Internet and Mobile Association of India v. Reserve Bank of India
Citation – MANU/SC/0264/2020
Court – Supreme Court of India
Bench – Rohinton Fali Nariman, S. Ravindra Bhat and V. Ramasubramanian
Date of Judgement – 04/03/2020
Facts of the Case
The Reserve Bank of India (RBI) issued a circular on April 6, 2018, prohibiting banks and other entities from trading in virtual currencies. The banks were also prohibited from providing services to the organisation or any individual dealing with or settling virtual currency, according to the circular. This circular was published with the belief that virtual currency trade is vulnerable to hacking, which could lead to terrorist acts, money laundering, and other problems. The RBI has instructed the bank to refrain from providing the following services: clearing, lending against virtual currencies, account maintenance, registration, trading, settling, accepting virtual currency as collateral, opening exchange accounts, and the sale/purchase or transfer of such virtual currencies. The Internet and Mobile Association of India filed a case with the Supreme Court challenging the circular. On the basis of proportionality, the court authorised the same. Earlier in 2013, merchants and holders of the virtue money were advised to be wary of the security and legal risks linked with it.
Issues
Whether the RBI lacks jurisdiction to disallow the trade of virtual currency and it based such ban imposed on the misunderstanding.?
Laws
- Section 35A read with Section 36(1)(a) Banking Regulation Act, 1949 and
- Section 56 of the Banking Regulation Act, 1949 and
- Section 45JA and 45L of the Reserve Bank of India Act, 1934
- Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007
Contentions made by the Petitioner
The petitioner contended that the RBI lacked the authority to prohibit crypto- currency trading, and that the restriction was also the result of a misunderstanding. It went on to say that cryptocurrency, or virtual money, is a store of value or medium of exchange rather than a currency note or coin. The Petitioner further argued that virtual currency or cryptocurrencies are a medium of trade or a store of value rather than a monetary note or coin.
Contentions made by the Respondents
The respondent disputed with the first argument, claiming that the RBI lacks jurisdiction and that it is a form of digital payment over which the RBI has control. In response to the claim that cryptocurrency or virtual currency is a store of value or medium of exchange rather than a type of currency note or coin, the respondent stated that such virtual currency is a stainless digital currency that is used for trading, and that cryptocurrency operates independently and without government interference.
The decision of the Court
In this case, the Honourable Supreme Court found that, while the Reserve Bank of India has broad powers and plays an important role in the development of the Indian economy, it is unable to establish any harm to its regulated firms. As a result, the Reserve Bank of India’s directives urging banks to stop engaging with or providing services to commodities traders using virtual currency are illegal and so unenforceable.