Date: 18 October, 2020
by Shwas Bajaj, UILS, Panjab University
NAME OF THE CASE: Internet & Mobile Association of India v. RBI
CITATION: 2020 SCC Online SC 275.
DECIDED ON: 4th March, 2020
BENCH: Justice R.F. Nariman, Justice S.R. Bhat, Justice V. Ramasubramanium
TIMELINE OF FACTS:
The advent of bitcoin in India led to the setting up of various cryptocurrency exchanges which were majorly operating without any laws or regulations prohibiting or regulating their use.
However, on April 6, 2018, Reserve Bank of India (“RBI”) issued a circular not prohibiting the use of cryptocurrencies itself but prohibiting banks and financial institutions regulated by RBI from dealing in or providing services for facilitating any artificial legal entity or individual dealing in cryptocurrencies such as bitcoin, libra, etc.
Challenging the circular, the Internet & Mobile Association of India filed a petition claiming that the RBI has no capacity to regulate matters pertaining to virtual currencies and the circular which was issued was outside the purview of powers of RBI.
CONTENTIONS OF THE PETITIONERS:
The circular was issued by the RBI going outside the ambit of its powers under the Banking Regulation Act, 1948, Payment and Settlement Systems Act, 2007, and the Reserve Bank of India Act, 1947.
The virtual currencies have a different legal character from money or other legal tenders and therefore cannot be regulated by RBI.
Since virtual currencies have adopted the required safety protocols like the anti-money laundering practices and KYC, there was no need to prohibit banks and other legal entities regulated by RBI from dealing with them.
The circular violates the right guaranteed under Article 19(1)(g) of the Constitution.
CONTENTIONS OF THE RESPONDENTS:
The circular was issued by RBI within the ambit of powers granted in the Banking Regulation Act, 1948, Payment and Settlement Systems Act, 2007, and the Reserve Bank of India Act, 1947.
There was a constant use of virtual currencies similar to legal currency for making online purchases.
In the absence of regulators, there is a possibility that virtual currencies be used for the purpose of remitting money abroad.
RBI has the utmost duty to maintain the safeguard the payment system of the country from getting compromised.
Stating that the circular passed by RBI failed the test of proportionality, the Supreme Court quashed the circular and held it to be a disproportionate regulatory action. A suggestion was made by the three-judge Bench that instead of a complete ban on cryptocurrencies, the government should consider ways of regulating it.
ANALYSIS OF THE JUDGMENT:
The judgment of the SC has only acted as small-term relief for the budding and promising virtual currency business in the Indian financial market. The Supreme Court made no observations as to whether cryptocurrency was legal or not. But the contention of the RBI cannot be denied that there are certain major risk factors involved with the use of virtual currencies such as unrecognizability, money laundering, the complications involved in the procedure of KYC, and with all this there is the persistent requirement of safeguarding the users as well as the investors.
Therefore, the need of the hour is to formulate a comprehensive and wide-ranging regulatory framework which incorporates within it all the stakeholders, and strikes the balance between safeguarding user interests and also the market sentiments. Rather than abolishing the virtual currencies, the government should look for ways of capitalising on the opportunity it provides while simultaneously making sure that the financial and payments system of the country is safe and secure.