New Delhi, Sep 5 (Always First) The Delhi High Court on Tuesday sought the Centre’s response on an appeal moved Payment platform Paypal after a single-judge bench said that it was a Payment System Operator under the Prevention of Money Laundering Act (PMLA), subjecting it to “reporting obligations”.

A division bench of Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula impleaded Union Ministry of Finance in the matter and directed it to file a detailed response.

Appearing for PayPal, senior advocate Sandeep Sethi submitted that it is only a payment gateway and that it neither makes any payment nor receives the same.

Additional Solicitor General S.V. Raju, appearing for Financial Intelligence Unit (FIU) India claimed that a PayPal’s official had said that the payment platform can be used for terror financing.

“Suppose, someone from Lashkar-e-Taiba sitting in Pakistan sends money to a person in Delhi to get explosives…you will not have any way of knowing it,” he argued.

After hearing the matter, the bench put it up for hearing next on October 18.

PayPal had taken its case to the high court last month. It had argued before the same bench that the single judge’s order was wrong.

Senior advocate Mukul Rohatgi, appearing for the company, had contended that the single judge’s decision could not be sustained in light of a recent ruling by the high court on the payment system operator issue.

The single judge had, on July 24, set aside a fine of Rs 96 lakh imposed by India’s Financial Intelligence Unit on PayPal. The fine was related to alleged non-compliance with reporting obligations concerning money laundering.

However, the judgement also held that PayPal fell within the classification of a “payment system operator” under the PMLA and must comply with associated reporting obligations.

This order stemmed from a petition by PayPal contesting the penalty imposed by the FIU. The FIU had issued a directive to PayPal on December 17, 2020, requiring it to pay the fine within 45 days, register as a Reporting Entity, appoint a principal officer, and a director for communication – all due to its status as a “payment system operator”.

This directive was issued under the law that mandates reporting entities to inform authorities of foreign exchange financial transactions within their system.

The single judge had underscored that the PMLA not only functions as a penal statute but also serves the purpose of discovering and preventing fraudulent and suspicious transactions.

The FIU-India, in its December 2020 order, had accused PayPal of violating the PMLA, hiding suspect financial transactions, and contributing to the weakening of India’s financial system.

The legal conflict had its roots in March 2018 when the FIU asked PayPal to register as a reporting entity, report suspicious transactions and cross-border wire transfers, and identify beneficiaries.

PayPal countered this by citing Reserve Bank of India guidelines, stating that it operated as an Online Payment Gateway Service Provider (OPGSP) and not a payment system operator, thus exempt from reporting entity requirements under the PMLA.

However, the FIU rejected PayPal’s stance, asserting that the company was indeed involved in fund handling in India, qualifying it as a “financial institution” and, therefore, subject to reporting entity status under the PMLA.

The FIU order also said that PayPal’s parent company in the US reports suspicious transactions to relevant agencies abroad.