Citation- Writ Petition (Civil) No.528 of 2018
Name of the judges- Rohinton Fali Nariman, Aniruddha Bose, V. Ramasubramanian
Since the advent of blockchain technologies and their rapid adoption around the world mostly in the form of virtual currencies, RBI has been in a constant dilemma, concerning the nature and the risk associated with these novel assets.
Through various circulars and notices RBI had historically had a dubious stance concerning these currencies. Through a 2013 circular cautioning regulated entities of the risk and potential threat these currencies bring with themselves. The same dialogs can be found in the 2015 as well as 2016 Financial Stability report of RBI.
After corresponding with various entities and perusing reports in 2018 a bill was presented namely Crypto Token and Crypto Asset (Banning, Control and Regulation) Bill, 2018 advising RBI to impose a ban of the said assets. Which came to the shock for people who actively engaged in these assets. Which made the need to have a dialog all the more important. The concerned case is exactly that or at least a start of that discussion.
Through a 2018 circular RBI prohibited its regulated entities from dealing with businesses and individuals who participated or dealt in these Virtual currencies quoting the risk that is inherent to such technologies.
Petitioners being an owner of an exchange where these currencies can be traded had their account frozen on account of the circular issued by the RBI thereby cutting off the financial line.
Internet and mobile services of India one of the petitioners representing the interest of online and digital services industry challenged the said petition seeking direction that denying banking services is against their fundamental rights.
Whether RBI has the power to regulate virtual currencies
Whether the prohibition imposed by RBI through their circular dated April 5,2018 is violative of fundamental right to trade under Article 19(1) (g) or was the prohibition based in public interest
Citing the powers granted to RBI to regulate the economy under RBI Act, 1934 and the Banking Regulation Act, 1949 petitioners believed virtual currencies are not legal tender and thus RBI shouldn't have any power to regulate such assets. They also mentioned that due to the nature of the asset they can’t be said to fall under the credit system of the country which would give RBI any authority over there regulation.
Further concerning the power to issue in public interest as stipulated in Banking
Regulation Act, 1949 and Payment and Settlement Systems Act, 2007 the same cannot be said to have an application on Virtual currencies. Lastly, contending that an outright ban violates the fundamental right to trade and is against the test of reasonability and proportionality.
Respondents argued that the decision within the range of wide powers conferred upon RBI under the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934 and the Payment and Settlement Systems Act, 2007.
further fundamental rights couldn’t have been violated since the circular was issued towards the regulated entities. They also noted how these mediums are capable of being used for illegal activities due to their anonymous nature.
RBI noted that the act not only gives RBI the power as foresaw by the legislation, but they can also invoke their authority to anything that may pose a threat to or have an impact on the financial system of the country.
Court also reasoned that The Crypto-token Regulation Bill, 2018 where Inter-Ministerial Committee initially recommended a regulatory system where purchase and sell of virtual currencies will be regulated yet within a year the committee changed its report advising for an ban and advising on creation of digital rupee using the ledger technology which would give monopoly to RBI if exercised.
Court also thought that because of the stance RBI has taken towards crypto the exchanges where these currencies can be traded have been halted despite RBI not finding anything against their functioning and the fact that these entities are not illegal.
Lastly although RBI has on numerous occasions cautioned against virtual currencies yet there hasn't been historically any loss suffered or any other adverse effect arising directly or indirectly from the use of such mediums.
The writ was accepted on the grounds of proportionality and the impugned circular was to be set aside with no order as to cost.
The judgement did extensive research, commentary concerning virtual currencies and the risk they pose. Contemplating the pros and the cons, the cost of banning, comparing the ways other nations have and continue to deal with this novel technology for that it should be praised. While at the same time scrutinizing respecting the power and the place RBI has in the Indian economy and doing a comprehensive job of it.
This article is written by Bhuvan Anand of Vivekananda Institute of Professional Studies.