W.P.(C) 138/2021

Page 1 of 174

*

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

Digitally Signed

By:NEHA

Signing Date:24.07.2023

17:34:55

Signature Not Verified

W.P.(C) 138/2021

Page 2 of 174

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

Digitally Signed

By:NEHA

Signing Date:24.07.2023

17:34:55

Signature Not Verified

W.P.(C) 138/2021

Page 3 of 174

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 2002³and

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

Digitally Signed

By:NEHA

Signing Date:24.07.2023

17:34:55

Signature Not Verified

W.P.(C) 138/2021

Page 4 of 174

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 India⁶which 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