A division bench of the Delhi High Court on September 5, impleaded finance ministry as a party and sought its response to American online payments player PayPal's challenge to the order holding it to be a payment system operator under the Prevention of Money Laundering Act (PMLA).
Senior advocate Sandeep Sethi, who appeared for PayPal, argued that it was not a payment system operator but a payment gateway. According to Sethi, PayPal only provided technology for making payments and is therefore not a system aggregator per say.
Appearing for the government, Additional Solicitor General (ASG) SV Raju and lawyer Zoheb Hussain argued that it was important to list PayPal as a payment system aggregator as it could be used by anti-social elements to transfer money. Furthermore, according to them, PayPal has accepted to be a payment system aggregator in other countries.
The court, upon hearing the pleas observed that they would require responses from the Union government to decide the case comprehensively and thus decided to make finance ministry a party. The court directed the ministry to file a response in two weeks and further granted two more weeks to the company to file its response.
The case is likely to come up for final hearing in October.
Casefile:
In July 2023, a single judge bench of the high court set aside a penalty of Rs 96 lakh imposed on PayPal by the Financial Intelligence Unit-India for alleged non-compliance with the reporting obligations under the money-laundering act.
Justice Yashwant Varma, however, said PayPal was liable to be viewed as a payment system operator under PMLA and will have to comply with reporting obligations.
In its 174-page order, the court rejected the penalty imposed on PayPal, saying it was "clearly unjustified" as PayPal believed its operations were not covered under PMLA.
The court held 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 court's order came on a petition by PayPal challenging the Rs 96 lakh penalty imposed on it by the FIU for alleged violation of the PMLA.
The FIU had on December 17, 2020 directed the company to pay the fine within 45 days, register as a reporting entity and appoint a principal officer and director for communication within a fortnight of the order.
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