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PayPal India’s Future In Question As Delhi HC Hears Plea On Its Legality

PayPal India’s Future In Question As Delhi HC Hears Plea On Its Legality

Plea filed in Delhi HC calls to stop PayPal operations in India immediately

It alleges PayPal is not listed as an authorised operator under RBI

The plea calls for RBI to initiate appropriate action

Global digital payments player PayPal has found itself swiped into a larger controversy for its Indian operations. The company has found itself in the crosshairs due to the alleged illegal and unauthorised Indian operations.

The Delhi High Court Division Bench of Chief Justice DN Patel and Justice C Hari Shankar has reportedly issued notice to the Reserve Bank of India (RBI) and PayPal.

A plea filed by economist Abhijit Mishra in the Delhi High Court has alleged that the operation of PayPal as a payment system in India is in contravention of Section 4(1) of the Payment and Settlement Systems Act, 2007 (2007 Act).

What Is The Case About?

Section 4(1) provides that no person other than the Reserve Bank, shall commence or operate a payment system except in accordance with an authorization issued by the RBI.

With this, Mishra has alleged that Paypal Payments Private Limited is not listed as an authorised operator as per the list of the ‘Payment System Operators’ published by the RBI on May 27, 2019. It is to be noted that this list shows the operators authorised by the RBI to set up and operate in India under the 2007 Act.

He also alleged that PayPal has unmonitored and unauthorised access to the personal information of the citizens such as Aadhaar and PAN, threatening Article 21 of the Constitution of India. The plea further alleges that PayPal is operating as a foreign exchange dealer in contravention of Section 10 of the Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act.

The plea claims that being an unregistered entity to the 2007 Act, PayPal is not in compliance with the RBI’s Master Circular on Storage of Payment System Data in India.

The plea calls for RBI to initiate appropriate action, to impose a penalty under the FEMA and Rules, an investigation against PayPal by the Enforcement Directorate and the subsequent transfer of their allegedly illegal profits to the Prime Minister’s Relief Fund.

PayPal didn’t respond to Inc42 query on the matter till the time of publication. The matter will be heard next on September 18.

PayPal India: A Growth Of More Than 11X

PayPal has been operating in India for almost a decade mostly for cross-border transactions. It ventured into digital payments industry and launched domestic operations in November 2017.

The company is aiming to reach the small and medium scale industries in cities and in smaller towns. It has also started working on a model of cluster workshops across India.

Talking to Inc42 in April 2018, Anupam Pahuja, MD of PayPal India said that the company is aiming to build over its current product stack to further expand its presence in the Indian digital payments landscape.

Guru Bhat, GM, technology, and head of engineering, PayPal had earlier said in July 2018 that the company is growing 20% Y-o-Y and is looking to increase India’s headcount by 600 in 2018.

The company recorded FY18 revenue of $36.9 Mn (INR 260 Cr) from $2.98 Mn (INR 21 Cr) in the financial year 2016-17. The company reported a net profit of $283.9K (INR 2 Cr), as against $198.7K (INR 1.4 Cr) in the previous year.

In the next five years, PayPal was looking to grab aims to command a much larger share of India’s digital payments industry. However, this plea may raise questions on its future in India.

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