US-based online payment gateway PayPal has taken legal action by approaching the Delhi High Court against a recent ruling that categorized it as a ‘payment system operator’ under the Prevention of Money Laundering Act (PMLA). The court’s order stated that PayPal must adhere to ‘reporting obligations’ mandated by the PMLA.
PayPal Asserts Its Classification as an Online Payment Gateway Service Provider
PayPal contended that it should not be obligated to register as a reporting entity under PMLA since it operates in India solely as an Online Payment Gateway Service Provider (OPGSP) or a payment intermediary. The company argued that this position exempts it from being categorized as a payment system operator according to PMLA provisions.
Court Hearing and Arguments Presented
A two-judge panel led by Chief Justice Satish Chandra Sharma and including Justice Sanjeev Narula presided over the hearing of PayPal’s appeal. Representing PayPal, senior advocate Mukul Rohtagi argued that the previous single judge’s order was incorrect. Rohtagi emphasized that this decision cannot stand in light of the high court’s recent verdict on the payment system operator matter.
PayPal Appeal Listing and Background of the Case
The bench has scheduled the appeal for further deliberation in September. The case stems from a judgment delivered on July 24, wherein the Delhi High Court overturned a penalty of INR 96 lakh imposed by the Financial Intelligence Unit (FIU) of India on PayPal. The FIU accused PayPal of not complying with ‘reporting obligations’ outlined in the PMLA.
High Court’s Ruling and Considerations
The high court judge determined that PayPal qualifies as a ‘payment system operator’ under the PMLA and must adhere to related reporting requirements. Nonetheless, the judge also expressed that the penalty imposed on PayPal was unwarranted, as the company genuinely believed its operations fell outside the PMLA’s scope.
The FIU had penalized the fintech in December 2020, alleging non-compliance with PMLA due to suspected involvement in concealing suspicious financial transactions and causing harm to India’s financial system. The fintech contested these allegations and appealed the penalty.
The judge highlighted that the PMLA serves not only as a punitive statute but also aims to uncover and deter fraudulent and dubious transactions. He emphasized the importance of considering the PMLA’s constructive objectives while interpreting its provisions. Additionally, the judge observed that while PayPal declined to register as a reporting entity under PMLA, its US parent company reports suspicious transactions to the American FIU and analogous bodies in Australia and the UK.
