2021 (1) TMI 556 - HC - Money Laundering

Levy of penalty - allegation is that the Petitioner has been held to be a reporting entity and a payment system operator , under Section 2(1)(wa) and Section 2(1)(rc) of the Prevention of Money Laundering Act, 2002 - case of the Petitioner is that it merely facilitates transactions and does not actually enter into any transactions with either of the parties conducting the same - HELD THAT - This court is of the opinion that the question as to whether a business like the Petitioner s, which is of recent origin in India. ought to fall within the ambit of a payment system and whether the Petitioner would be a payment system operator and a reporting entity , requires consideration. A perusal of the RBI s affidavit filed in another writ petition, shows that the stand of the RBI is that the Petitioner would not be attracted by the Payments and Settlements Scheme, under the PSS Act. The stand of the RBI in the affidavit filed in another writ petition appears to be in contrast with the view taken in the impugned order. The RBI and Union of India ought to take a clear stand after due consultation as to whether they consider platforms such as that of the Petitioners as being within the purview of the PML Act. Accordingly, the Secretary, Ministry of Finance, is directed to constitute a Committee with a nominee of the 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 Indian Rupees, ought to be categorised as payment system operators and hence reporting entities under the PML Act. Let the Committee meet within ten days and the conclusion of the Committee be filed, by way of an affidavit, within two weeks thereafter. In the meantime, the Petitioner shall, henceforth, maintain records of all transactions under Section 12(1)(a) of the PML Act, in electronic form on a secure server, located in India, for the same to be retrieved, if required, subject to further orders in this writ petition. List before the Registrar General for acceptance of the Bank Guarantee on 16th February, 2021. List this matter for further hearing on 26th February, 2021.

Summary

Issues:
Challenge to impugned order under Prevention of Money Laundering Act, 2002 (PML Act) regarding classification as a reporting entity and payment system operator.
Jurisdiction of the High Court to entertain the petition.
Applicability of the Payment and Settlement Systems Act, 2007 to the petitioner's business.
Consideration of Reserve Bank of India's (RBI) stance on the petitioner's classification under the PML Act.

Analysis:
The petitioner contested an order by the Director, Financial Intelligence Unit-India, Ministry of Finance, holding them as a reporting entity and payment system operator under the PML Act. The order imposed a penalty of ?96 Lakhs and directed registration with FIU-IND. The petitioner argued they were a facilitator platform for transactions, not a reporting entity, as no money was handled except for facilitator fees. The RBI's affidavit supported this stance, stating the petitioner was not operating a payment system under the Payment and Settlement Systems Act, 2007.

The respondent raised a preliminary objection, citing the availability of an appellate remedy under Section 26 of the PML Act and questioned the High Court's jurisdiction based on a previous judgment. The court noted the legal issue of whether the petitioner's business falls under the definition of a payment system operator and reporting entity, warranting consideration. It issued notice to the respondents and impleaded the RBI as Respondent No.2.

In light of conflicting views, the court directed the Ministry of Finance to form a committee, including RBI and Ministry nominees, to clarify whether facilitator platforms like the petitioner should be considered payment system operators and reporting entities. Pending clarification, the court issued directions for record maintenance, bank guarantee, and an undertaking from the petitioner. Compliance with these directions stayed the impugned order.

The court scheduled a hearing for further proceedings, emphasizing the need for clarity on the petitioner's classification under the PML Act and the applicability of relevant laws.