TaxTMI 
TaxTMI 
2023 (7) TMI 1241
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....comply with the reporting obligations as placed under the Prevention of Money Laundering (Maintenance of Records) Rules 2005. PayPal asserts that it is not a "payment system operator" as defined under the PMLA and consequently it would be erroneous for FIU-IND to hold it to be a Reporting Entity. This is asserted on the basis of it not being engaged in rendering services relating to clearing, payment or provision of settlement between a payer and a beneficiary. It essentially avers that it merely provides a technological interface enabling export related transactions that may be undertaken by an Indian exporter and an overseas buyer. It is its categorical case that in the chain of transaction which ensues between the Indian exporter and an overseas buyer, PayPal is at no stage engaged in the actual handling of funds. According to it, the transmission of funds occurs between the constituent Authorised Dealer Category-1 Schedule Commercial Banks [AD Banks] which not only collect the amounts from the foreign purchaser directly and without any intervention of PayPal, the said funds are then transmitted to the AD Partner Bank's Export Collection Account. PayPal also relies upon the stan....
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....e commercial Bank. 4. RBI does not consider or regulate PayPal and similar companies as an operator of a "payment system" under the Payment System Services Act ("PSS Act") by virtue of PayPal providing payment intermediary services. Since the definition of "payment system" under the PMLA and the PSS Act is the same, therefore in our view, the same interpretation should also be applied in case of the definition of a "payment system" under the PMLA, and Pay Pal should not be considered to be a "payment system operator" for the purposes of the PMLA. 5. Further, from our inquiries on the FIU registration process, we are not able to ascertain how payment intermediaries such as PayPal can register. For example, on the 'Reporting entity number' (registration number or any number used in correspondence with the regulator). Since PayPal is not a regulated entity, we do not have any registration number or authorization letter directly from RBI which we use in correspondence with regulator nor we have any direct formal engagement with them. All formal interactions with RBI are made through the nodal, AD and acquiring banks only. 6. Additionally, we have been....
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....cular") issued by the RBI. b. Operates under the regulatory framework set out in the circulars issued by the RBI applicable to Online Payment Gateway Service Providers ("OPGSP") and processes export related receipts from exporters in arrangement with an AD Category - 1 Schedule Commercial Bank. We request that the contents of our letter dated 17 April 2018 to the FIU-IND may be read as part of the present reply. 5. We would like to clarify that PayPal is classified as a payment intermediary and not a 'payment system operator' under the rules and regulations issued by the RBI in this respect. A payment system intermediary, such as PayPal, is required to comply with the Payment Intermediary Circular which provides for a separate regime regulating the functioning of the payment system intermediaries. 6. PayPal's business in India of providing payment processing services and facilitation of processing and settlement of import and export related payments is governed under the framework prescribed by the RBI-"Processing and settlement of import and export related payments facilitated by Online Payment Gateway Service Providers". While providing....
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....d firstly issued directions in respect of electronic and online payments on 24 November 2009. Those directions had been issued in exercise of powers conferred upon it by Section 18 of the 2007 Act. Dealing further with the subject of processing and settlement of import and export related payments facilitated specifically by OPGSPs, RBI had issued a subsequent circular dated 24 September 2015. This was in addition to the guidelines which had been circulated by RBI for regulation of Payment Aggregators and Payment Gateways on 17 March 2020. In order to understand the concept of Payment Aggregators [PA] and OPGSPs it would be pertinent to firstly advert to the Intermediary Directions issued on 24 November 2009 [Intermediary Directions] and which defined intermediaries engaged in facilitating electronic and online payments. The said directions are reproduced hereinbelow: - "Directions for opening and operation of Accounts and settlement of payments for electronic payment transactions involving intermediaries 1. Introduction 1.1 The use of Electronic/Online Payment modes for payments to merchants for goods and services like bill payments, online shopping etc. has be....
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....he intermediaries as hitherto and banks shall satisfy themselves that such intermediaries do not fall within the definition of the "intermediaries" when they open accounts other than internal accounts. 2.2 Merchants: For the purpose of these directions, merchants shall include all Electronic commerce/Mobile commerce service providers and other persons (including but not limited to utility service providers) who accept payments for goods and service provided by them, through Electronic/Online Payment modes. 3. Maintaining of accounts for collection of payments 3.1 All accounts opened and maintained by banks for facilitating collection of payments by intermediaries from customers of merchants, shall be treated as internal accounts of the banks. While it is left to the banks to decide on the exact nomenclature of such accounts it shall be ensured that such accounts are not maintained or operated by the intermediaries. 3.2 Banks shall ensure that the process of converting all the existing accounts maintained and operated by intermediaries for the purpose covered in these directions shall be completed within three months of issuance of these direction....
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....outside liability of the bank, the balances in these accounts shall be reckoned as such for the purpose of computation of Net Demand and Time Liabilities of the bank. 6. Concurrent Audit 6.1 Banks shall subject these accounts to concurrent audit and a certificate to the effect that these accounts are operated in accordance with these directions shall be submitted to Department of Payment and Settlement System, Reserve Bank of India, on a quarterly basis. 7. Instruction applicable to other payment system operators 7.1 All persons authorized to operate payment system for issuance of prepaid payment instruments and card schemes shall facilitate compliance with these directions." 5. In terms of the circular of 24 September 2015, RBI permitted AD Category- I Banks to offer facilities similar to those as provided by OPGSPs by entering into standing arrangements with the latter. It becomes pertinent to note that the aforenoted circular was preceded by the circular dated 16 November 2010 which had permitted similar arrangements with respect to exports. The aforenoted two circulars thus enabled AD Category I Banks to enter into standing arrangements wi....
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....ls, if any, required under any other law." Circular of 16 November 2010 "2. Accordingly, it has been decided to allow the Authorised Dealer Category- l (AD Category-l) banks to offer the facility of repatriation of export related remittances by entering into standing arrangements with OPGSPs, subject to the following conditions: (i) The AD Category-I banks offering this facility shall carry out the due diligence of the OPGSP. (ii) This facility shall only be available for export of goods and services of value not exceeding USD 500 (US Dollar five hundred). (iii) AD Category-I banks providing such facilities shall open a NOSTRO collection account for receipt of the export related payments facilitated through such arrangements. Where the exporters availing of this facility are required to open notional accounts with the OPGSP, it shall be ensured that no funds are allowed to be retained in such accounts and all receipts should be automatically swept and pooled into the NOSTRO collection account opened by the AD Category-I bank. (iv) A separate NOSTRO collection account may be maintained for each OPGSP or the bank should be able to....
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....ails of each such arrangement as and when entered into. 4. AD Category-I banks may bring the contents of this circular to the notice of their constituents concerned. 5. The directions contained in the circular have been issued under Section 10(4) and Section 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without prejudice to permissions / approvals, if any required under any law." 6. The 17 March 2020 circular of RBI essentially framed Guidelines for Regulation of Payment Aggregators and Payment Gateways. It defined the two in the following terms:- "1. Definitions 1.1. For the purpose of this circular, the PAs and PGs are defined as under: 1.1.1. PAs are entities that facilitate e-commerce sites and merchants to accept various payment instruments from the customers for completion of their payment obligations without the need for merchants to create a separate payment integration system of their own. PAs facilitate merchants to connect with acquirers. In the process, they receive payments from customers, pool and transfer them on to the merchants after a time period. 1.1.2. PGs are entities that provid....
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....nd capital reserves representing surplus arising out of sale proceeds of assets but not reserves created by revaluation of assets adjusted for accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any. Compulsorily convertible preference shares can be either non-cumulative or cumulative, and they should be compulsorily convertible into equity shares and the shareholder agreements should specifically prohibit any withdrawal of this preference capital at any time. 4.5. Entities having Foreign Direct Investment (FDI) shall be guided by the Consolidated Foreign Direct Investment policy of the Government of India and the relevant foreign exchange management regulations on this subject. 4.6. PAs shall submit a certificate in the enclosed format from their Chartered Accountants (CA) to evidence compliance with the applicable net-worth requirement while submitting the application for authorisation. Newly incorporated non-bank entities which may not have an audited statement of financial accounts shall submit a certificate in the enclosed format from their Chartered Accountants regarding the current net-worth along with provisional ....
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....hall also be adhered to by PAs. 5.6. PAs shall appoint a Nodal Officer responsible for regulatory and customer grievance handling functions. PAs shall prominently display details of the nodal officer on their website. 6. Safeguards against Money Laundering (KYC / AML / CFT) Provisions 6.1. The Know Your Customer (KYC) / Anti-Money Laundering (AML) / Combating Financing of Terrorism (CFT) guidelines issued by the Department of Regulation, RBI, in their "Master Direction - Know Your Customer (KYC) Directions" updated from time to time, shall apply mutatis mutandis to all entities. 6.2. Provisions of Prevention of Money Laundering Act, 2002 and Rules framed thereunder, as amended from time to time, shall also be applicable. 7. Merchant On-boarding 7.1. PAs shall have a Board approved policy for merchant on- boarding. 7.2. PAs shall undertake background and antecedent check of the merchants, to ensure that such merchants do not have any malafide intention of duping customers, do not sell fake / counterfeit/ prohibited products, etc. The merchant's website shall clearly indicate the terms and conditions of the service and ti....
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.... routed back through the escrow account unless as per contract the refund is directly managed by the merchant and the customer has been made aware of the same. 8.6. At the end of the day, the amount in escrow account shall not be less than the amount already collected from customer as per 'Tp' or the amount due to the merchant. 8.7. PAs shall be permitted to pre-fund the escrow account with own / merchant's funds. However, in the latter scenario, merchant's beneficial interest shall be created on the pre-funded portion. 8.8. The escrow account shall not be operated for 'Cash-on- Delivery' transactions. 8.9. Permitted credits / debits to the escrow account shall be as set out below; where an additional escrow account is maintained, credit and debit from one escrow account to the other shall also be permitted. However, inter-escrow transfers should be avoided as far as possible and if resorted to, auditor's certification shall clearly mention such transactions. 8.9.1.1. Credits a) Payment from various customers towards purchase of goods / services. b) Pre-funding by merchants / PAs. c) Transfer representing refun....
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....by the bank on balances maintained in the escrow account, except when the PA enters into an agreement with the bank maintaining the escrow account, to transfer "core portion" of the amount, in the escrow account, to a separate account on which interest is payable, subject to the following: 8.15.1. The bank shall satisfy itself that the amount deposited represents the "core portion" after due verification of necessary documents. 8.15.2. The amount shall be linked to the escrow account, i.e. the amounts held in the interest-bearing account shall be available to the bank, to meet payment requirements of the entity, in case of any shortfall in the escrow account. 8.15.3. This facility shall be permissible to entities who have been in business for 26 fortnights and whose accounts have been duly audited for the full accounting year. For this purpose, the period of 26 fortnights shall be calculated from the actual business operation in the account. 8.15.4. No loan is permissible against such deposits. Banks shall not issue any deposit receipts or mark any lien on the amount held in such form of deposits. 8.15.5. The core portion shall be calcul....
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....o the Financial Crimes Enforcement Network (FinCEN) in the United States of America where PayPal Inc is registered as a Money Service Business. If this approach is feasible, then the information would need to be shared with FIU-India through an encrypted and secured file sharing mechanism. Approach 3- PayPal can explore sharing of additional information with partner banks. FIU-India could share a list of Banks with whom additional information needs to be shared. PayPal will then engage with the Banks to determine how the information can be shared which will then be shared with FIU- India." 9. The draft is stated to have been discussed between the officers of the petitioner and FIU-IND on 28 February 2020. On 10 June 2020 FIU-IND addressed yet another letter to PayPal wherein it reiterated its perceived obligation of the petitioner to register as a reporting entity. While doing so it also referred to the guidelines promulgated by RBI regulating payment aggregators and payment gateways which have been referred to hereinabove. On 21 August 2020, the petitioner addressed a letter to FIU-IND indicating its intent to cease all domestic operation as a payment intermediary with....
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....d as Payment System Operators and thus be held to be reporting entities under the PMLA. The said Committee after according an opportunity to parties to address submissions has ultimately submitted a report which stands placed on the record. In terms of the ultimate conclusions as so recorded it has essentially held that entities like PayPal should be held to be covered under the PMLA and that they are liable to be categorised as payment system operators. The Conclusions as formally recorded by the Committee are extracted hereinbelow:- "Conclusion 11. Entities like PayPal are very much covered under the definition of Payment System Operator under PMLA. The definition of Payment System Operator in PMLA is a standalone definition and not linked with PSS Act. Non-requirement of registration of PayPal and similar entities with RBI under PSS Act does not preclude them from registering with FIU India under PMLA and discharging their Anti-Money Laundering and Countering financing of Terrorism (AML/CFT) obligations under PMLA. It is the mandate of Ministry of Finance, Government of India to implement PMLA and discussions in the Committee clearly point towards the intention....
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.... setting off or adjusting, the payment obligations or delivery obligations among the system participants, including the claims and obligations arising out of the termination by the system provider, on the insolvency or dissolution or winding up of any system participant or such other circumstances as the system provider may specify in its rules or regulations or bye- laws (by whatever name called), of the transactions admitted for settlement at a future date so that only a net claim be demanded or a net obligation be owned;" 14. "Payment system" is defined in Section 2(1)(i) as follows:- "(i) "payment system" means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange." 15. Section 2(1)(n) defines "settlement" as under:- (n) "settlement" means settlement of payment instructions and includes the settlement of securities, foreign exchange or derivatives or other transactions which involve payment obligations;" 16. A "system provider" is defined in Section 2(1)(q) in the following terms:- "(q) "system provider" means a person w....
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.... "16. Power to carry out audit and inspection.-The Reserve Bank may, for the purpose of carrying out its functions under this Act, conduct or get conducted audits and inspections of a payment system or participants thereof and it shall be the duty of the system provider and the system participants to assist the Reserve Bank to carry out such audit or inspection, as the case may be." 19. Sections 17 and 18 confer a power on RBI to issue directions either to a payment system operator specifically or generally in respect of payment system operators. The said provisions reads thus: - "17. Power to issue directions.-Where the Reserve Bank is of the opinion that,- (a) a payment system or a system participant is engaging in, or is about to engage in, any act, omission or course of conduct that results, or is likely to result, in systemic risk being inadequately controlled; or (b) any action under clause (a) is likely to affect the payment system, the monetary policy or the credit policy of the country, the Reserve Bank may issue directions in writing to such payment system or system participant requiring it, within such time as the Reserve B....
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.... then, notwithstanding anything contained in the Banking Regulation Act, 1949 (10 of 1949) or the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013) 3 [or the Insolvency and Bankruptcy Code, 2016] or any other law for the time being in force, such order shall not affect any settlement that has become final and irrevocable prior to such order or immediately thereafter, and the right of the system provider to appropriate any collaterals contributed by the system participants towards its settlement or other obligations in accordance with the rules, regulations or bye-laws relating to such system provider.] (5) Where an order referred to in sub-section (4) is made with respect to a central counter party, then, notwithstanding such order or anything contained in the Banking Regulation Act, 1949 (10 of 1949) or the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013) or the Insolvency and Bankruptcy Code, 2016 or any other law for the time being in force, the payment obligations and settlement instructions between the central counter party and the system participants including those arising from transactions admitted for settlement at ....
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....ed in a separate account or accounts held in a scheduled commercial bank; or (b) maintain liquid assets in such manner and form as it may specify from time to time, of an amount equal to such percentage of the amounts collected by the system provider of designated payment system from its customers and remaining outstanding, as maybe specified by the Reserve Bank from time to time: Provided that the Reserve Bank may specify different percentages and the manner and forms for different categories of designated payment systems. (2) The balance held in the account or accounts, referred to in sub-section (1), shall not be utilised for any purpose other than for discharging the liabilities arising on account of the usage of the payment service by the customers or for repaying to the customers or for such other purpose as may be specified by the Reserve Bank from time to time. (3) Notwithstanding anything contained in the Banking Regulation Act, 1949 (10 of 1949), or the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013) or the Insolvency and Bankruptcy Code, 2016 or any other law for the time being in force, the persons ent....
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....or any member of such association; or (iii) intermediary registered by the Pension Fund Regulatory and Development Authority; or (iv) a recognised stock exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);" 25. Undisputedly PayPal can neither be said to be a banking company nor would it fall within the ambit of the expression "intermediary" as defined. The expression "financial institution", however, which stands included in the definition of reporting entity leads one to the heart of the issue which stands raised in the present petition. It is the case of the respondents that PayPal is a payment system operator and thus a reporting entity. The expressions "payment system" and "payment system operator" are defined by Section 2(1)(rb) and (rc) and are reproduced hereinbelow:- "(rb) "payment system" means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them. Explanation.-For the purposes of this clause, "payment system" includes the systems enabling credit card operations, debit card operations, ....
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....geted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016) if the reporting entity is a banking company; or (b) offline verification under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016); or (c) use of passport issued under section 4 of the Passports Act, 1967 (15 of 1967); or (d) use of any other officially valid document or modes of identification as may be notified by the Central Government in this behalf: Provided that the Central Government may, if satisfied that a reporting entity other than banking company, complies with such the standards of privacy and security under the Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 (18 of 2016), and it is necessary and expedient to do so, by notification, permit such entity to perform authentication under clause (a): Provided further that no notification under the first proviso shall be issued without consultation with the Unique Identification Authority of India established under sub-section (1) of section 11 of the Aadhaar (Targeted Delivery of Fin....
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....ip and financial position, including sources of funds of the client, in such manner as may be prescribed; (c) take additional steps as may be prescribed to record the purpose behind conducting the specified transaction and the intended nature of the relationship between the transaction parties. (2) Where the client fails to fulfill the conditions laid down under sub-section (1), the reporting entity shall not allow the specified transaction to be carried out. (3) Where any specified transaction or series of specified transactions undertaken by a client is considered suspicious or likely to involve proceeds of crime, the reporting entity shall increase the future monitoring of the business relationship with the client, including greater scrutiny or transactions in such manner as may be prescribed. (4) The information obtained while applying the enhanced due diligence measures under sub-section (1) shall be maintained for a period of five years from the date of transaction between a client and the reporting entity. Explanation.-For the purposes of this section, "specified transaction" means- (a) any withdrawal or deposit in cash, ....
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.... under sub-section (2) to every banking company, financial institution or intermediary or person who is a party to the proceedings under that sub-section. Explanation.-For the purpose of this section, "accountant" shall mean a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949)." 30. Rule 3 of the 2005 Rules obligates reporting entities to maintain records of varied transactions and reads as under:- "3. Maintenance of records of transactions (nature and value).-(l) Every reporting entity shall maintain the record of all transactions including, the record of- (A) all cash transactions of the value of more than ten lakh rupees or its equivalent in foreign currency; (B) all series of cash transactions integrally connected to each other which have been individually valued below rupees ten lakh or its equivalent in foreign currency where such series of transactions have taken place within a month and the monthly aggregate exceeds an amount of ten lakh rupees or its equivalent in foreign currency; (BA) all transactions involving receipts by non-profit organisations of value more than rupees ten lakh, ....
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....nstruments, or c) foreign exchange contracts, currency, interest rate and commodity and any other derivative instrument in whatsoever name it is called, or d) letters of credit, standby letters of credit, guarantees, comfort letters, solvency certificates and any other instrument for settlement and/or credit support; v) collection services in any currency by way of collection of bills, cheques, instruments or any other mode of collection in whatsoever name it is referred to. (E) all cross border wire transfers of the value of more than five lakh rupees or its equivalent in foreign currency where either the origin or destination of fund is in India; (F) all purchase and sale by any person of immovable property valued at fifty lakh rupees or more that is registered by the reporting entity, as the case may be." 31. It would also be appropriate to notice Rules 4, 5 and 7 of 2005 Rules which are reproduced hereinbelow: - "4. Records containing information.- The records referred to in rule 3 shall contain all necessary information specified by the Regulator to permit reconstruction of individual transaction, including the following....
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....ty shall- (a) at the time of commencement of an account-based relationship- (i) identify its clients, verify their identity, obtain information on the purpose and intended nature of the business relationship; and (ii) determine whether a client is acting on behalf of a beneficial owner, and identify, the beneficial owner and take all steps to verify the identity of the beneficial owner: Provided that where the Regulator is of the view that money laundering and terrorist financing risks are effectively managed and where this is essential not to interrupt the normal conduct of business, the Regulator may permit the reporting entity to complete the verification as soon as reasonably practicable following the establishment of the relationship; and b) in all other cases, verify identity while carrying out- (i) transaction of an amount equal to or exceeding rupees fifty thousand, whether conducted as a single transaction or several transactions that appear to be connected, or (ii) any international money transfer operations: Provided that where a client is subscribing or dealing with depository receipts or equity sha....
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....ronically all reporting entities who have dealt with the concerned client regarding updatation of KYC record of the said client. (lE) The reporting entity which performed the last KYC verification or sent updated information in respect of a client shall be responsible for verifying the authenticity of the identity or address of the client. (lF) A reporting entity shall not use the KYC records of a client obtained from the Central KYC Records Registry for purposes other than verifying the identity or address of the client and shall not transfer KYC records or any information contained therein to any third party unless authorized to do so by the client or by the Regulator or by the Director; (1G) The regulator shall issue guidelines to ensure that the Central KYC records are accessible to the reporting entities in real time. (2) For the purpose of clause (a) of sub-rule (1), a reporting entity may rely on a third party subject to the conditions that-. (a) the reporting entity, within two days, obtains from the third party or from the Central KYC Records Registry records or the information of the client due diligence carried out by the thir....
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....such association or body of individuals; (d) where no natural person is identified under (a) or (b) or (c) above, the beneficial owner is the relevant natural person who holds the position of senior managing official; (e) where the client is a trust, the identification of beneficial owner(s) shall include identification of the author of the trust, the trustee, the beneficiaries with fifteen per cent. or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership; and (f) where the client or the owner of the controlling interest is an entity listed on a stock exchange in India, or it is an entity resident in jurisdictions notified by the Central Government and listed on stock exchanges in such jurisdictions notified by the Central Government, or it is a subsidiary of such listed entities, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such entities. (4) Where the client is an individual, he shall for the purpose of sub-rule (1) submit to the reporting entity, - (a) the Aadhaar number where, ....
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....transactions and balance in such accounts are not breached, before a transaction is allowed to take place; (iii) the small account shall remain operational initially for a period of twelve months, and thereafter for a further period of twelve months if the holder of such an account provides evidence before the banking company of having applied for any of the officially valid documents within twelve months of the opening of the said account, with the entire relaxation provisions to be reviewed in respect of the said account after twenty-four months. (iiia) Notwithstanding anything contained in clause (iii), the small account shall remain operational between 1st April, 2020 and 30th June 2020 and such other periods as may be notified by the Central Government. (iv) the small account shall be monitored and when there is suspicion of money laundering or financing of terrorism or other high risk scenarios, the identity of client shall be established as per the provisions of sub-rule (4): [***] (v) the foreign remittance shall not be allowed to be credited into the small account unless the identity of the client is fully established as per pro....
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....y granted to him to transact on its behalf; [and] (iv) such documents as are required for an individual under sub-rule (4) relating to beneficial owner, managers, officers or employees, as the case may be, holding an attorney to transact on its behalf; (v) such information as may be required by the reporting entity to collectively establish the existence of such association or body of individuals; (10) Where the client is a juridical person, the reporting entity shall verify that any person purporting to act on behalf of such client is so authorized and verify the identity of that person. (11) No reporting entity shall allow the opening of or keep any anonymous account or account in fictitious names or account on behalf of other persons whose identity has not been disclosed or cannot be verified. (12) (i) Every reporting entity shall exercise ongoing due diligence with respect to the business relationship with every client and closely examine the transactions in order to ensure that they are consistent with their knowledge of the client, his business and risk profile and where necessary, the source of funds. (ii) When there are ....
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.... (A) exemptions, limitations and conditions and alternate and viable means of identification, to provide account based services to clients who are unable to undergo biometric authentication; (B) relaxation for continued operation of accounts for clients who are unable to provide Permanent Account Number or Form No. 60; and (C) exemption, limitations and conditions and alternate and viable means of identification, to provide account based services of clients who are unable to undergo Aadhaar authentication for receiving any benefit or subsidy under any scheme notified under section 7 of the Aadhaar (Targeted Delivery of Financial and Other subsidies, Benefits and Services) Act, 2016 (18 of 2016); Owing to injury, illness or infirmity on account of old age or otherwise, and such like causes. (ii) Every reporting entity shall formulate and implement a Client Due Diligence Programme, incorporating the requirements of sub-rules (1) to (13), sub - rle (15) and sub-rule (17) and guidelines issued under clause (i) and (ia). (iii) the Client Due Diligence Programme shall include policies, controls and procedures, approved by tile senior managemen....
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.... (17) (i) A client already having an account based relationship with a reporting entity, shall submit his Permanent Account Number of equivalent e-document thereof or Form No. 60, on such date as may be notified by the Central Government, failing which the account shall temporarily cease to be operational till the time the Permanent Account Number or Form No. 60 is submitted by the client: Provided that before temporarily ceasing operations for an account, the reporting entity shall give the client an accessible notice and a reasonable opportunity to be heard. Explanation.-For the purpose of this clause, "temporary ceasing of operations" in relation to an account means the temporary suspension of all transactions or activities in relation to that account by the reporting entity till such time the client complies with the provisions of this clause; (ii) if a client having an existing account based relationship with a reporting entity gives in writing to the reporting entity that he does not want to submit his Permanent Account Number or equivalent e-document thereof of Form No. 60, as the case may be, the client's account with the reporting entity s....
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.... For the purposes of lending clarity on the nature of the functions performed by PayPal while working as a payment facilitator, learned senior counsels placed for the consideration of the Court a diagrammatical presentation of its business operations which is extracted hereinbelow :- 35. It becomes pertinent to note that PayPal categorically asserts that it only onboards the Indian exporter and does not enrol the overseas remitter involved in the export transaction. It was also firmly asserted that PayPal only provides services to various Indian exporters by offering them a convenient technological interface for the receipt of funds from overseas buyers. 36. Mr. Sibal and Mr. Poovayya submitted that PayPal provides a technology platform which is utilised by lakhs of small Indian exporters, a majority of which are micro-enterprises. It was their submission that the said exporters bring in valuable foreign exchange to the country and by virtue of being engaged in the export of goods and services made in India aid in employment creation for lakhs of Indian citizens directly as well as indirectly. 37. In terms of the closing submissions, which were filed for our consideration,....
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....ies under the PMLA. It was also submitted that it is the AD Banks which undertake the operation of receiving payments, clearing funds and performing settlement activities. According to PayPal, since it merely provides a link to the Indian exporter which is then transmitted to the foreign or overseas buyer and results in the interface created by PayPal being utilised for effective and convenient transfer of funds, it cannot possibly be said that it would fall within the definition of a reporting entity. 41. It was submitted by PayPal that this position was duly recognised by RBI when it clearly averred in the affidavit filed in Abhijit Mishra vs. Reserve Bank of India W.P.(C) NO. 7007 OF 2019 that PayPal cannot be recognised to be a reporting entity as defined under the PSS Act. Reliance was also placed on the disclosures made in that affidavit and in terms of which it had been clearly averred by RBI that PayPal was not operating or participating in a payment system. It would be apposite to extract the following paragraphs from that affidavit:- "12....It will be pertinent to mention here that as per the information available with the answering Respondent i.e. RBI, the Re....
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....nsfer operations since it at no stage of the entire transaction handles funds which move between the Indian exporter and the overseas buyer. In view of the aforesaid, it was argued that since the technological interface provided by PayPal would not fall within the ambit of Section 2(1)(rb), it cannot be said to be a payment system operator. 45. It was then submitted that the task of regulation and supervision of payment systems is entrusted with the RBI in terms of the PSS Act. PayPal urged that RBI has admittedly not directed it to seek any authorisation under the aforesaid enactment even though it has been functioning as an OPGSP since 2017. Reliance was also placed on a response tendered by RBI under the Right to Information Act, 2005 [RTI Act] and which stands placed on the record as Annexure-19 and in terms of which RBI acknowledges that it had not issued any registration certificate to PayPal for setting up or operating a payment system in India. 46. It was submitted that in light of the pari materia definition of 'payment system' in the two statutes, it would be wholly impermissible for the respondents to urge that while PayPal does not operate a payment system as defi....
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....de applicable to them. The scope of the work function of a PG in the RBI's discussion paper reads thus: "A technology infrastructure provider to route and facilitate processing of an online payment transaction, without any involvement in the actual handling of funds...." 71. Therefore, in our view, the answer to the poser, as to whether PAs fall within the ambit of the definition of payment system can only be in the affirmative, for the reasons given above. That being said, as alluded to above, there is, perhaps, merit in the responses received by RBI to its discussion paper, that separate legislation may have to be enacted for payment services. This aspect, however, falls in the domain of the legislators. The executive could consider this suggestion, and initiate necessary steps in that behalf." 48. Mr. Poovayya submitted that Lotus Pay Solutions in clear and unequivocal terms recognises the distinction between a PA and an OPGSP. It was also highlighted that the Court in Lotus Pay Solutions had also clearly found that this distinction rested on the fact that OPGSPs do not handle funds and merely put in place a technology interface which facilitates the com....
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....ain submitted that all obligations including those concerning the opening of a NOSTRO collection account as well as maintenance of an Export Collection Account are those which are placed on AD Banks as opposed to an OPGSP. 53. Mr. Poovayya further argued that undisputedly PMLA imposes numerous penal sanctions. It was submitted that it is a settled principle that statutes with penal implications ought to be interpreted strictly and its provisions be not accorded an expansive construction. Reliance in support of the aforesaid was placed on the following enunciation on the legal position in Glaxo Laboratories (I) Ltd. vs. Presiding Officer (1984) 1 SCC 1:- "22. Having examined the matter both on principle and precedent, it would clearly emerge that clause 10 of Standing Order 22 which collects various heads of misconduct must be strictly construed being a penal provision in the sense that on the proof of a misconduct therein enumerated, penalty up to and inclusive of dismissal from service can be imposed. We see no reason for departing from the well-established canon of construction that penal provisions must receive strict construction, and not extended beyond their norma....
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...." 56. Mr. Poovayya further submitted that the impugned order suffers from a more fundamental fallacy since the same proceeds on the precept of a "deemed" payment system operator. It was contended that in the absence of the statute deploying a deemed fiction, the respondents could not have introduced the concept of a deemed payment system operator. According to PayPal while holding it to be a deemed payment system operator, FIU-IND has clearly travelled far beyond the statute itself quite apart from having exceeded the jurisdiction and authority conferred upon it. It was further urged that while the scourge of terror financing is liable to be prevented and effective safeguards need to be adopted to fight that malaise, that alone cannot constitute a valid ground for PayPal being held to be a reporting agency under the statute. 57. Mr. Poovayya submitted that while, undisputedly, FIU-IND is bound by the international obligations which flow from the various international covenants to which India is a party as well as the Financial Action Task Force [FATF] directives that cannot possibly be a ground for either re-writing Section 2(1)(rb) or for holding PayPal to be covered by that....
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....enal as well as preventive and regulatory provisions. 60. It was submitted that merely because PayPal is required to be registered as a reporting entity under the PMLA, the same cannot possibly be held to be an obligation which is penal in character. The fact that PMLA comprises of both penal as well as regulatory averments, Mr. Hossain pointed out was one which stands duly recognised by the Supreme Court in Vijay Madan Lal Choudhary vs. Union of India & Ors [2022 SCC OnLine SC 929] itself. 61. In order to impress upon the Court, the extent of operations that occur on the interface created by PayPal, Mr. Hossain stated that the nodal account maintained by PayPal in India with Citibank witnessed export transactions of a combined value of more than Rs. 12,000 crores in 2021. The details of transactions were also set out in paragraph 8 of the written submissions filed on behalf of FIU-IND in these proceedings and the table so presented is extracted hereinbelow:- Year (Calendar) Number of Transaction Total Value of (Export) Transaction conducted through Petitioner (in Rs.) 2020 59,54,123 Rs. 9951,80,49,416/- (approx. Rs. 9951 crores) 2021 70,10,294 ....
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....is suspicious and that the petitioner is creating legal fictions to avoid complying to the laws of India deliberately. The continued hindrance to furnish information of the parties to the transaction is an obstacle created by the petitioner in the legitimate functioning of FIU-India. Further, the transactions in question here are not routine transactions; these are cross border wire transfers of more than Rs. Five lakh Indian rupees which considering the risk that such funds pose to the country's Anti-Money Laundering and Countering of Terrorist Financing Framework, the government in its wisdom deemed it fit to be reported under the provisions of PMLA and the Rules thereunder. The amount of hindrance created by the petitioner in the legitimate functioning of FIU-India can be gauged from the fact that there were more than 22000 cross border wire transactions involving fund transfer of the tune of Rs. 2500 crores that were reported by just one bank i.e. Citibank for transactions carried out between 01.04.2017 and 31.07.2020 through PayPal and all these transactions had been reported without actual remitter details because the petitioner held back the said information." 63. Sin....
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....rections on 5 January 2021, the Bank enforced the need to provide actual remitter details with PayPal & Payoneer within the FIU-IND defined timelines, through senior management engagement. Consequently, PayPal and Payoneer furnished the details of actual remitters for the transactions reported for the period April 2017 to July 2020 to the Bank in tranches between 8 to 14 January 2021. The Bank has put in a process to obtain the end remitter data for reportable transactions from the two OPGSPs- Payoneer and PayPal incrementally and effective July 2020 (for Payoneer) & September 2020 (for PayPal), the Bank has started including the same in the CBWTR reports to the FIU. Please do let us know if there any incremental details that may be needed from our end. Thanks & Regards, Ajay Kataria Citi AML | India" 64. In paragraph 100, FIU-IND then refers to the communications which were exchanged between it and SBI Card and Payment Services Limited. The exchange of these communications is detailed in paragraph 100 of the counter affidavit which reads as follows:- "100. Similarly, it is pertinent to highlight the reply given by another re....
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....by virtue of being a member of FATF and comply with the global efforts to fight the malaise of money-laundering. 67. It was submitted that the fight against money-laundering in order to succeed must keep in step with the digital transformation which is reshaping the economies and societies across the globe. It was submitted that the anti-money-laundering and counter terrorist financing modes adopted by nations across the globe rest upon the exchange of financial intelligence. It was submitted that FIU-IND is a member of the Egmont Group of Financial Intelligence Units, a global organisation consisting of 167 global FIUs which came to be constituted to enable FIUs established in various jurisdictions to sit on a common platform and thus enabling exchange of expertise and financial intelligence needed to combat money-laundering, terror financing and associated predicated crimes. FIU-IND also placed on the record the details evidencing a regular exchange of information and intelligence with partnering FIUs situate overseas. Those details are extracted hereinbelow: - Year No. of request received from foreign FIUs No. of request sent to foreign FIUs No. of spontaneous dis....
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....e addressed by PMLA. 71. Mr. Hossain submitted that if Section 2(1)(rb) were to be interpreted and accepted on lines advocated by the petitioner, it would clearly hinder the anti money-laundering and counterterrorist financing measures which India seeks to adopt. Mr. Hossain also in aid of his submissions invited the attention of the Court to the judgement of the Supreme Court in Baldeo Krishna Sahi v. Shipping Corp of India Ltd (1987) 4 SCC 361, 366 which had held that a statute must not be interpreted in a manner which would either promote a mischief or create a lacuna. 72. Turning then to the provisions of the relevant provisions of PMLA itself, Mr. Hossain argued that Section 2(1)(rb) significantly uses the expression "enables" while dealing with the subject of payment which is to be effected between a payer and a beneficiary. Of equal significance, Mr. Hossain would urge is the insertion of the word "or" between payment and settlement service. It was further underlined that Section 2(1)(rb) thus clearly has been constructed in order to include a wide category of entities which facilitate payments. 73. According to Mr. Hossain, PayPal principally discharges a role of f....
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....en the expressions "clearing" and "payment" coupled with the use of the disjunctive word "or" in Section 2(1)(rb). Reliance was placed on the decision of the Supreme Court in Rasila S. Mehta & Ors. vs. Custodian, Nariman Bhavan (2011) 6 SCC 220 where the meaning to be accorded to the expression "involving" arose. Mr. Hossain referred to the following passages from that decision:- "75. The object of the Act is not merely to bring the offender to book but also to recover what are ultimately public funds. Even if there is a nexus between a third party, an offender and/or property the third party can also be notified. The word "involved" in Section 3(2) of the Special Court Act has to be interpreted in such a manner so as to achieve the purpose of the Act. This Court in Ashwin S. Mehta v. Custodian [(2006) 2 SCC 385], has observed as under : (SCC p. 400, para 34) "34. Although, we do not intend to enter into the correctness or otherwise of the said contention of the appellants at this stage, however, there cannot be any doubt whatsoever that they being notified persons, all their properties would be deemed to be automatically attached as a consequence thereto. For the....
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....tion for the purpose of bringing about an effective result. The courts, when rule of purposive construction is gaining momentum, should be very reluctant to hold that Parliament has achieved nothing by the language it used when it is tolerably plain what it seeks to achieve." G. RBI'S POSITION 76. Appearing for RBI Mr. Tripathi, learned senior counsel at the outset, submitted that the affidavit tendered on its behalf in Abhijit Mishra cannot be viewed as being dispositive of the question which stands raised. According to Mr. Tripathi, the said affidavit is liable to be read and appreciated in the context of the statute which formed the subject matter of those proceedings, namely, the PSS Act. Mr. Tripathi drew the attention of the Court to the Preamble of the PSS Act and submitted that a reading thereof would establish that the said statute is principally concerned with the regulation and supervision of payment systems involved in the actual transmission of funds between the payer and a beneficiary. According to Mr. Tripathi, the object of the PMLA, on the other hand, is clearly distinct and different. Mr. Tripathi submitted that PMLA is fundamentally concerned with preventio....
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....uage used in a provision. Every provision and word must be looked at generally and in the context in which it is used. Elementary principle of interpreting any word while considering a statute is to gather the intention of the legislature. The Court can make a purposeful interpretation so as to effectuate the intention of the legislature and not a purposeless one in order to defeat the intention of the legislature wholly or in part. 24. At the time of debate in Rajya Sabha, while introducing Amendment to the Finance Act on 17 December, 2012, the then Finance Minister has categorically made the aforestated statements as reproduced in para No. 5 page No. 8 above. From the statement of the Finance Minister, it can be clearly discerned that, or lodgement for an offence under the PMLA, there must be a Predicate Offence and it is dealing with the proceeds of a crime. The information published by Respondent No. 1-ED pertaining to FAQs, for an answer to question No. 13 therein, it has been specifically stated that, every Scheduled Offence is a Predicate Offence. The Scheduled Offence is called Predicate Offence and the occurrence of the same is prerequisite for initiating investig....
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....igation by the ED of an offence registered under PMLA and being investigated by it. 28. It is thus absolutely clear that, for initiation/registration of a crime under the PMLA, the only necessity is registration of a Predicate/Scheduled Offence as prescribed in various Paragraphs of the Schedule appended to the Act and nothing more than it. In other words, for initiating or setting the criminal law in motion under the PMLA, it is only that requirement of having a predicate/Scheduled crime registered prior to it. Once an offence under the PMLA is registered on the basis of a Scheduled Offence, then it stands on its own and it thereafter does not require support of Predicate/Scheduled Offence. It further does not depend upon the ultimate result of the Predicate/Scheduled Offence. Even if the Predicate/Scheduled Offence is compromised, compounded, quashed or the accused therein is/are acquitted, the investigation of ED under PMLA does not get affected, wiped away or ceased to continue. It may continue till the ED concludes investigation and either files complaint or closure report before the Court of competent jurisdiction. 29. The language of Sections 3 and 4 of PML....
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....eaning should be ascertained only from the words employed in the definitions, but the get-up and context are also relevant for ascertaining what exactly was meant to be conveyed by the terminology employed. As observed, by Lord Atkinson in Keates v. Lewis Merthyr Consolidated Collieries, "In the construction of a statute it is, of course, at all times and under all circumstances permissible to have regard to the state of things existing at the time the statute was passed, and to the evils which, as appears from it provisions, it was designed to remedy". If the words are capable of one meaning alone, then it must be adopted, but if they are susceptible of wider import, we have to pay regard to what the statute or the particular piece of legislation had in view. Though the definition may be more or less the same in two different statutes, still the objects to be achieved not only as set out in the preamble but also as gatherable from the antecedent history of the legislation may be widely different. The same words may mean one thing in one context and another in a different context. his is the reason why decisions on the meaning of particular words or collection of ....
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....o look at the context, the collocation and the object of such words relating to such matter and interpret the meaning intended to be conveyed by the use of the words "under those circumstances". (see Vanguard Fire and General Insurance Co. Ltd. v. Fraser & Ross [AIR 1960 SC 971 : (1960) 3 SCR 857] )" 83. To buttress the aforesaid proposition, Mr. Tripathi, additionally referred to the following passage from the decision of the Supreme Court in Jagir Singh vs. State of Bihar (1976) 2 SCC 942:- "20. The general rule of construction is not only to look at the words but to look at the context, the collocation and the object of such words relating to such matter and interpret the meaning according to what would appear to be the meaning intended to be conveyed by the use of the words under the circumstances. Sometimes definition clauses create qualification by expressions like "unless the context otherwise requires"; or "unless the contrary intention appears"; or "if not inconsistent with the context or subject-matter". "Parliament would legislate to little purpose," said Lord Macnaghten in Netherseal Co. v. Bourne [(1889) LR 14 AC 228 : 59 LJ QB 66 : 61 LT 125] , "if the obj....
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....any such agency". 159. It is true that the purposes for which the power under Section 18 can be exercised, are also indicated in Section 18. They are (i) regulation of the payment systems, (ii) the interest of the management and operation of any payment system, and (iii) public interest. 160. As we have pointed out elsewhere, the impugned Circular is primarily addressed to banks who are "system participants" within the meaning of Section 2(1)(p). The banks certainly have a system of payment to be effected between a payer and a beneficiary, falling thereby within the meaning of the expression payment system. 161. It may also be relevant to take note of the definition of the expressions "payment instruction" and "payment obligation" appearing in clauses (g) and (h) of sub-section (1) of Section 2 which read as follows: "2. (1)(g) "payment instruction" means any instrument, authorisation or order in any form, including electronic means, to effect a payment- (i) by a person to a system participant; or (ii) by a system participant to another system participant; (h) "payment obligation" means an ind....
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....a and this is negatively impacting the implementation of AML/CFT regime as per FATF recommendations. Besides, it also negatively impacts the integrity of financial systems from AML/CFT perspective. 9. The Senior Economic Adviser, DEA steered the discussions and reiterated the mandate of the Committee. The Hon'ble High Court of Delhi has, inter alia, given the following directions in the W.P.(C) 138/2021 between PayPal Payments Private Limited versus Financial Intelligence Unit-India. (i) The Reserve Bank of India (RBI) and Ministry of Finance to take a clear stand after the due consultation as to whether they consider platforms such as that of the petitioners (PayPal) as being the purview of PML Act. (ii) Accordingly, Ministry of Finance is directed to constitute a Committee with a nominee of RBI and the Ministry of Finance to clarify their position as to whether companies like the petitioners who claim to be facilitators of monetary transactions, both in foreign exchange and in India rupees, ought to be categorized as "Payment System operators" and hence "reporting entities" under the PML Act." 87. Mr. Tripathi also drew the attention of the Court....
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.... Finance and other stakeholders so that a principled view of those authorities may be elicited for the consideration of the Court. The deliberations which ensued and the conclusions which ultimately came to be recorded by that Committee have already been extracted hereinabove. 90. During the course of the preliminary submissions which were addressed, the Court on 15 December 2022 also accorded liberty to parties to place a short note explaining the business model of PayPal and why according to FIU-IND, it was liable to be viewed as a reporting entity under the PMLA. Pursuant to the liberty so granted, FIU-IND in terms of its Note of 16 January 2023 highlighted the following issues:- "Business Model of Petitioner 1. The Petitioner is a payment facilitation platform which onboards merchants / sellers and enables such individuals / entities to collect payments. In doing so, the Petitioner essentially must collect details of the onboarded party - including their identity as well as details such as the account in which proceeds are to be ultimately credited. Further, where a third party customer wishes to pay the onboarded party, Petitioner would facilitate the same....
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....all payment related complaints in India shall remain the responsibility of the OPGSP concerned." 5. This makes it clear that, by regulation, the Petitioner is required to conduct onboarding due diligence. In order to comply with this requirement it is clear that the Petitioner must collect and process various data points relating to the business and profile of the merchants it onboards. Within context of this binding obligation, it is not open for the Petitioner now to claim that it merely serves as an intermediary entity. 6. In view of its requirement to conduct due diligence and onboard of transacting parties, the Petitioner would reasonably be expected to collect at least the following data points at the time of onboarding as well as on an ongoing basis. As relevant to the present context where the Petitioner is facilitating exports from India, such data points would be relevant in connection with the Indian exporter as well as the foreign remitter (to the extent relevant / applicable). Data Point Value Entity / Person Name Required to complete transactions; for onboarding diligence; and screening against blacklists. Entity / Person Address Re....
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....the same framework; o PayPal maintains a nodal / collection account with a Bank through which OPGSP funds are routed. Credits / debits in such account are made by the Bank in accordance with the instructions of PayPal (as defined under the OPGSP framework). This is in contrast to the TPAP which does not handle fund flows. 9. In connection with the business model, the following points assume critical importance: o The business model of the Petitioner, in order to comply with extant regulation, requires it to be the entity onboarding foreign parties and requires due diligence to be conducted over such parties. o The Petitioner collects a wide variety of data points relating to foreign parties it onboards which far exceeds the data points shared with its bank partners; o The Petitioner collects a wide variety of data points relating to foreign parties it onboards which far exceeds what is to be included in the CBWTR format which is merely one type of threshold report to be filed by the RE. o The Petitioner is aware of the criticality of STR reporting based on its compliance with similar commitments abroad. o The Petitioner....
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....the Petitioner is that it meets its obligations by supplying all information available to it to its banking partner which files reports. The Petitioner has even provided the fields of the cross-border wire transfer report format to demonstrate how the same is populated. However, in doing so, the Petitioner is attempting to mislead the court by setting its own goalpost. As discussed above, the cross-border wire transfer report is merely one of the many threshold reports received by FIU-IND from 'reporting entities'. Merely demonstrating that it provides certain information to the bank in connection with the same format does not account for the other types of reports required to be filed by 'reporting entities'. 16. In this regard, of particular concern are 'suspicious transaction reports' which are the most valuable type of report received by FIU-IND. Such reports are based on subjective assessments of 'reporting entities' that certain transactions may directly relate to the proceeds of crime or some other illicit financial activity. By collecting STRs, FIU-IND pushes the frontiers of intelligence collection and early warning and creates a framework whereby every stakeholde....
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....formation. However, by the Petitioner's own illustration the same does not flow to its banking partner. Therefore, it is clear that the Petitioner presents a misleading picture when it chooses to present its data elements in the CBWTR format. Further, the fact that such data is required to be leveraged for STR reporting is conveniently glossed over by the Petitioner by relying on a format for a narrow purpose." 92. FIU-IND also alluded to the fact that PayPal was in fact complying with AML statutes prevalent across different jurisdictions. This was sought to be highlighted with the aid of a chart which stood appended to that note and the same is extracted hereinbelow: - "Provisions of Foreign Law under which Petitioner appears to be registered (based on material available in public domain) Jurisdiction Provision/Definition Notes United States where PayPal is registered under the category of 'money service business' and specifically a 'money transmitter' 31CFR § 1010.100(ff) (ff) Money services business. A person wherever located doing business, whether or not on a regular basis or as an organized or licensed business concern, wholly or in substantial pa....
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.... within a prepaid program that agrees to serve as the principal conduit for access to information from its fellow program participants. The participants in each prepaid access program must determine a single participant within the prepaid program to serve as the provider of prepaid access. (ii) Considerations for provider determination. In the absence of registration as the provider of prepaid access for a prepaid program by one of the participants in a prepaid access program, the provider of prepaid access is the person with principal oversight and control over the prepaid program. Which person exercises "principal oversight and control" is a matter of facts and circumstances. Activities that indicate "principal oversight and control" include: (A) Organizing the prepaid program; (B) Setting the terms and conditions of the prepaid program and determining that the terms have not been exceeded; (C) Determining the other businesses that will participate in the prepaid program, which may include the issuing bank, the payment processor, or the distributor; (D) Controlling or directing the appropriate party to initiate, freeze, or terminate pr....
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....acts and circumstances. The term "money transmitter" shall not include a person that only: (A) Provides the delivery, communication, or network access services used by a money transmitter to support money transmission services; (B) Acts as a payment processor to facilitate the purchase of, or payment of a bill for, a good or service through a clearance and settlement system by agreement with the creditor or seller; (C) Operates a clearance and settlement system or otherwise acts as an intermediary solely between BSA regulated institutions. This includes but is not limited to the Fedwire system, electronic funds transfer networks, certain registered clearing agencies regulated by the Securities and Exchange Commission ("SEC"), and derivatives clearing organizations, or other clearinghouse arrangements established by a financial agency or institution; (D) Physically transports currency, other monetary instruments, other commercial paper, or other value that substitutes for currency as a person primarily engaged in such business, such as an armored car, from one person to the same person at another location or to an account belonging to the same per....
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....ancing transposing Directive 2001/97/EC of the European Parliament and of the Council of 4 December 2001 amending Council Directive 91/308/EEC on prevention of the use of the financial system for the purpose of money laundering. (Specific category under which with FIU of Luxembourg and files suspicious activity reports with the same. Report of the European Parliamentary Research service confirms that PayPal is registered with FIU of Luxembourg and files suspicious activity reports with the same. Extract (Page 70): "The pilot project was launched to require FIU Luxembourg to share spontaneously 'all STRs filed by Amazon, Paypal and Ipay with other national FIUs via the FIU.NET Cross-border system. 90 percent of cross-border reports were transferred to another FIU within 24 hours and 99 percent within 3 days'." Australia PayPal is registered as a "reporting entity" under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. The specific provision under which PayPal is registered is not clear. Extract from PayPal submission to the Australian Consumer and Competition Commission (2018)3 "8.3 We are a reporting entity to AUSTRAC under the Anti-Money Launde....
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....er does not merit treatment of a 'Reporting Entity' in India. ii. PayPal (Europe) S.à.r.l. et Cie, S.C.A. incorporated in Luxemburg holds a Banking Licence. The said Paypal Entity provides a) Buy and sell cryptocurrency services; b) fund raising services, c) Balance Account holding services; d) payment services using electronic money; e) PayPal Wallet services; f) send and receive payment for both commercial and personal transactions including domestic and international transactions, etc. Accordingly, PayPal (Europe) S.à r.l. et Cie, S.C.A. in Luxemburg is complying with certain reporting obligations. iii. PayPal Australia Pty Limited is providing a) Buy now pay later services (which is a form of a credit facility); b) balance holding account services; c) Point of sale solution services; d) send and receive payment for both commercial and personal transactions including domestic and international transactions, etc. Accordingly, PayPal Australia Pty Limited in Australia is complying with certain reporting obligations. However, the Petitioner i.e. PayPal Payments Pvt. Ltd. is not providing the said b....
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....titution License issued by the Australian Prudential Regulation Authority. 96. In Singapore, PayPal is stated to have applied for a licence under the Singapore Payment Services Act, 2019 and pending its application for exemption, during the statutory transactional period, engaged in providing services such as PayPal wallet, account issuance services as well as remittance and receipt of payments relating to commercial transactions both domestic as well as international. 97. The essence of the submission was that it is ultimately the nature of services offered by PayPal in respective jurisdictions and the scope and ambit of relevant statutes which are liable to be borne in mind. Both Mr. Sibal as well as Mr. Poovayya submitted that PayPal should thus not be understood to be deliberately avoiding to comply with the provisions of the PMLA and all submissions to the contrary as addressed are clearly designed to prejudice this Court. Mr. Poovayya reiterated the aforesaid contentions in his rejoinder submissions and submitted that the reporting obligations applicable to PayPal entities in each jurisdiction differ from one another and are principally based on the nature of business w....
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.... money- laundering techniques that are constantly evolving, by reviewing its recommendations. Further, the FATF has adopted its Non- Cooperative Countries or Territories ("NCCT") initiative in a report issued on 14.2.2020, according to which a 25 points criteria was recognized which is consistent with the Forty Recommendations of the FATF and which identified 'detrimental rules and practices' in the international effort to combat laundering. It thus established a review process to target delinquent countries and territories where the anti-laundering regime is ineffective in practice and to take steps against those countries. The steps which FATF may take against a non- compliant nation include 'conditioning, restricting, targeting or even prohibiting financial transactions with non-cooperative jurisdictions'. 95. It is submitted that the measures against money-laundering have evolved over the period of time. Further, FATF has taken preventive, regulatory and monitoring steps through keeping a watch on suspicious or doubtful transactions by amending its Forty Recommendations in 2003 and 2012. 96. It is further submitted that FATF assess the progress of its members ....
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....pervising financial institutions, undermining of the stability of a country's financial system and adverse effect on growth of the country. 100. The respondent has further relied on Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism (2005) to state that nations are free to choose the definition of 'predicate offences' for money-laundering purposes from the list of offences given under the Convention, for example, by providing a list of those offences, a category offences, or by reference to offences that have a maximum term of imprisonment of one year or more (or, for states that have minimum thresholds for offences, those with imprisonment of a minimum of six months) and to take measures which are preventive in nature. 101. To illustrate the global development of the approach against money-laundering, 1991 Money Laundering Directive ('First Directive') adopted by the European Union is cited which imposed obligations on credit institutions and financial institutions in relation to customer identification and record- keeping, internal controls and training of staff and mandat....
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....aud, corporate crimes, embezzlement and intellectual property crimes), drug related crimes and smuggling of goods, evasion of excise duties, corruption and bribery (and the embezzlement of public funds). 108. To show the global impact of money-laundering, it is submitted that the IMF and the FATF have estimated that the scale of money-laundering transactions is between 2% and 5% of the global GDP. It is also stated that the United Nations has recently put the figure of money-laundering at USD 2.1 trillion or 3.6% of global GDP. Thus, the operation of money-laundering has international dimension. It is submitted that measures being taken at the national level would be inadequate, which made it necessary to establish effective international co-operation mechanisms to allow national authorities to co-operate in the prevention and prosecution of money-laundering and in international 'proceeds-hunting'. 110. It is stated that India, and its version of the PMLA, is 'merely a cog in this international vehicle' and as India is a signatory to these treaties, therefore, is bound legally and morally, to adopt the best global practices and respond to the changing needs of the....
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.... mandates and recommendations of the FATF. Furthermore, it is noteworthy that even in other jurisdictions; the above-mentioned definition has gained a more holistic approach which is not per se the same as the colloquial term, "money launder" or simply turning black money into white. In the UK and Spain, possession of criminal proceeds is covered under money-laundering, similarly by way of interpretation, the same is the case in Germany and Italy. Following these recommendations, amendments were brought about in India...." 100. Insofar as FIU-IND is concerned, the same came to be set up pursuant to the "40+9" recommendations of the FATF which obliged partnering countries to establish an intelligence unit that would serve as the focal point for receipt and analysis of Suspicious Transaction Reports [STRs'] as well as other information relating to money laundering and other associated predicate offences, the financing of terrorism, for dissemination of analytical results and to ultimately form part of a collaborative system for the benefit of member nations. The FIU-IND essentially acts as the central nodal agency for receiving, processing and analysing information relating to sus....
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....olving, they still represent significant TF risks. Jurisdictions provided a range of case studies to demonstrate the ongoing threats and vulnerabilities. Jurisdictions' national risk assessments were particularly useful in this analysis. Anti-money laundering (AML) and countering the financing of terrorism (CFT) systems and operational measures have made it more difficult for terrorist organisations to use traditional avenues to raise or move funds. However, the adaptability of these organisations, and new threats posed by foreign terrorist fighters and small cell terror networks, require authorities to monitor how these traditional methods continue to be used. The use of national risk assessments to conduct strategic analysis of current TF risks will help inform policy makers to implement the necessary legal and operational measures. With respect to the section on emerging TF risks, the FATF decided to explore the threats and vulnerabilities posed by: 1. foreign terrorist fighters (FTFs), 2. fundraising through social media, 3. new payment products and services, and 4. the exploitation of natural resources. The FTF phenomenon i....
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....or other terrorist organisations and regions. The ability to reap high rewards from the natural resources sector, coupled with the weak institutional capability, particular in or near areas of conflict, creates a significant vulnerability for terrorist organisations to capitalise on. This report finds that this issue is linked with criminal activity including extortion, smuggling, theft, illegal mining, kidnapping for ransom, corruption and other environmental crimes. This report builds on the findings of the Financing of the Terrorist Organisation of the Islamic State in Iraq and the Levant report (the 'FATF ISIL report', 2015) and takes into account the activities of a broader range of terrorist organisations. The project benefited from the involvement of national experts from FATF's entire global network, including law enforcement, intelligence agencies and Financial Intelligence Units (FIUs). This report also takes into account recent initiatives by the United Nations, the Egmont Group of FIUs and the Members of the Counter-ISIL Coalition, specifically Counter ISIL Financing Group (CIFG). The project involved private sector feedback via their involvement in the FATF/ F....
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....ious transaction reports concern customers aged between 21 and 35 years. The use of an online payment system to assist in financing terrorism is more a reflection of the prevalence of this payment system in the wider financial system rather than any indication that online payment systems are more vulnerable to terrorism financing. Case study 25: PayPal accounts used for fundraising A charity, set up in 2010, whose chairman is specialised in e- marketing, offers on its website several options to make donations by credit card, PayPal, cash transfers, checks. Over a year and a half, bank accounts of this charity received numerous donations by checks and wire transfers below EUR 500. Of the EUR 2 million collected, EUR 600 000 came from a few PayPal transactions from another country. Personal PayPal accounts were also used to collects funds, then to be withdrawn by cash, or transferred to other accounts. Source: France Case study 26: CashU Law enforcement identified the use of CashU accounts to anonymously engage in transactions for illicit purposes. CashU is a prepaid online and mobile payment method available in the Middl....
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....ansmit information on, as well as material support for, planned acts of terrorism, all of which require specific technical knowledge for the effective investigation of these offences. It is a commonly accepted principle that, despite the heinous nature of their acts, alleged terrorists should be afforded the same procedural safeguards under criminal law as any other suspects. The defence of human rights is a core value of the United Nations and a fundamental pillar of the rule-of-law approach to the fight against terrorism. The present publication accordingly highlights the importance of respect for the principles of human rights and fundamental freedoms at all times and, in particular, in the context of the development and implementation of legal instruments related to countering terrorism. The United Nations Office on Drugs and Crime (UNODC), as a key United Nations entity for delivering counter-terrorism legal and related technical assistance, actively participates in the Counter- Terrorism Implementation Task Force, thus ensuring that the counter-terrorism work of UNODC is carried out in the broader context of, and coordinated with, United Nations system-wide ....
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....tical guidance to Member States to facilitate the more effective investigation and prosecution of terrorist cases involving the use of the Internet. 104. While dealing with the subject of financing, it noted as follows: - "2. Financing 14. Terrorist organizations and supporters may also use the Internet to finance acts of terrorism. The manner in which terrorists use the Internet to raise and collect funds and resources may be classified into four general categories: direct solicitation, e-commerce, the exploitation of online payment tools and through charitable organizations. Direct solicitation refers to the use of websites, chat groups, mass mailings and targeted communications to request donations from supporters. Websites may also be used as online stores, offering books, audio and video recordings and other items to supporters. Online payment facilities offered through dedicated websites or communications platforms make it easy to transfer funds electronically between parties. Funds transfers are often made by electronic wire transfer, credit card or alternate payment facilities available via services such as PayPal or Skype. 15. Online payment f....
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.... It is in the aforesaid backdrop that FIU-IND had asserted that the platform of the petitioner had been utilised as a financial channel on which transactions of Rs. 12,000 crores came to be fulfilled in 2021. The grievance of the FIU-IND essentially is, and in its own words, described to be that of an "impaired visibility" with respect to transactions which are completed on PayPal's platform. 106. While the Court has taken note of the global trends and the multifaceted complexities which emerging technologies and tools have brought on in the fight against money laundering and terror financing, it has done so only to broadly note the scenario which prevails and which appears to have prompted FIU-IND to require the petitioner to comply with reporting obligations under the PMLA. However, the aforesaid discussion is neither liable to be viewed as being a valid reason with has weighed with the Court in arriving at its conclusions which stand recorded hereinafter nor should the same be misunderstood as having clouded its vision and obligation to independently evaluate whether PayPal can be said to have constructed a payment system as defined under the PMLA and thus be liable to be rec....
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....s; (b) the timings to be maintained by payment systems; (c) the manner of transfer of funds within the payment system, either through paper, electronic means or in any other manner, between banks or between banks and other system participants; (d) such other standards to be complied with the payment systems generally; (e) the criteria for membership of payment systems including continuation, termination and rejection of membership; (f) the conditions subject to which the system participants shall participate in such fund transfers and the rights and obligations of the system participants in such funds. (2) Without prejudice to the provisions of sub-section (1), the Reserve Bank may, from time to time, issue such guidelines, as it may consider necessary for the proper and efficient management of the payment systems generally or with reference to any particular payment system." 109. Sections 17 and 18 confer authority upon the RBI to issue directions either to a specific payment system operator or to cover the activities of payment systems in general. Undisputedly the various directives and circulars pertaining to PAs' and OPGS....
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....Para 1.3 of the Intermediary Directions evinces the intent of RBI of framing directives for the purposes of safeguarding the interest of customers and to ensure that payments are duly accounted for by the intermediaries who receive the same. Clause 2.1 defines Intermediaries as under: - "2.1 Intermediaries: Intermediaries would include all entities that collect monies received from customers for payment to merchants using any electronic/online payment mode, for goods and services availed by them and subsequently facilitate the transfer of these monies to the merchants in final settlement of the obligations of the paying customers. Explanation: For the purpose of these directions, all intermediaries who facilitate delivery of goods/services immediately / simultaneously (e.g. Travel tickets/movie tickets etc) on the completion of payment by the customer shall not fall within the definition of the expression "intermediaries". These transactions which are akin to a Delivery versus Payment (DvP) arrangement will continue to be facilitated as per the contracts between the merchants and the intermediaries as hitherto and banks shall satisfy themselves that such intermedi....
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....ion of transaction). ii. All payments to merchants involving nodal banks shall be effected within a maximum of T+3 settlement cycle." 114. The aforesaid Intermediary Directions were followed by circulars dated 16 November 2010, 11 June 2013 and 24 September 2015. The circulars dated 16 November 2010 and 11 June 2013 had dealt with the facility of AD Category I Banks entering into standing arrangements with OPGSPs' in order to facilitate repatriation of export related remittances. In terms of the circular of 24 September 2015, the said facility was also extended to import related payments. Pursuant to the directions embodied in the circular of 24 September 2015, AD Category I Banks were required to maintain separate export and import collection accounts in India for each OPGSP. Para 2.1 (iv) places those banks under the obligation to submit all relevant information relating to transactions to RBI. In terms of Para 2.2, foreign entities desirous of operating as an OPGSP were required to open liaison offices in India with the approval of the RBI. Insofar as export transactions are concerned, the 24 September 2015 circular made the following provisions: - "4. Expor....
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....bligations thus obviating the necessity of merchants creating a separate payment system of their own. It also accepts the working model of PA's to entail the receiving of payments from customers, pooling the same till they are ultimately transferred to merchants. OPGSPs', on the other hand, are recognised to be entities that merely provide the technology infrastructure for the purposes of routing and facilitating online payment transactions. It is, however, specifically acknowledged that OPGSPs' are not involved in actual handling of funds. This clearly flows also from Para 3.7 which accept OPGSPs to be merely "technology providers" or "outsourcing partners". 116. Para 7 then deals with the subject of onboarding of merchants by PAs'. The settlement and escrow system liable to be put in place by PAs' is dealt with in paragraph 8 which reads as follows: - "8. Settlement and Escrow Account Management 8.1. Non-bank PAs shall maintain the amount collected by them in an escrow account with any scheduled commercial bank. An additional escrow account may be maintained with a different cheduled commercial bank at the discretion of the PA. For the purpose of maintenance ....
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.... by merchants / PAs. c) Transfer representing refunds for failed / disputed / returned / cancelled transactions. d) Payment received for onward transfer to merchants under promotional activities, incentives, cash-backs etc. 8.9.1.2. Debits a) Payment to various merchants / service providers. b) Payment to any other account on specific directions from the merchant. c) Transfer representing refunds for failed / disputed transactions. d) Payment of commission to the intermediaries. This amount shall be at pre-determined rates / frequency. e) Payment of amount received under promotional activities, incentives, cash-backs, etc. 8.10. For banks the outstanding balance in the escrow account shall be part of the 'net demand and time liabilities' (NDTL) for the purpose of maintenance of reserve requirements. This position shall be computed on the basis of the balances appearing in the books of the bank as on the date of reporting. 8.11. The entity and the escrow account banker shall be responsible for compliance with RBI instructions issued from time to time. The decision of RBI in this regard shall be....
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....deposits. 8.15.5. The core portion shall be calculated separately for each of the escrow accounts and will remain linked to the respective escrow account. The escrow balance and core portion maintained shall be clearly disclosed in the auditors' certificates submitted to RBI on quarterly and annual basis. Note: For the purpose of this regulation, "Core Portion" shall be computed as under: Step 1: Compute lowest daily outstanding balance (LB) in the escrow account on a fortnightly (FN) basis, for 26 fortnights from the preceding month. Step 2: Calculate the average of the lowest fortnightly outstanding balances [(LB1 of FN1+LB2 of FN2+ ........+ LB26 of FN26) divided by26]. Step 3: The average balance so computed represents the "Core Portion" eligible to earn interest." 117. As would be evident from the aforesaid discussion, the PSS Act essentially appears to regulate the functioning of Intermediaries and PAs' who are directly engaged in handling funds and acting as a conduit between customers and e-commerce sites/merchants. This is also evident from the activities relating to settlement and netting which are spoken of in Section 23 of....
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....eceived and taking into account the important functions of these intermediaries in the online payments space as also keeping in view their role vis-à-vis handling funds, it has been decided to (a) regulate in entirety the activities of PAs as per the guidelines in Annex 1, and (b) provide baseline technology-related recommendations to PGs as per Annex 2." 121. As is evident from the above, the guidelines were intended to regulate the activities of PAs "in entirety" and to merely provide "baseline technology related recommendations" insofar as OPGSPs were concerned. When one proceeds to Annexure-2 which contains the baseline technology related recommendations, the Guidelines yet again prescribe that the adoption thereof would be mandatory for PAs' and merely recommendatory for OPGSPs'. The aforesaid deliberation indubitably leads one to recognise and acknowledge the distinction between PAs' and OPGSPs' which is statutorily accepted as well as to discern and identify the principal domain within which the PSS Act is intended to operate. 122. The Court thus comes to the firm conclusion that the PSS Act is concerned with PAs' and Intermediaries who are engaged in the direct....
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....an electronic transaction. The collaborative and enabling functions performed by such entities, no matter how miniscule, nonetheless constitutes a significant component without which the transaction may not achieve fruition. 126. On a foundational plane, therefore, it would be imprudent to disregard their existence or the role that they discharge merely because those entities may not be covered under the PSS Act. One would also have to bear in mind that a legislative measure need not necessarily be viewed as being encyclopaedic or an all-encompassing essay on a particular subject. The Legislature may choose to regulate only a few facets relating to a wide spectrum of economic activity by enacting a particular statute. It is for this reason that the Court comes to conclude that the mere fact that the PSS Act did not extend its regulatory net to cover OPGSPs' would not, of its own, constitute a plausible basis for rejecting the contention which was advanced by FIU-IND. Accordingly, and for the aforesaid reasons, this Court finds itself unable to accept the submission of PayPal that since it was not considered to be a payment system operator under the PSS Act, it must ipso facto be....
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....ation then stipulates that the expression "payment system" would include various well recognised modes of transfer of funds between parties including significantly "money transfer operations or similar operations". Section 2(1)(rb) as well as the Explanation is couched in expansive terms which aspect stands highlighted by the use of the expressions "includes" "enabling" and "similar operations". The use of the expression "enable" and "involve" clearly appears to be suggestive of the legislative intent to cast a wide net in order to enable the provisions of the PMLA to operate effectively and thus regulate a whole spectrum of activities connected with the movement of funds between two parties. 130. It was in the aforesaid context that Mr. Hossain had invited our attention to the following pertinent observations as appearing in the decision of the Supreme Court in Rasila S. Mehta:- "75. The object of the Act is not merely to bring the offender to book but also to recover what are ultimately public funds. Even if there is a nexus between a third party, an offender and/or property the third party can also be notified. The word "involved" in Section 3(2) of the Special Court....
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....ct-matter of the offence and the object of the law it seeks to achieve. The purpose of the law is not to allow the offender to sneak out of the meshes of law. The courts will reject the construction which will defeat the plain intention of the legislature even though there may be some inexactitude in the language used. 78. Reducing the legislation (sic to a) futility shall be avoided and in a case where the intention of the legislature cannot be given effect to, the courts would accept the bolder construction for the purpose of bringing about an effective result. The courts, when rule of purposive construction is gaining momentum, should be very reluctant to hold that Parliament has achieved nothing by the language it used when it is tolerably plain what it seeks to achieve." 131. As was aptly observed in Rasila S. Mehta, special statutes which are aimed at tackling crimes and offences must be construed and interpreted so as to ensure an effective implementation of relevant provisions as well as to avoid the spectre of the offender sneaking out of the "meshes of the law". The said decision bids us to bear in mind the well-known maxim of "ut res magis valeat quam pereat"....
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....to mean the conferment of a power to do something. Similarly, P. Ramanathan Aiyar in The Major Law Lexicon defines the words "enables" and "involves" as follows:- "Enable. Authorise; empower; supply person with means. In the case of a person under any disability as to dealing with another, the term has the meaning of removing that disability, not of conferring compulsory power as against that other. To render able. Involve. To comprise, to contain, to include by rational or logical construction; to connect with something as a natural or logical consequence or effect; to include necessarily; to imply (Webster Dict.); entangle, implicate in charge or crime; implying financial embarrassment (as) "Involved circumstances" A thing is only said to be "involved" in another when it is a necessary resultant of that other. In its more exact and literal signification, the word is synonymous with "comprise" or "embrace" (St. John v. West, 4 How. Pr. N.Y. 329, 332; see also 23 All 94 (98): 21 AWN 8. A point involving a substantial question of law.] This word is also used, according to the context, as synonymous with "affected." The primary signification of the....
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....rs Defensives, as..Crosbowes and other enhabilmentis of Werres. involve (in'volv), v. Also 4-8 en-. b. fig. To join as by winding together or intertwining; to 'wrap up' with. 6. trans. To include; to contain, imply. +a. Of a person, or with reference to personal action: To include covertly in or under something; to wrap up. Also in indirect passive. Obs. b. Of a thing: To include within its folds or ramifications; to contain, comprise, comprehend. Now chiefly Math., or passing into c. c. esp. To contain implicitly; to include as a necessary (and therefore unexpressed) feature, circumstance, antecedent condition, or consequence; to imply, entail. d. To include or affect in its operation." 135. The word "enable" as explained in the aforesaid lexicons would mean as empowering a person to achieve a particular objective, capacitate or facilitate. Thus any system which assists, makes possible or advances the objective of a payment between a payer and a beneficiary would on a plain reading of the provision fall within the ambit of a payment system. Understood on plain etymological principles, the word "involve" or "involving" wou....
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....o be fact that money laundering is concerned with obfuscating the trail of funds and its integration into legitimate systems and thus enabling money obtained from the commission of offences being washed of all taints of illegality. In order to effectively fight against money laundering, it is imperative that regulatory authorities are empowered to view and analyse all aspects of data connected with a particular transaction. The analysis of a transaction undoubtedly depends on the data generated and captured at different stages and points of the process and being available to be scrutinised and examined. The analysis of the data would necessarily entail each step of the transaction and the data pertaining thereto being captured and made available to a FIU. This would necessarily require the identity of the remitter and the beneficiary, the accounts between which the funds travel and all other attendant details being duly obtained and stored. Unless these essential and critical data points are duly tracked and details thereof made available to the FIU, its scrutiny and evaluation will not only be impeded, it would also deprive it of the right to assess and analyse the genuineness of ....
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....ld appear to cast a doubt on the categorical and unqualified assertion of PayPal of it not handling funds at any stage of a transaction between an Indian beneficiary and a foreign importer. However and since the diagrammatical representation of the various elements comprised in a transaction on the PayPal platform was not seriously questioned or doubted by FIU-IND, the Court refrains from entering any further observation in this respect. This more so since in any case it has come to the conclusion that even if the assertion of PayPal of it actually not being engaged in the handling of funds at any stage of the transaction be correct, it would still be liable to be recognised as a payment system operator as defined under the PMLA. 143. Apart from what has been found by the Court to be the true meaning to be assigned to the phrase "payment system" as utilised in the PMLA, the Court additionally finds merit in the contention addressed by Mr. Hossain and Mr. Tripathi, when it was submitted that mere similarity in the definition of a payment system under the PSS Act and the PMLA would not be decisive of the question that stands raised. As was eloquently explained by the Supreme Court....
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....the skin of a living thought and may vary greatly in colour and content according to the circumstances and the time in which it is used." 146. The Court further bears in mind the fact that Section 2 of the PSS Act as well as the PMLA are prefaced by the use of the expression "unless the context otherwise requires". The significance of the aforesaid phrase was succinctly explained by the Supreme Court in Whirlpool Corporation in the following terms:- "28. Now, the principle is that all statutory definitions have to be read subject to the qualification variously expressed in the definition clauses which created them and it may be that even where the definition is exhaustive inasmuch as the word defined is said to mean a certain thing, it is possible for the word to have a somewhat different meaning in different sections of the Act depending upon the subject or context. That is why all definitions in statutes generally begin with the qualifying words, similar to the words used in the present case, namely "unless there is anything repugnant in the subject or context". Thus there may be sections in the Act where the meaning may have to be departed from on account of the subj....
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....uch a course would be more injudicious and unwise when the two statutes are recognised to operate over apparently different subjects or subserve separate legislative objectives. 149. The Court also bears in consideration that the PSS Act had been enacted way back in 2007 and was thus a statute in existence at a time when the PMLA (Amendment) Act, 2009 [Act No. 21 of 2009] came to be promulgated. In terms of the aforesaid Amending Act, clauses (ra) to (rc) came to be inserted in Section 2(1). If it was the intent of Parliament to accord an identical meaning upon the phrase "payment system" as already defined in the PSS Act, it could have conveniently adopted the tool of legislation by reference/incorporation. Notwithstanding such recourse being available, it appears to have consciously introduced Section 2(1)(rb) as well as the other amendments embodied in the 2009 Amending Act being aware of the distinct scheme and objective of the PMLA. This too leads the Court to come to the irresistible conclusion that the meaning of the term "payment system" as contained in the PSS Act was not intended by Parliament to be directly infused or blindly transposed in the PMLA. M. PAYPAL'S GLO....
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....gamut of services provided by it range far wider than those that are ordinarily extended by an OPGSP. Ultimately the question of whether it is liable to be recognised as a payment system operator would have to be answered solely on the anvil of the statutory provisions embodied in the PMLA. This is precisely what the Court has attempted to focus upon and has hopefully achieved. Its ultimate conclusions, as would be evident from the body of this decision, have remained uninfluenced by the conduct of PayPal in foreign jurisdictions. N. PAYPAL AND TPAPs' 153. It would also be apposite to dispose of an ancillary argument which was addressed by PayPal and was founded on third party applications such as GPay and Amazon Pay not being treated as payment system operators or being required to comply with reporting obligations. Without delving into this aspect in much detail it may only be observed that the Third-Party Applications Providers [TPAP] which were spoken of are those which are embedded in and are part of the Unified Payments Interface [UPI] ecosystem unrolled in India and participate within that structure through Payment System Provider [PSP] Banks. The National Payments Cor....
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....) read with Section 25(1)(a) of the Act. But the liability to pay penalty does not arise merely upon proof of default in registering as a dealer. An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. Those in charge of the affairs of the Company in failing to register the Company as a dealer acted in....
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....g foisted with the maximum penalty provided for in that provision. Quite apart from the above, it was submitted that Section 13(2)(d) only speaks of penalty being liable to be imposed for "each failure". According to learned senior counsel, the impugned order proceeds on the basis that penalty is liable to be imposed for each month of default. Mr. Poovayya had further commended for the consideration of the Court the principles enunciated by the Supreme Court in Hindustan Steel to submit that the imposition of penalty is rendered wholly illegal and is liable to be quashed. 159. Having duly taken the aforesaid submissions under consideration, the Court finds merit in the challenge raised by PayPal in this regard for the following reasons. On first principles, the Court notes that undisputedly the levy of penalty is imbued with a quasi- criminal characteristic. It is this aspect which was highlighted by the Supreme Court in Hindustan Steel when it observed that penalty would be justified provided it is established that a party had failed to comply with legal obligations deliberately, in defiance of the law or be guilty of contumacious or dishonest conduct. The Supreme Court pertine....
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....e ground of an abject failure on the part of the respondent to confer consideration on the nature of questions which were raised by PayPal. It was, in the considered opinion of this Court, imperative for FIU-IND to have recorded reasons in justification of the levy of the maximum penalty provided under the statute. For all the aforesaid reasons, the Court finds itself unable to be sustain the imposition of penalty as embodied in the impugned order. The order, would thus to the aforesaid extent be liable to be quashed. P. THE DEEMING FICTION ARGUMENT 164. The Court also finds itself unable to sustain the impugned order insofar as it proceeds to observe that PayPal would be "deemed" to be a payment system operator. A deeming fiction must stand specifically engrafted in a statutory provision. A legal fiction would be available to be invoked only in a situation where the Legislature engrafts such a measure or frames the provision in language which justifies the existence of such a fiction being recognised to operate. While we find ourselves unable to endorse the contrarian view as expressed in the impugned order, nothing further would turn on this issue in light the Court having ....