SUMMARY
Senior advocate Mukul Rohtagi, appearing for PayPal, argued that the order passed by a single judge of the high court was ‘wrong’
Delhi HC, on July 24, set aside a penalty of INR 96 Lakh imposed on PayPal by the FIU for alleged non-compliance with the ‘reporting obligations’ under the PMLA
The FIU imposed the penalty on PayPal in December 2020, alleging that the company had contravened the PMLA by ‘concealing’ suspect financial transactions
The US-based online payment gateway PayPal moved the Delhi High Court on Wednesday (August 23) against an order which ruled it was a ‘payment system operator’ under the Prevention of Money Laundering Act (PMLA) and has to comply with the ‘reporting obligations’ under the law.
PayPal refused to register itself as a reporting entity under the provisions of the PMLA, arguing that it only operated in India as an Online Payment Gateway Service Provider (OPGSP) or a payment intermediary, and therefore, does not come under the definition of a payment system operator under the PMLA provisions.
A two-judge bench headed by Chief Justice Satish Chandra Sharma and comprising Justice Sanjeev Narula heard the appeal.
Senior advocate Mukul Rohtagi, appearing for PayPal, argued that the order passed by a single high court judge was ‘wrong’. Rohtagi also said the single judge’s order cannot be sustained in view of the high court’s recent decision on the payment system operator issue.
The bench listed the appeal for further hearing in September.
The Case
The Delhi High Court judge, on July 24, set aside a penalty of INR 96 Lakh imposed on PayPal by the Financial Intelligence Unit (FIU) of India for alleged non-compliance with the ‘reporting obligations’ under the PMLA.
The judge ruled that PayPal is liable to be viewed as a ‘payment system operator’ under the PMLA and has to thus comply with ‘reporting obligations’ under it. However, the judge also said that the penalty imposed on PayPal was ‘clearly unjustified’ as the company was under the bona fide belief that its operations did not fall within the ambit of the PMLA.
The FIU imposed the penalty on PayPal in December 2020, alleging that the company had contravened the PMLA by ‘concealing’ suspect financial transactions and abetting the ‘disintegration’ of India’s financial system. PayPal had denied the allegations and challenged the penalty in court.
In his ruling, the judge said that the PMLA is not merely a penal statute but also aimed to discover and prevent fraudulent and suspicious transactions. He said that the salutary objectives of the PMLA must be borne in mind while seeking to unravel the intent and scope of its various provisions.
The judge also noted that while PayPal had refused to register as a reporting entity under the PMLA, its parent company in the US – PayPal Inc – reports suspicious transactions to the American FIU and similar agencies in Australia and the UK.
