CRUX:
Internet and Mobile Association of India v. Reserve Bank of India- In the present petition the issue involved was whether the RBI lacks jurisdiction to disallow the trade of virtual currency and it based such ban imposed on the misunderstanding.
DATE OF JUDGMENT:
March4, 2020
JUDGE:
JusticeRohinton Fali Nariman, S. Ravindra Bhat, V. Ramasubramanian
PARTIES:
Internet and Mobile Association of India (Pentitioner)
Reserve Bank of India (Respondent)
SUMMARY
In the present petition the issue involved was whether the RBI lacks jurisdiction to disallow the trade of virtual currency and it based such ban imposed on the misunderstanding.
Brief
In the present case, the Apex Court has declared the circular issued by the RBI as illegal and the guidelines to enforce such circular have been made unenforceable. The circular directed the bank to not indulge in the trade of virtual currencies by the RBI and the same was brought before the Apex Court with a contention RBI lack jurisdiction to disallow the trade of virtual currency and such ban imposed was based on the misunderstanding.
Background Facts
On April 6, 2018, the RBI issued a circular that prohibited the banks and other entities from trading in Virtual Currencies. It said circular further barred the banks from providing any sort of services either to the entity or any individual dealing or settling virtual currencies.
This circular issued with a view that virtual currency trading is prone to hacking and this would lead to terrorist attacks, money laundering, etc. Certain services that RBI has directed the bank not to deal with are clearing, giving loans against virtual currencies, maintaining the accounts, registering, trading, settling, accepting the virtual currency as collateral, opening accounts of exchanges, and sale/purchase or transfer of such virtual currencies.
This circular was challenged by the Internet and Mobile Association of India and a petition was filed before the Supreme Court and the same was allowed by the court on the ground of proportionality. Earlier in the year 2013, caution was issued to the traders and holders of the virtue currency concerning the security and legal issues of risk associated with it.
Core Issue
Whether the RBI lacks jurisdiction to disallow the trade of virtual currency and it based such ban imposed on the misunderstanding.
Contentions
Petitioner’s contentions
The petitioner alleged RBI lacks the jurisdiction to disallow trade of crypto-currency and it also claimed that the ban was moreover a misunderstanding made by it. It further argued that cryptocurrency, or virtual currency, is not a kind of currency note or coin but a store of value or medium of exchange.
The Petitioner also contended that Virtual currency or cryptocurrencies are not a kind of currency note or coin but a medium of exchange or a store of value.
Respondent’s contentions
The respondent, by replying to the first contention, disagreed with the fact that RBI does not have the jurisdiction and it’s a mode of digital payment and RBI holds the power to control the same.
Regarding the contention that cryptocurrency or virtual currency is not a kind of currency note or coin but a store of value or medium of exchange, the respondent replied such virtual currency is a stainless digital currency which is used for trading, and since the cryptocurrency operates independently and immune to government’s interference.
Court’s Decision
The Bench headed by JusticeRohinton Fali Nariman, S. Ravindra Bhat, V. Ramasubramanian
The observed the RBI upholds wide powers and they play an important role in upliftment economy of India but here they are unable of the show any sort of damages suffered by the entities regulated by it.
Hence the Court held the guidelines issued by RBI that direct the banks to stop dealing or provide services to the entities trading in cryptocurrency are unenforceable and unenforceable.
Certain Concepts Emphasised in Court
The RBI deals entirely with virtual currencies and the prohibition dealing with the same. The circular issued on April 6, 2018, is statutory and issued in exercise of the powers granted under the following statute:
Banking Regulation act, 1949 and
Payment settlement system act, 2007.
Reserve bank of India act, 1934
The newspaper on December 24, 2013, reported the first-ever raid in India by Enforcement Directorate on the two firms in Ahmedabad, named bitcoin. in and buysellbitco. in. 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.
The Financial act Task Force (FATF) has declared that crypto assets are being used for money laundering and terrorist financing. They need a globally coordinated approach to prevent abuses and strictly limit interconnections with regulated financial institutions.
Conclusion
The petitioner has succeeded, and the court decided the matter in favour of it. The guideline issued by the RBI was declared illegal and hence unenforceable. By this judgment, the businesses can re-join the industry and hence can trade in cryptocurrency. The Court struck down the circular issued by the RBI but didn’t declare the virtual currencies as legal or illegal and as there is no legislation regarding the same therefore virtual currencies remain unregulated in India. The bill named Banning of Cryptocurrency and regulation of official Digital currency bill, 2019. Has been drafted regarding the legal status of virtual currency in India, however the same has not been presented in front of the parliament or has not been discussed by its members. They declared the guideline issued by the RBI illegal and hence unenforceable. By this judgment, the businesses can re-join the industry and hence can trade in cryptocurrency. The Court struck down the circular issued by the RBI but didn’t declare the virtual currencies as legal or illegal and as there is no legislation regarding the same therefore virtual currencies remain unregulated in India. The bill named Banning of Cryptocurrency and regulation of official Digital currency bill, 2019. Has been drafted regarding the legal status of virtual currency in India, however the same has not been presented in front of the parliament or has not been discussed by its members.
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