Update (September 18, 2023):
The Delhi High Court on September 5 issued a notice to the Finance Ministry seeking its response to PayPal’s appeal and listed the matter for the next hearing on October 18.
Original Story (August 25, 2023):
PayPal India on August 23 filed a challenge in the Delhi High Court against an order that ruled PayPal is a payment system operator under the Prevention of Money Laundering Act (PMLA), 2002, The Indian Express reported.
The challenged order, issued by single-judge bench Justice Yashwant Varma of the Delhi High Court in July, directed PayPal to comply with the obligations specified for payment system operators under PMLA. These obligations include PayPal reporting large or suspicious transactions carried out using its platform to the Financial Intelligence Unit India (FIU-IND), having a more stringent customer verification system in place, and maintaining detailed records of users and transactions for a specified duration, among other obligations. You can find a detailed summary of the order here.
PayPal is challenging the single-judge order before a division bench comprising Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula. PayPal’s counsel argued that the order cannot stand in light of the August 7 decision pertaining to Google Pay, in which the court ruled that Google Pay is not a payment system operator and is merely a third-party UPI app. You can find a detailed summary of the Google Pay order here.
The division bench of Delhi HC has listed the appeal for further hearing in September and has also sought the central government’s stand on the appeal.
Why does this matter: A favourable ruling for PayPal from the court will not only reduce the compliance burden for PayPal but could also offer relief to other fintech companies that provide payment technology, especially payment gateways, because they might also fall under the definition of payment system operator under PMLA and be subject to the obligations under the Act if the single-judge ruling stands.
Why the Google Pay order might not change things for PayPal: Although the Google Pay order is one of the reasons why PayPal is challenging its own order, it’s unlikely to help PayPal. While Google Pay was deemed not a payment system operator under the framework of the Payments and Settlement Act, 2007 (PSS Act), PayPal was deemed a payment system operator under the Prevention of Money Laundering Act (PMLA), 2002. Despite the definition of payment system operator being the same in both these Acts, the judge in the PayPal order clearly noted that the definition of “payment system” in the PSS Act and PMLA are standalone and should not be linked because the two Acts have different intentions and the definition must be interpreted bearing in mind the theme and ethos of these intentions. Therefore, while PayPal might not be a payment system operator under the PSS Act, it is a payment system operator under the PMLA Act, the court ruled.
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