PAYPAL PAYMENTS PRIVATE LIMITED vs FINANCIAL INTELLIGENCE UNIT INDIA & ANR.

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2023 Supreme(Online)(DEL) 5496

* IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment reserved on: 09 May 2023 Judgment pronounced on: 24 July 2023 + W.P.(C) 138/2021 & CM APPL. 421/2021 (Interim Relief), CM APPL. 37179/2022 (Direction)
PAYPAL PAYMENTS PRIVATE LIMITED ..... Petitioner Through: Mr. Kapil Sibal and Mr. Sajan Poovayya, Sr. Adv. with Ms. Shally Bhasin Ms. Shreya Mukerjee, Mr. Prateek Gupta, Ms. Varshini Sudhinder and Mr. Palash Maheshwari, Advs.
versus FINANCIAL INTELLIGENCE UNIT INDIA & ANR.
..... Respondents Through: Mr. Zoheb Hossain, SSC with Mr. Vivek Gurnani and Ms. Farheen Penwale, Advs. for R-1 Mr. Parag P. Tripathi, Sr. Adv. with Mr. Ramesh Babu, M. R., Ms. Manisha Singh, Mr. Rohan Srivastava and Ms. Mishika Bajpai, Advs.
CORAM:
HON'BLE MR. JUSTICE YASHWANT VARMA

J U D G M E N T

For ease of reference, refer the table as under:-

S .NO.	TITLE	REFERENCE(s)
A.	PREFACE	Paras 1-3
B.	PA’s AND OPGSP’s- REGULATORY FRAMEWORK	Paras 4- 7
C.	ESSENTIAL FACTS	Paras 8-10
D.	PSS ACT & PMLA- THE STATUTORY STRUCTURE	Paras 11-32
E.	PAYPAL’S CHALLENGE	Paras 33-58
F.	CONTENTIONS OF FIU-IND	Paras 59-75
G.	RBI’S POSITION	Paras 76-88
H.	PROCEEDINGS ON THE PETITION	Paras 89-97
I.	MONEY LAUNDERING – GLOBAL EXPERIENCES	Paras 98-106
J.	CENTRAL THEME OF THE PSS ACT	Paras 107-122
K.	THE PARI MATERIA QUESTION	Paras 123-127
L.	PAYMENT SYSTEM UNDER THE PMLA	Paras 128-149
M.	PAYPAL’S GLOBAL COMPLIANCES	Paras 150-152

N.	PAYPAL AND TPAPs’	Para 153
O.	PENALTY UNJUSTIFIED	Paras 154-163
P.	THE DEEMING FICTION ARGUMENT	Para 164
Q.	DISPOSITIF	Paras 165-168

A. PREFACE

1. PayPal Payments Private Limited1, the petitioner impugns the order dated 17 December 2020 passed by the first respondent the Financial Intelligence Unit India2 holding it to be a ―reporting entity‖ under the Prevention of Money Laundering Act 20023 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 20054. PayPal asserts that it is 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 on the basis of it not being engaged in rendering services relating to clearing, payment or provision of settlement between a payer and a beneficiary. It essentially avers that it merely provides a technological interface enabling export related transactions that may be undertaken by an Indian exporter and an overseas buyer. It is its categorical case that in

1 PayPal

2 FIU-IND

3 PMLA

42005 Rules

the chain of transaction which ensues between the Indian exporter and an overseas buyer, PayPal is at no stage engaged in the actual handling of funds. According to it, the transmission of funds occurs between the constituent Authorised Dealer Category-1 Schedule Commercial Banks5 which not only collect the amounts from the foreign purchaser directly and without any intervention of PayPal, the said funds are then transmitted to the AD Partner Bank‘s Export Collection Account. PayPal also relies upon the stand as struck by the Reserve Bank of India6 which in separate proceedings had averred on affidavit that it is not a payment system operator. The petitioner seeks to derive advantage from the stand so taken by RBI in those proceedings since the definition of a ―Payment System‖ under the Payments and Settlements System Act 20077 is identical to the provision embodied in the PMLA.

2. For the purposes of evaluating the challenge which stands raised, it would be apposite to notice the following essential facts. As per the disclosures made in the writ petition the officials of the petitioner are stated to have participated in a meeting with the Additional Director of the FIU-IND on 08 October 2017 where they had been invited to explain the scope and content of their business operations in India. The petitioner asserts that it had expressed its willingness to cooperate with the FIU-IND in that meeting and remains bound by that

5 AD Banks

6 RBI

7 2007 Act/PSS Act

obligation even today. On 16 March 2018 FIU-IND issued a communication directing PayPal to register itself as a reporting entity under the PMLA. FIU-IND further asserted that the business model of PayPal clearly established that it would fall within the definition of a reporting entity as embodied in Section 2(1)(wa) of the PMLA. FIU-IND alleged that despite the detailed clarifications that had been submitted by PayPal it was convinced that it was liable to register itself in accordance with the statutory obligations placed by the PMLA. Acknowledging the receipt of that letter, PayPal in terms of its communication of 06 April 20

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