In a significant case, the Delhi High Court held that Paypal being a payment system operator shall comply with the Prevention of Money Laundering Act 2002 (PMLA) requirements.
The assessee, PayPal Payments Private Limited, challenged the impugned order passed by the first respondent the Financial Intelligence Unit India (FIU-IND)holding it to be a ―reporting entity‖ under the Prevention of Money Laundering Act 2002 and consequently proceeding to impose monetary penalties for it having failed to comply with the reporting obligations as placed under the Prevention of Money Laundering (Maintenance of Records) Rules 2005.
The petitioner asserts that it was not a ―payment system operator as defined under the PMLA and consequently, it would be erroneous for FIU-IND to hold it to be a Reporting Entity. This is asserted based on it not being engaged in rendering services relating to clearing, payment or provision of settlement between a payer and a beneficiary.
It was stated that the FIUI had arbitrarily imposed the highest monetary penalty of Rs.1,00,000 for each of the three alleged offences for every month, stretching over a period of 32 months. According to PayPal, the quantification of the penalty was unsustainable.
Any system which enables the transfer of money between two ends would thus appear to fall within the ambit of the expression “payment system” as defined under Section 2(1)(rb) of the PMLA.
The Court Comprising Justice Yashwant Varma found that as unable to sustain the impugned order insofar as it proceeds to observe that PayPal would be “deemed” to be a payment system operator. A legal fiction would be available to be invoked only in a situation where the Legislature engrafts such a measure or frames the provision in language which justifies the existence of such a fiction being recognised to operate.
While allowing the petition 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 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.”
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
