Lekha G
An American online payment gateway, PayPal has informed the Delhi High Court that the constitution of a committee to examine whether entities like it can be regarded as a payment system operator and a reporting entity under PMLA was contrary to the Court’s orders.
Justice Rekha Palli was hearing PayPal’s plea challenging INR 96 lakh penalty imposed on it by the Financial Intelligence Unit (FIU) India for violation of the Prevention of Money Laundering Act (PMLA).
On December 17, 2020, the FIU had directed PayPal to pay the fine within 45 days. It also directed it to register itself as a reporting entity with the FIU and appoint a Principal Officer and Director for communication within two weeks of the receipt of the order.
However, the High Court stayed the order on January 12 in consideration of PayPal’s transactions recorded in a secure server and the bank guarantee of INR 96 lakh deposited in the High Court within the stipulated time period.
PayPal had contended that only a bank or an authorized dealer of foreign exchange would be a reporting entity and it was only a facilitator of financial transactions between registered banks charging only a small amount as a “Facilitator fee”.
The legal issue had begun in March, 2018 when FIU issued a directive on PayPal. However, PayPal refused the FIU’s directive citing that the Reserve Bank of India guidelines to state that it only operates as an Online Payment Gateway Service Provider (OPGSP) or a payment intermediary in India and hence was not covered within the definition of a payment system operator or financial institution.
“Therefore, at this time, payment intermediaries, such as PayPal, are not required to register as such with the FIU-India,” PayPal said in its reply to agency. Subsequently, a show cause notice was issued on September 2019.
However, the FIU had rejected claims of PayPal and contended that PayPal was involved in handling funds in India and was a “Financial institution” qualifying to be a reporting entity under the PMLA.
The Court ruled that the interim order in favour of PayPal would continue till the next date of hearing on July 28 after request of PayPal that it wanted to go through the committee’s report.