2021 (1) TMI 556 - HC - Money Laundering

High Court reviews order on Money Laundering Act classification: Facilitator platform's status under scrutiny

The High Court entertained a challenge to an order under the Prevention of Money Laundering Act, 2002, classifying the petitioner as a reporting entity ... Payment system operator - reporting entity - applicability of the Prevention of Money Laundering Act to facilitator platforms - writ jurisdiction - maintenance of records under Section 12(1)(a) of the PML Act - bank guarantee as interim security - reference/consultation with Reserve Bank of India and Ministry of FinancePayment system operator - reporting entity - applicability of the Prevention of Money Laundering Act to facilitator platforms - Whether the impugned order declaring the petitioner to be a 'payment system operator' and a 'reporting entity' under the PML Act should be sustained at this stage. - HELD THAT: - The Court recognised that a substantial legal question arises as to whether a business model such as the petitioner's-described as a facilitator platform that does not itself collect or disburse funds except for a nominal facilitation fee-falls within the definitions of 'payment system operator' and 'reporting entity' under the PML Act. Given conflicting positions, including the RBI affidavit stating the petitioner is not operating or participating in a payment system under the PSS Act, the Court did not finally decide the merits. Instead the Court issued notice and directed further institutional consultation to clarify whether entities of this kind ought to be categorised as payment system operators and reporting entities under the PML Act. The matter was therefore retained for adjudication after these steps are taken. [Paras 4, 6, 8, 9, 11]Notice issued; the question of whether the petitioner is a 'payment system operator' and 'reporting entity' under the PML Act is not finally adjudicated and is to be considered after the directed consultation and further proceedings.Writ jurisdiction - Whether this High Court may entertain the writ petition despite the availability of an alternative appellate remedy under the PML Act. - HELD THAT: - The Court observed that the preliminary contention regarding the alternative remedy under Section 26 of the PML Act and the contention as to jurisdiction raised by respondents are substantial questions warranting consideration. Consequently, the Court issued notice to the respondents rather than declining jurisdiction at the threshold, thereby keeping the question of maintainability and forum competence open for adjudication on merits. [Paras 6, 9]Jurisdictional objection recorded and notice issued; maintainability to be considered on the returnable date.Reference/consultation with Reserve Bank of India and Ministry of Finance - Whether a consultative committee should be constituted to determine the regulatory position of platforms like the petitioner. - HELD THAT: - The Court directed the Secretary, Ministry of Finance to constitute a Committee including a nominee of the RBI and the Ministry of Finance to clarify whether companies claiming to be facilitators of monetary transactions in foreign exchange and Indian Rupees ought to be categorised as 'payment system operators' and thus 'reporting entities' under the PML Act. The Committee was directed to meet within ten days and file its conclusions by affidavit within two weeks thereafter. The direction reflects the Court's view that executive clarification is necessary given the institutional interest and conflicting positions on regulatory coverage. [Paras 11]Committee to be constituted by the Ministry of Finance with RBI participation; timeline fixed for meeting and filing of conclusions.Maintenance of records under Section 12(1)(a) of the PML Act - bank guarantee as interim security - Interim measures to be imposed pending final disposal of the writ petition and the committee's report. - HELD THAT: - The Court directed that, pending further orders, the petitioner shall maintain records of all transactions under Section 12(1)(a) of the PML Act in electronic form on a secure server located in India, subject to further orders. The Court further required the petitioner to furnish a bank guarantee to the satisfaction of the Registrar General for the sum specified in the impugned order and to file an undertaking by its Managing Director that it will comply with any orders in the petition, including furnishing data as may be required of a reporting entity, if unsuccessful. These directions were imposed as conditions for the interim stay of the impugned order. [Paras 12, 13]Petitioner ordered to maintain records in India, furnish the directed bank guarantee, and file the undertaking; compliance is a condition for an interim stay of the impugned order.Stay of order - Whether the impugned order should be stayed pending compliance with interim directions. - HELD THAT: - Subject to the petitioner's compliance with the directions requiring record maintenance, furnishing of a bank guarantee, and filing of an undertaking, the Court stayed the impugned order. The stay is conditional and expressly linked to the petitioner's fulfilment of the specified interim requirements within stipulated timeframes. [Paras 12, 13, 14]Impugned order stayed conditionally upon the petitioner's compliance with the interim directions; matter listed for further hearing as directed.Impleadment of Reserve Bank of India - Whether RBI should be impleaded as a party in the petition. - HELD THAT: - Given the RBI's expressed position in affidavit material relied upon by the petitioner, and the wider regulatory question raised about platforms of this nature, the Court deemed it appropriate to implead the Reserve Bank of India as Respondent No.2. The petitioner was directed to file an amended memo of parties within one week. [Paras 10, 11]RBI impleaded as Respondent No.2; amended memo of parties to be filed within one week.Final Conclusion: The Court issued notice and retained the substantial legal question whether the petitioner is a 'payment system operator' and a 'reporting entity' under the PML Act for determination after institutional consultation; directed constitution of a Committee with RBI and Ministry of Finance nominees with a fixed timetable; impleaded RBI; and granted a conditional stay of the impugned order subject to maintenance of records in India, furnishing of a bank guarantee, and filing an undertaking, with further listing for hearing. Issues:Challenge to impugned order under Prevention of Money Laundering Act, 2002 (PML Act) regarding classification as a reporting entity and payment system operator.Jurisdiction of the High Court to entertain the petition.Applicability of the Payment and Settlement Systems Act, 2007 to the petitioner's business.Consideration of Reserve Bank of India's (RBI) stance on the petitioner's classification under the PML Act.Analysis:The petitioner contested an order by the Director, Financial Intelligence Unit-India, Ministry of Finance, holding them as a reporting entity and payment system operator under the PML Act. The order imposed a penalty of Rs. 96 Lakhs and directed registration with FIU-IND. The petitioner argued they were a facilitator platform for transactions, not a reporting entity, as no money was handled except for facilitator fees. The RBI's affidavit supported this stance, stating the petitioner was not operating a payment system under the Payment and Settlement Systems Act, 2007.The respondent raised a preliminary objection, citing the availability of an appellate remedy under Section 26 of the PML Act and questioned the High Court's jurisdiction based on a previous judgment. The court noted the legal issue of whether the petitioner's business falls under the definition of a payment system operator and reporting entity, warranting consideration. It issued notice to the respondents and impleaded the RBI as Respondent No.2.In light of conflicting views, the court directed the Ministry of Finance to form a committee, including RBI and Ministry nominees, to clarify whether facilitator platforms like the petitioner should be considered payment system operators and reporting entities. Pending clarification, the court issued directions for record maintenance, bank guarantee, and an undertaking from the petitioner. Compliance with these directions stayed the impugned order.The court scheduled a hearing for further proceedings, emphasizing the need for clarity on the petitioner's classification under the PML Act and the applicability of relevant laws.