not only collect the amounts from the foreign purchaser directly and without any intervention of PayPal, the said funds are then transmitted to the AD Partner Bank‘s Export Collection Account. PayPal also relies upon the stand as struck by the Reserve Bank of India which in separate proceedings had averred on affidavit that it is not a payment system operator. The petitioner seeks to derive advantage from the stand so taken by RBI in those proceedings since the definition of a “Payment System” under the Payments and Settlements System Act 2007 is identical to the provision embodied in the PMLA.
Conclusion- Held that the instant writ petition is partly allowed. The Court holds that PayPal is liable to be viewed as a “payment system operator” and consequently obliged to comply with reporting entity obligations as placed under the PMLA. The imposition of penalty in terms of the impugned order dated 17 December 2020 is, however, quashed. The impugned order shall stand set aside to the aforesaid extent.
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