|In the Supreme Court of India|
|Name of the case||Internet And Mobile Association of India v. Reserve Bank Of India|
|Year of the case||2018|
|Appellant||Internet and Mobile Association of India|
|Respondent||Reserve bank of India|
|Bench/judges||Rohinton Fali Nariman, Aniruddha Bose V. Ramasubramanian|
|Acts Involved||Banking Regulation Act, 1949The Payment and Settlement Systems Act,2007Article 19(1)(g) of the Constitution of India,1949The Payment and Wages Act, 1936The General Clauses Act, 1897|
|Important Sections||Article 19(1)(g) of the Constitution of IndiaSection 2 of the Banking and Regulation Act, 1949Section 18 of the Banking and Regulation Act, 1949Section 45(l) of the Banking and Regulation Act, 1949Section 22(1) of the Banking and Regulation Act, 1949Section 36(1)(a) of the Banking and Regulation Act, 1949Section 18 of the Payment of Wages Act,1936|
In a judgment of the Supreme Court of India, given on 4th March, 2020 in the case of “Internet and Mobile Association of India v. Reserve Bank of India”, the court bashed down the circular issued by the Reserve Bank of India. The circular issued, tends to ban the trading of virtual currencies also known as cryptocurrencies. The court as of the view that the restrictions imposed by the Reserve Bank of India on banks and other entities regarding the trading of virtual currency is unfair and therefore declared the restrictions to be un-viable.
Supreme Court declared the circular issued by the Reserve Bank of India(RBI) as illegal that is declared the guidelines of the circular to unenforceable. The circular directs the bank to not to deal with the transactions involving the trade of virtual currencies. The Hon’ble court declared the instructions by RBI to be inappropriate and hence declared it to be un-enforceable. Justice Rohinton Nriman, Anirudhha Bose, and V. Ramasubramanion were the judges of the Supreme court of India, under whom the judgment of the petition was filed by the Internet and Mobile Association of India(IMAI) were pronounced.
Background of the Case
Reserve Bank of India(RBI) issued a circular dated 6th April 2018. The circular does prohibits the bank and other entities too from trading in virtual currencies. Moreover, the circular does bar the banks to provide any kind of services to any individual or entity dealing or settling virtual currencies. The prohibition issued by the Reserve Bank of India harmed the Indian economy because the mediums (the bank accounts), through which virtual currencies were traded could no longer be maintained or operated therefore an end to the business through virtual currencies does prevail. About the same, at the time of issuance of the circular by the Reserve Bank of India there was no legislation passed imposing a ban on the trade of virtual currencies. In other words, the virtual currency was separated from the assets of the economy. The reason why the Reserve Bank of India issued the circular was their concern which was related to the hacking of the virtual currencies. Which could lead to numerous problem in the economy such as-
- the loss to the economy
- money laundering
- can promote terrorist activities too.
About the above concern of RBI, a press release was done by RBI before issuing the circular, asking the banks and the entities to beware of the trade of virtual currencies, moreover non of the new risk was highlighted by the bank(RBI) at the time of issuance of the circular.
On 5th April 2018 Reserve Bank of India issued a press release raising the concern about consumer protection from the trade of virtual currency. They were of the view that trading in virtual currency also referred to as cryptocurrencies are prone to hacking and therefore would lead to money laundering, terrorist activities, etc. In this view, RBI asked the banks not to deal with the transactions related to the trading of virtual currency. The services which RBI directed the bank not to deal with were- maintaining the accounts, registering, trading, settling, clearing, giving loans against virtual currencies, accepting the virtual currency as collateral, opening accounts of exchanges dealing with them, and transfer or sale/purchase of virtual currencies.
The matter was challenged by the Internet and Mobile Association of India. The Supreme court of India allowed the petition on the ground of proportionality. Earlier in 2013, the Reserve Bank of India does issue a public caution to the traders and holders of virtual currency in context with the legal and security related risks associated with it.
1. The petitioner contended that the Reserve Bank of India does lack the jurisdictions to disallow the trade of virtual currency (cryptocurrency) moreover the ban imposed by RBI is based on the misunderstanding of RBI.
2. The Petitioner also contended that the Virtual currency or the cryptocurrencies are not a kind of currency note or coin but a medium of exchange or a store of value.
1. Replying to the 1st contention of the petitioner (as mentioned above), the respondent disagreed with the fact that it does not have jurisdictions, moreover said that cryptocurrency is a mode of digital payment which RBI do holds the power to have control.
2. Replying to the 2nd contention of the petitioner, the respondent said that cryptocurrency is a stainless digital currency that is used for trading. They (RBI) further contended that since cryptocurrency does operate independently they are immune to the government’s interference.
- Here in the present case of the “Internet and Mobile Association of India v. Reserve Bank of India”, the court cited the case of “State of Maharastra v. Indian Hotel and Restaurant association”. In this case, the court was of the view that at least some degree of damage suffered by the petitioner to pronounce the judgment in their favor.
The court was of the view that although the Reserve Bank of India has wide powers and does play an important role in the upliftment of the Indian economy, here they are unable to show any sought of damage suffered by it’s regulated entities. Therefore the guidelines issued by the Reserve Bank of India, directing the banks to stop dealing or providing services to the entities trading in virtual currencies are illegal hence unenforceable.
- The Circular dated 06/04/2018, issued by RBI deals entirely with virtual currencies and the prohibition on dealing with the same. This Circular is statutory in character, issued in exercise of the powers granted under-
(i) Reserve bank of India act, 1934
(ii) Banking Regulation act, 1949 and
(iii) Payment settlement system act, 2007.
- On 27-12-2013, newspapers reported the first-ever raid in India by the Enforcement Directorate, of 2 Bitcoin trading firms in Ahmedabad, by name, rBitco.in, and buysellbitco.in. This was stated to be India’s first raid on a Bitcoin trading firm and the second globally, after the Federal Bureau of Investigation of the United States of America conducted a raid in October of the same year.
- Siddharth Dalmia and Vijay Pal Dalmia came up with a writ petition in WP (C) No.1071 of 2017 under Article 32 of the Constitution of India seeking the issue of a writ of mandamus directing the respondents to declare as illegal and ban all virtual currencies as well as ban all websites and mobile applications which facilitate the dealing in virtual currencies.
- The Financial act Task Force (FATF) has also observed that crypto assets are being used for money laundering and terrorist financing. A globally coordinated approach is necessary to prevent abuses and to strictly limit interconnections with regulated financial institutions.
- The impugned decision is 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 System act 2007.
As per the above-mentioned points and the judgment it is clear that that petitioner succeeds and the circular issued by the Reserve Bank of India is declared to be unenforceable. Due to the judgment, the businesses can rejoin the industry and hence can trade in Virtual currencies(cryptocurrency). However it is important to know that the Supreme Court in its judgment has only stuck down the circular issued by the RBI but has not declared the virtual currencies as legal or illegal, moreover, since there is no legislation regarding the same therefore virtual currencies remain unregulated in India.
Recently a bill has been drafted namely “Banning of Cryptocurrency and regulation of official Digital currency bill, 2019”. The bill has been drafted regarding the legal status of virtual currency in India, however, it has not been presented in front of the parliament or has not been discussed by the members of parliament. As stated above too, the bill raises certain issues like holding, selling, disposing of, or any kind of trade through cryptocurrencies in India is to be considered legal or not.
 https://indiankanoon.org/doc/38033723/ , Citation-MANU/SC/0045/2019