Online payment platform PayPal moved the Delhi High Court Wednesday against an order that ruled that it was a “payment system operator” under the Prevention of Money Laundering Act (PMLA) and is obliged to comply with “reporting entity obligations” under the law. Senior Advocate Mukul Rohatgi, who appeared for PayPal before a division bench of Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula, said the July 24 order by a single-judge bench cannot stand in view of a recent order pertaining to Google Pay India Services Private Limited's case. The bench listed the PayPal matter for September. Rohatgi was referring to an August 7 order passed by a Delhi HC division bench of the Chief Justice and Justice Subramonium Prasad which said Google Pay is a “mere third party app provider” for which no authorisation from the Reserve Bank of India (RBI) is required under the provisions of the Payments and Settlement Systems (PSS) Act. This bench had dismissed two PILs seeking directions to Google Pay to cease its operations in the country over an alleged violation of regulatory and privacy norms. In its July 24 order, the single judge 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. While partly allowing Paypal's plea, the single judge had discharged the bank guarantee of Rs 96 lakh submitted by PayPal with the HC's Registrar General in terms of a 2021 court order. “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, and for reasons aforenoted, quashed. The impugned order shall stand set aside to the aforesaid extent,” the July 24 order said. The order said that the imposition of the penalty was “unjustified” as PayPal was “justifiably” proceeding under the bona fide belief that its operations did not fall within the ambit of the PMLA. The single judge had noted that all elements of the transaction connected with a payment being effected between two parties would appear to fall within the scope of the expression "payment system" under the PMLA, and the technology on which the platform of PayPal rests enables the transfer of money between parties at different ends. The single judge had rejected PayPal’s argument that since it was not considered to be a ‘payment system operator’ or ‘reporting entity’ under the Payment and Settlement System Act, 2007 (PSS Act), it must also be held to fall outside the dragnet of the PMLA. “The court thus finds no justification to restrict the application of the expression ‘payment system’ only to those entities which may be directly or undeviatingly engaged in the handling or transferring of funds. Any interpretation contrary to what has been noted above would not only scuttle and impede the measures liable to be deployed but also obstruct and hamper data collection and analysis which constitute critical elements of AML (Anti-Money Laundering) measures,” the HC had said in the July order.
