Date: 04/03/2020
Court: The Apex Court of India
Appellant: Internet and Mobile Association of India
Respondent: Reserve Bank of India
Judges: Rohinton Fali Nariman, Aniruddha Bose, V. Ramasubramanian
Brief Facts:
On the 6th of April, 2018, the Reserve Bank of India (RBI), the nation’s central banking institution, issued a circular prohibiting RBI-regulated bodies, other individuals, and corporations from trading in virtual currencies (VC), also known as cryptocurrencies[1]. The circular issued by the RBI also restricted the RBI-regulated bodies (particularly the banks) from giving any services that were related to virtual currencies. These restricted services include not accepting VC as a consideration for giving a loan, maintaining a bank account, selling VC, purchasing VC, trading in VC, etc.
The RBI after this circulation started to show more concerns. On the day of 5th of April, 2018, the RBI furnished a press release. In that press release the RBI showed concerns about the hacking in trading of VCs. The RBI also raised their worry about the misuse of VCs, for example, usage of VCs for terrorism funding, funds laundering, and the damage to the economy that the nation will have to incur. Also, Before the circular was issued by the RBI, the RBI furnished a press release on 24th of December 2013 which stated that any trading and usage of VCs is not authorized by the RBI or any other Central authority and provided a public caution.
Furthermore, when the circular came into force at that time there was no enactment or legislation for the restriction of usage of VCs. So, this circular published by the RBI marked the end of VCs in India and its economy. Therefore, this circular which was passed by the RBI on 6th April 2018 was challenged in the Supreme Court of India through a writ petition (Article 32) under the Internet and Mobile Association of India.
Issues raised:
- Does RBI have jurisdiction over regulating and banning VCs or cryptocurrencies?
- Whether the circular violates the petitioner’s right to freedom of trade given under Article 19(1)(g) of the Indian constitution?
Petitioner’s Contention
Petitioner’s learned counsel contended that the Reserve Bank of India (RBI) does not have the jurisdiction to impose a ban on the trade of Virtual Currency (VC) merely through a circular as the currency is not legalized in India and RBI is a government body so it cannot impose a ban on VCs. The learned counsel further went on to argue that VCs are a store of value, exchange medium, and medium of trade and are not an official Indian currency like a note or a coin. The council also mentioned that the VCs do not come under the RBI Act, of 1934, and Banking Regulation Act, of 1949. Therefore, RBI cannot regulate the usage of VCs as it wants[2]. According to the petitioner’s learned counsel, the circular issued by the RBI does not have legal authority to completely prohibit the usage of VCs, or cryptocurrency, as it violates the petitioner’s Fundamental Rights which were guaranteed under Article 19(1)(g) of the Indian Constitution which provided right to profess any business.
Respondent’s Contention
The respondent’s counsel stated that the RBI has all rights to manage the VCs as it central bank of the country and under the Payments and Settlement Act, 2007 it has full authority to regulate VCs or cryptocurrencies for the public interest[3]. The counsel further contended that VCs can be only used as an online mode for payment which means that RBI has the authority to control the VCs. Moreover, the counsel went on to say that the circular is not violative of any FR given in the Indian Constitution as no Fundamental Right is not absolute and is subjective with some reasonable restriction by the state given in Article 19(2) of the Indian Constitution.
The rationale behind the judgment
The Apex Court of the country gave the verdict in favor of the Internet and Mobile Association of India. The three-judge bench headed by Justice Rohinton Fail Norman, Justice Ravindran Bhat, and Justice V. Ramasubramanian mentioned that even though the RBI is the Central Bank and the regulatory authority for the currency of India and it also has a crucial role to play in the economy of India but the RBI is unable to furnish enough details about any sorts of damages incurred by entities regulated by it. Hence the bench also stated that all the guidelines given by the RBI concerning the prohibition of Virtual Currencies (VC) are illegal and unenforceable by law. The Apex Court also stated that the guidelines given by the Reserve Bank of India are violative of Article 19(1)(g) of the constitution. Furthermore, in this case, the Supreme Court also took the reference of the case “State of Maharashtra v. Indian Hotel and Restaurant Association”, the bench held that the petitioner had at least incurred some sort of damage to pronounce the judgment in their favor[4].
Defect of law:
A coin has two sides and so has this judgement. The apex court pronounced the judgment that the guidelines given by the Central Bank of the Country i.e. RBI are not enforceable. But in my opinion, the court should have given at least some powers to the RBI to bring guidelines regarding Virtual currency (VC), or cryptocurrencies to regulate this in the country, as RBI is responsible for currency regulation, monetary stability, and maintaining currency reserves. Also, these guidelines are the need of the hour for the country as there is not any particular body in the country for making laws and regulations for VC, this may lead to huge losses to the country as these currencies can used for funding terrorism, funds laundering, etc. All the developed countries have regulatory bodies for the regulation of VCs and Cryptocurrencies the USA has the Commodity Futures Trading Commission (CFTC), Canada has The Canadian Securities Administrators (CSA), France has the French Financial Markets Authority (AMF), the UK has The Financial Conduct Authority (FCA), Germany has BaFin.
Due to the Covid 19 COVID-19 outbreak, there has been a significant rise in the sector of virtual currency trading in India. But India’s virtual currencies remain unregulated as no legislation or enactments exist. So, it becomes important for the Supreme Court to decide on the lawfulness of cryptocurrency in this judgment and not merely on the prohibition and regulation of virtual currencies or cryptocurrencies.
Inference:
According to the preceding details and the verdict, it is evident that the petitioner was successful and that the RBI’s circular was subsequently determined to be unenforceable. Because of the court’s decision, the entities can rejoin the sector and engage in virtual currency (VC), or cryptocurrency trading. Since there is no legislation about the VC in India it is crucial to know that the Apex Court of India pronounced its verdict and overruled the circular issued by the RBI but it didn’t check its legality and did not declare it as legal or illegal. Now in India, the sector of VCs remains unregulated.
A short time ago, a bill was drafted by the government of India which is called “Banning of Cryptocurrencies and Regulation of official digital currency bill 2019”. This bill has been commissioned to determine the legal status of virtual currency in India. Although this bill has been drafted it has not been introduced or tabled in the parliament for discussion and for making it an enactment. This bill talks about the legality of issues such as holding, selling, disposing of, and carrying out any kind of trade through the usage of Virtual Currency in India, and such acts will be punishable with a fine or imprisonment of up to 10 years or both[5].
[1] Indian Kanoon, Internet And Mobile Association … vs Reserve Bank Of India on 4 March, 2020 (indiankanoon.org), (Last Visited September 19, 2023)
[2] Legal Lore, INTERNET AND MOBILE ASSOCIATION VS RESERVE BANK OF INDIA (legallore.info), (Last Visited September 19, 2023)
[3] Bar and Bench Supreme Court Review: Crucial judgments of 2020 (barandbench.com), (Last Visited September 19, 2023)
[4] The Law Express, Internet And Mobile Association v. RBI – The Law Express (Last Visited September 20, 2023)
[5] LiveLaw, Read all Latest Updates on and about Internet And Mobile Association Of India Vs Reserve Bank Of Indi (livelaw.in), (Last Visited September 20, 2023)