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2020-TIOLCORP-09-SC-MISC-LB Internet And Mobile Association Of India Vs RBI
RBI Act, 1934 - Section 3 - Banking Regulation Act, 1949 - Section 17 - Payment and Settlement Systems Act, 2007 - Section 18 - Bitcoin - Cryptocurrency - Doctrine of proportionality - RBI circular - Satoshi Nakamoto - Virtual Currencies - The RBI issued a circular dated April 6, 2018 directing the banking sector and regulated entities to not deal in virtual currencies or to provide services for facilitating dealing in virtual currencies. The natural corollary to such circular was that the all the newly formed entities, banks, NBFC were banned from dealing in cryptocurrency such as Bitcoin. The petitioner, a specialized industry body representing the interests of online and digital services industry and startups, thus filed the petition for direction to the RBI to lift the ban. The petition's pivot is that the RBI has no power to prohibit the activity of trading in virtual currencies through VC exchanges since Virtual currencies are not legal tender but tradable commodities/digital goods, not falling within the regulatory framework of the RBI Act, 1934 or the Banking Regulation Act, 1949.
Held: Anything that may pose a threat to or have an impact on the financial system of the country, can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system. The expression "management of the currency" appearing in Section 3(1) need not necessarily be confined to the management of what is recognized in law to be currency but would also include what is capable of faking or playing the role of a currency. Thus, RBI has the requisite power to regulate or prohibit an activity of this nature.
However, the measure taken by RBI should pass the test of proportionality, since the Circular has almost wiped the VC exchanges out of the industrial map of the country, thereby infringing Article 19(1)(g). The RBI has not so far found, in the past 5 years or more, the activities of VC exchanges to have actually impacted adversely, the way the entities regulated by RBI function (ii) that the consistent stand taken by RBI up to and including in their reply dated 04-09-2019 is that RBI has not prohibited VCs in the country and (iii) that even the Inter-Ministerial Committee constituted on 02-11-2017, which initially recommended a specific legal framework including the introduction of a new law namely, Crypto-token Regulation Bill 2018, was of the opinion that a ban might be an extreme tool and that the same objectives can be achieved through regulatory measures. Thus, till date, RBI has not come out with a stand that any of the entities regulated by it namely, the nationalized banks/scheduled commercial banks/cooperative banks/NBFCs has suffered any loss or adverse effect directly or indirectly, on account of the interface that the VC exchanges had with any of them. Therefore, the petitioners are entitled to succeed and the Circular dated 06-04-2018 is liable to be set aside on the ground of proportionality.
- Petition allowed: SUPREME COURT OF INDIA |
