Delhi High Court Seeks Government Reply In PayPal Plea Against PMLA Classification

The Delhi High Court sought the Ministry of Finance's response in PayPal Payments Pvt.'s appeal against an order that classified it as a payment system operator under the Prevention of Money Laundering Act.

A division bench of Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula said the matter is of national importance and made the ministry a party in the case on Tuesday.

Earlier, the court had instructed PayPal's Indian subsidiary to adhere to the anti-money laundering regulations. The online payment platform was obligated to fulfill the reporting entity requirements outlined in the PMLA. These obligations encompass maintaining transaction records and verifying the identities of its clients.

It had been clarified that a 'payment system,' as defined by the PMLA, includes all the components of a transaction occurring between two parties. In this context, the court rejected PayPal's argument that it does not qualify as a payment system operator or reporting entity under the Payment and Settlement System Act and, therefore, falls outside the purview of the PMLA.

During Tuesday's hearing, Additional Solicitor General SV Raju, who was representing the Financial Intelligence Unit, asserted that PayPal qualifies as a PSO and said PayPal's own officials acknowledged the platform's potential for facilitating illicit financing.

"For instance, if someone affiliated with (the) Lashkar-e-Taiba in Pakistan sends money to an individual in Delhi for acquiring explosives, you would have no means of detecting it," Raju said.

Senior Advocate Sandeep Sethi, who appeared for PayPal, contended that the company neither initiates nor receives payments but serves solely as a payment gateway.

The high court posted the matter for further hearing on Oct. 18.