Delhi High Court stays Financial Intelligence Unit order imposing Rs 96 lakh penalty on PayPal

The penalty was imposed on PayPal for not registering itself as a “reporting entity” under the Prevention of Money Laundering Act (PMLA), 2002.
Delhi High Court stays Financial Intelligence Unit order imposing Rs 96 lakh penalty on PayPal
Paypal

The Delhi High Court on Tuesday stayed a Financial Intelligence Unit order imposing a penalty of Rs 96 lakh on payment service PayPal (PayPal Payments Pvt Ltd v. Financial Intelligence Unit).

The stay is subject to PayPal depositing a bank guarantee of the penalty amount with the High Court and maintaining records of all its transactions.

The order was passed by a Single Judge Bench of Justice Prathiba M Singh in PayPal's challenge to the penalty imposed on it.

While issuing notice in the matter, the Court sought a response from the Financial Intelligence Unit, which is India's central agency responsible for processing information relating to suspect financial transactions, under the aegis of the Union Ministry of Finance.

The penalty was imposed on PayPal for not registering itself as a reporting entity” under the Prevention of Money Laundering Act (PMLA), 2002.

In its plea, PayPal has argued that the Financial Intelligence Unit wrongly interpreted PMLA provisions against all settled principles of statutory interpretation.

The company has claimed that it functions as a payment intermediary and Online Payment Gateway Service Provider to its customers, and does not provide clearing, payment, money transfer or settlement services.

Consequently, it has contended that it is not a "financial institution" under Section 2(1)(l) of the PMLA, and therefore, cannot register as a reporting entity under Section 2(1) (wa) of the Act. The petition reads,

"..the Respondent passed the Impugned Order, in complete derogation of the settled principles of law and statutory interpretation.The Impugned Order incorrectly holds that, by virtue of the activities being carried on by the Petitioner as a payment intermediary, the Petitioner is covered under the definition of “reporting entity” as under Section 2(l)(wa) of the PMLA..."

It is further submitted that the Financial Intelligence Unit's order runs contrary to the regulatory understanding of PayPal's business by the Reserve Bank of India (RBI) which has laid down the operational framework for the regulation and supervision of payment systems in India.

PayPal has also contended that the impugned order was in violation of the principles of natural justice, as it was never given an opportunity to rebut certain findings made against it.

Senior Advocates Mukul Rohatgi and Sajan Poovayya with Shardul Amarchand Mangaldas Partner Anuj Berry appeared for PayPal.

The matter will be heard next on February 26.

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