The Delhi High Court has taken a significant step in the ongoing legal battle involving PayPal, as it has sought the response of the Union Government regarding an appeal filed by PayPal. This appeal challenges a prior ruling by a single judge, which categorized PayPal as a “payment system operator.” Consequently, this designation requires PayPal to adhere to reporting entity obligations stipulated under the Prevention of Money Laundering Act, 2002.
Union Ministry of Finance Implicated
In this development, a division bench comprising Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula has impleaded the Union Ministry of Finance in the case. They have directed the Ministry to submit a comprehensive response. Earlier in the legal proceedings, the court had also sought a response from the Financial Intelligence Unit (FIU) India, highlighting the significance of the case.
PayPal’s Defense and Concerns
Senior Advocate Sandeep Sethi, representing PayPal, made a notable argument during the proceedings. He pointed out that PayPal officials themselves had acknowledged the potential for their payment platform to be “used for terror financing.” In a vivid hypothetical scenario, he stated, “Suppose someone from Lashkar-e-Taiba sitting in Pakistan sends money to a person in Delhi to acquire explosives…you will not have any way of knowing it.”
Next Steps and Previous Ruling
The court has scheduled the next hearing for October 18, underscoring the importance of this case. Regarding the prior ruling by Justice Yashwant Varma on July 24, it had a profound impact on PayPal’s legal standing. Justice Varma had invalidated the Monetary of Records Rules 2005, delivering a verdict in favor of PayPal. He found the imposition of penalties unjustifiable and consequently quashed them. Additionally, Justice Varma partially granted the plea by discharging the bank guarantee of Rs. 96 lakhs that PayPal had submitted following a court order issued on January 12, 2021. In his observations, Justice Varma highlighted that all aspects of transactions related to payments between two parties seemed to fall within the scope of the expression “payment system” as defined under Section 2(1)(rb) of the PMLA, solidifying the legal foundation of PayPal’s challenge.
Significance of the Legal Battle
This ongoing legal battle continues to attract attention as it addresses crucial issues related to the regulatory status and responsibilities of digital payment platforms, such as PayPal, in the context of anti-money laundering laws. It also underscores the broader concerns related to the use of such platforms in potential illicit activities.