PayPal moves Delhi High Court against order holding it as payment system operator under PMLA

Legal experts representing PayPal contended before a bench headed by Chief Justice Satish Chandra Sharma that the single judge's decision was legally flawed. Senior counsel argued that the judgment was inconsistent with a recent high court ruling on a related matter involving payment system operators. Senior advocate Mukul Rohatgi, appearing for PayPal, emphasized that the previous decision could not be sustained given the new circumstances.

The bench, which also included Justice Sanjeev Narula, has scheduled the appeal for further hearing in September, indicating the gravity and complexity of the legal issue at hand.

The case dates back to a directive issued by the FIU on December 17, 2020, which required PayPal to pay a fine within 45 days and register itself as a reporting entity. The directive was based on the allegation that PayPal had failed to comply with reporting obligations related to financial transactions. PayPal's refusal to comply led to a show-cause notice in September 2019.

PayPal had justified its stance by citing guidelines from the Reserve Bank of India (RBI), asserting that it operated solely as an Online Payment Gateway Service Provider (OPGSP) and was not covered by the definition of a payment system operator or financial institution under the PMLA. The company's response maintained that it did not need to register with the FIU as a reporting entity.

The FIU, however, rejected PayPal's arguments and insisted that the company was indeed involved in financial activities in India and therefore qualified as a "financial institution" and a reporting entity under the PMLA. The FIU order pointed out that PayPal's parent company, PayPal Inc in the US, reported suspicious transactions to similar agencies abroad.