In the case of Internet and Mobile Association of India vs. Reserve Bank of India[1] supreme court cleared its stand on the regulation and legality of cryptocurrency use in India. Therefore, to understand the court interpretation of the use of virtual currency.
Background:
In April 2018, the RBI issued a circular on complete banning the regulation on the financial institutions from providing services to businesses dealing in exchange or trading of any form of cryptocurrencies such as Bitcoin, Litecoin, MintChip etc., which put the whole Indian cryptocurrency trading industry in great danger. The validity of the circular was challenged before the Supreme Court in various writ petitions led by crypto-trading entities and representatives of the industry. In this case, the three-judge bench headed by Justice Rohinton Nariman of the Supreme Court deliberated on the use of cryptocurrency and struck down the circular issued by the RBI against the ban on cryptocurrency trade.
Facts:
The use of cryptocurrency rapidly grows which creates a lot of problems for the banking institution to regulate the exchange and trading of such transactions. Subsequently, the communique issued by the G-20 summit held in March 2018, notified that ‘crypto-assets do raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. Therefore, RBI is looking for cautionary measures to stop such illegal and unregulated payment mode vide circular dated April 6, 2018, named as ‘Prohibition on the dealing in virtual currencies[2]’, with an aim to impose a complete ban on the dealing with Virtual currencies in India. The RBI in exercising the powers given under the Reserve Bank of India Act, 1934 and Payment and Settlement Systems Act, 2007 to issue such circular.
As a result of this prohibition imposed by RBI, the cryptocurrencies exchanges suffered a massive blow, and they could not sustain their already established businesses. Therefore, the parties aggrieved by the restrictions imposed by the RBI circular, the Internet and Mobile Association of India (IMAI) filed a writ petition[3] before the apex court challenging the legality of the RBI Circular. Simultaneously, a separate writ petition was also filed in court by shareholders and founders of different companies engaged in operating online crypto assets exchange platforms and few other individual crypto-assets traders in India.
Issues:
- whether the ban imposed on cryptocurrency or crypto-trade are reasonable and proportionate?
- Whether the RBI had the jurisdiction to pass the order or issue circular?
Supreme Court Judgment:
The supreme court while determining the merit of the case through the legal proceeding, the government proposed the new draft bill named “Banning of the Cryptocurrency & Regulation of Official Digital Currency Bill, 2019”. However, the court does not inference to the new bill while deciding the case as the government already charges the criminal charges on the users and traders of cryptocurrency before the enactment of such bill into law.
Finally, the Supreme Court concluded that the measures taken by the RBI for the issuance of the RBI Circular were not proportionate. Furthermore, the RBI issued circular has been set aside by the Supreme Court of India on the ground of proportionality. However, the government proposed a new bill that aims at the total ban on the use of cryptocurrency in India. Currently, the bill has not been presented in front of the parliament or has not been discussed by the members of parliament, as of now standing committee examining the bill.
[1] [2018] WP (Civil) No. 528 of 2018
[2]Prohibition on dealing in virtual currencies Order 2017, RBI/2017-18/154
<https://rbidocs.rbi.org.in/rdocs/Notification/PDFs/NOTI15465B741A10B0E45E896C62A9C83AB938F>
[3] The constitution of India 1950, Article 32
