PMLA reporting obligations extend to payment gateway operators, but penalty failed for bona fide legal dispute and unsupported quantum.

A payment gateway service provider facilitating export-related transactions was held to fall within the PMLA's expansive definition of "payment system," because the statute covers entities that enable payment flows and generate material transaction data, even if they do not directly handle or settle funds. The Court therefore treated the provider as a reporting entity bound by PMLA reporting and due diligence obligations. However, the monetary penalty for non-registration and non-compliance was quashed because penalty under Section 13 is quasi-criminal, the default arose from a bona fide interpretive dispute, and the impugned order imposed the maximum penalty monthly without a clear statutory basis or adequate reasons.

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Issues: (i) Whether an online payment gateway service provider that facilitates export-related transactions, without directly handling funds, is a "payment system operator" and consequently a "reporting entity" under the Prevention of Money Laundering Act, 2002; (ii) Whether the monetary penalty imposed for non-registration and non-compliance with reporting obligations was sustainable.

Issue (i): Whether an online payment gateway service provider that facilitates export-related transactions, without directly handling funds, is a "payment system operator" and consequently a "reporting entity" under the Prevention of Money Laundering Act, 2002.

Analysis: The expression "payment system" in Section 2(1)(rb) of the Prevention of Money Laundering Act, 2002 was construed in its statutory context and not by mechanical reference to the Payment and Settlement Systems Act, 2007. The Court held that the PMLA uses expansive language, including the words "enables" and "money transfer operations," and is designed to cast a wide reporting net for anti-money laundering purposes. The scheme of the PMLA, including the reporting and due diligence provisions, shows that the definition is meant to capture entities that facilitate payment flows and generate material transaction data, even if they do not themselves retain or settle funds in the manner contemplated under the PSS Act. The distinction under the RBI framework between payment aggregators and online payment gateway service providers did not control the meaning of the PMLA definition.

Conclusion: Yes. The petitioner was held to be a payment system operator and therefore liable to comply with reporting entity obligations under the PMLA.

Issue (ii): Whether the monetary penalty imposed for non-registration and non-compliance with reporting obligations was sustainable.

Analysis: The Court held that penalty under Section 13 of the Prevention of Money Laundering Act, 2002 is quasi-criminal in character and must be justified by deliberate, contumacious, or clearly culpable default. On the facts, the petitioner had consistently maintained a bona fide legal objection, supported by the RBI's earlier stand and by the existence of a genuine interpretive dispute. The impugned order also erred in imposing the maximum penalty on a monthly basis without statutory basis for such computation and without adequate reasons for the quantum imposed. The deeming-ficition reasoning adopted in the impugned order was also found unsustainable.

Conclusion: No. The penalty was quashed.

Final Conclusion: The petition succeeded in part: the petitioner was held within the reporting framework of the PMLA, but the penalty imposed by the impugned order was set aside.

Ratio Decidendi: A statutory definition in a special anti-money laundering law must be interpreted purposively and contextually to advance its reporting objectives, and a monetary penalty cannot be sustained where the default arises from a bona fide and debatable legal position and the quantum is imposed without clear statutory basis or adequate reasons.

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