Statement of Facts
- On 5th April,2018 Reserve Bank of India issued a press release raising the concern about the consumer protection from trade of virtual currencies. They were of the view that trading in virtual currency also referred as crypto currency are prone to hacking and therefore would lead to money laundering, terrorist activities, etc. In this view RBI asked the banks to not to deal with the transactions related to the trading of virtual currency.
- The services which RBI directed the bank not to deal with were – maintaining the accounts, registering, trading, settling, clearing, giving loans against virtual currencies, accepting virtual currency as collateral, opening accounts of exchanges dealing with them and transfer of sale/purchase of virtual currencies.
- The matter was challenged by Internet and Mobile Association of India. The Supreme Court of India allowed the petition on the ground of proportionality. Earlier in 2013 the Reserve Bank of India do issued a public caution to the traders and holders of virtual currency in context with the legal and security related risks associated with it.
- Whether the Reserve Bank of India had the jurisdiction to disallow the trade of virtual currency?
- Whether the Respondent had the powers to regulate virtual currency as they were not equivalent to money or legal tender?
- Whether the circular which was issued by the RBI was proportional?
Critical Analysis of the Case
A step in the right direction was taken by the Supreme Court of India, in the judgment of Internet and Mobile Association v. RBI. The court quashed the circular of the RBI that directed financial agencies to disocciate themselves from entities involved in virtual trading or transactions relating to VC’s. Some of the concerns that led to the issuance of circular include the anonymity of the transactions and the protection of investors when dealing in cryptocurrency. The major apprehension of the RBI was the inherent difficulty in tracking the source of money which has led to an increase in the number of cryptocurrency scams in the country. Still a very volatile technology, we have not had enough discussion around its shortcomings, leading to an adverse preference of this technology in the monetary circuit.
The Petitioner relied on the case of MS Gill v. Chief Election Commissioner, which led that there was an express prohibition of any authority to do anything which may improve its case. The contention of the petitioners rested on the premise that denial of banking services to those activities of trade recognized by law, would be extremely disproportionate, leading to the violation of extremely disproportionate, leading to a violation of Article 19(1)(g) of the Constitution. Therefore, an understanding of whether there was an infringement of this constitutional right was necessary and to this end, the court relied on the case of Md. Yasin v. Town Area Committee, which makes it amply clear that the right under article 19(1)(g) would be affecyted “In effect and in substance” when there is a complete stoppage of a particular business activity, owing to a certain measure that was undertaken. In Keshavlal Khemchand and Sons Pvt. Ltd. v. Union of India, the court pointed out that “Reserve Bank of India is an expert body to which the responsibility of monitoring the economic system of the contry is entrusted, under various enactments like the RBI Act, 1934, the Banking Regulation Act, 1949.”
The judgement of the court has started an effective discussion on lines that were never traversed before, and while that is indeed commendable, we need to look ahead and anticipate the potential risks on the economy. With that in mind, VC’s promise a more feasible future, especially in this era where people are connected through technology in ways previously unimaginable. Various stakeholders have posted many suggestions, particularly with regarding to creating a model that can monitor and regulate crypto currency, without bringing a blanket ban of the same, which ought to be considered by the government in the light of pending bill. What we need to do is find a balance and not discourage startups from adopting this technology, and if this is ignored, India could be handicapped from exploring opportunities that crypto currencies have to offer. Instead of shying away from addressing these concerns, we need to be proactive and have a structured policy in pace to assuage any potential concerns in the future.