FACTS
The Internet & Mobile Association of India (IMAI ), which represents several cryptocurrency exchanges & investors who filed a writ petition before the supreme court of India challenging the circular issued by the Reserve Bank of India (RBI) on April 6, 2018.
This circular directed all entities regulated by the RBI to refrain from dealing in virtual currencies or offering services to assist any individual or entity in dealing with or setting virtual currencies.
Following the circular , some cryptocurrency exchanges in India were forced to shut down because of a lack access to banking services.
The petitioners claimed that the circular effectively prohibited the trade of cryptocurrencies In India without legislative backing, & it is infringing upon their fundamental rights.
ISSUES RAISED
Whether the RBI had jurisdiction to issue a circular barring firms subject to its regulation from dealing in virtual currencies?
Does virtual currency count as money & if not , does the RBI Still have regulatory authority over it?
Whether the circular violated the fundamental rights guaranteed by Article 19(1)(g) of the constitution {right to practice any profession or carry on any occupation , trade or business }?
Was the RBI’S Judgement arbitrary, irrational, & made without due consideration?
CONTENTION
PETITIONER {IMAI}
The RBI’S Circular amounted to a complete ban on lawful commercial activity that should be authorized unless clearly prohibited by law.
While cryptocurrencies are not recognized as legal cash , they are not unlawful and can be used as a valid medium of exchange or store of value.
The circular effectively denied banking access to organizations trading in cryptocurrency without legislative backing or due process which violates Article 19(1)(g).
There was no proof that cryptocurrencies exchanges caused actual harm to the banking system
The respondent (RBI)
The RBI Asserted its jurisdiction to control monetary policy & the financial sector for the public good.
It emphasized the risks connected with virtual currencies such as market volatility , fraud , terrorist financing & money laundering
The RBI Stated it did not restrict cryptocurrencies , but rather used its regulatory discretion to protect financial institutions.
The circular was intended to protect the Public & Promote Financial Stability.
RATIONALE
The supreme court bench , which included JUSTICE ROHINSTON, JUSTICE NARIMAN , JUSTICE V RAMASUBRAMANIAN. They issued a Ground breaking decision.
On the RBI’S Jurisdiction – The court noted that the RBI , As the central bank has the jurisdiction to oversee the financial system , even if virtual currencies are not considered as legal money.
Nature of Virtual currencies – the court agreed that cryptocurrencies are not legal money but rather fall under the broad category of goods or commodities. As a result, the RBI May claim jurisdiction under the banking regulation act of 1949 & the RBI Act of 1934 to regulate organizations that interact with it.
Violation of fundamental rights – the court ruled that RBI’S Circular had a disproportionate impact on crypto exchanges commercial activities & lacked empirical basis to justify such a broad limitation.
Doctrine of proportionality – the court adopted the law of proportionality & determined that the entire prohibition of banking access to individuals which deals in cryptocurrency was disproportionate & not an appropriate reaction to the risks involved.
Lack of legislative ban – the court also highlighted that the Indian legislature had not yet banned cryptocurrencies & in the absence of such a prohibition , a regulatory authority could not indirectly impose one.
Hence the Supreme Court struck down the RBI Circular as unconstitutional primarily on the ground of bringing a disproportionate restriction on trade.
DEFECTS OF LAW
Lack of legislative clarity – one of the key issues which was raised was India’s lack of clear & precise cryptocurrency legislation . the RBI’S Attempt to regulate it through a circular led to legal consequences.
Overreach by Regulatory Authority– the case demonstrated how regulators might take over their power in absence of parliamentary legislation , infringing on individual & business freedoms.
Data driven policy Making – the RBI’S Failure to back up its actions with real data demonstrated a gap in evidence based policymaking , which the judiciary correctly questioned.
Delayed legislative response– despite years of active cryptocurrency trading in India, no complete legislative framework has been developed to govern or prohibit the use of cryptocurrencies.
INFERENCE
This decision was significant for India’s digital economy & fintech area. The supreme court’s decision pointed out the importance of constitutional safeguards against excessive state action while emphasizing the necessity for balance in regulatory measures. It also laid the groundwork for a more complex & evidence based regulatory framework for cryptocurrencies.
The verdict underlined that, while the RBI Has regulatory powers , they must be applied in accordance with the constitution & must not infringe fundamental rights without justification.
The case also highlighted the need for parliament to pass proper legislation addressing the status, use & regulation of virtual currencies in India.
Overall the decision was a victory for innovation, financial independence & constitutional rights. However it also emphasized the vital importance of legislative action in providing clarity & stability to the digital currency ecosystem.
REFERENCES
1. Internet & Mobile Association of India v. Reserve Bank of India, (2020) 10 SCC 274.
2. Reserve Bank of India, Circular No. RBI/2017-18/154, Prohibition on Dealing in Virtual Currencies (Apr. 6, 2018).
3. The Banking Regulation Act, No. 10 of 1949, INDIA CODE (1949). 4. The Reserve Bank of India Act, No. 2 of 1934, INDIA CODE (1934). 5. INDIA CONST. art. 19, cl. 1(g).
6. K.S. Puttaswamy v. Union of India, (2017) 10 SCC 1.
7. Centre for Internet and Society, Comments on the RBI’s Circular on Virtual Currencies, (2018), https://cis-india.org/internet-governance/rbi-comments. 8. PRS Legislative Research, Cryptocurrency Regulation in India,
https://prsindia.org/policy/analytical-reports/cryptocurrency-bill-2021. 9. Apar Gupta & Divij Joshi, Supreme Court Lifts Ban on Cryptocurrency Trading in India, Internet Freedom Foundation (Mar. 5, 2020),
https://internetfreedom.in/supreme-court-lifts-ban-on-cryptocurrency-trading-in -india/.
10. Shruti Srivastava, India Lifts Ban on Cryptocurrency Trading After Supreme Court Ruling, Bloomberg (Mar. 4, 2020),
11. World Bank, Distributed Ledger Technology and Blockchain, FinTech Note (2018),
https://documents.worldbank.org/en/publication/documents-reports/documentde tail.
12. OECD, Blockchain Technology and Competition Policy, OECD Blockchain Policy Series (2020),
https://www.oecd.org/competition/blockchain-and-competition-policy-2020.pdf.
13. S. Narayanan, India’s Regulatory Dilemma: Cryptocurrencies and the RBI, NUJS L. REV. (2020).
14. Reserve Bank of India, Statement on Developmental and Regulatory Policies, (Apr. 2021), https://rbi.org.in.
15. Nishith Desai Associates, Cryptocurrency in India: Law and Policy, (2020), https://www.nishithdesai.com/information.
NAME : PRETTY JAGDISH BHATIA
COLLEGE : DY PATIL UNIVERSITY SCHOOL OF LAW