TaxTMI 
TaxTMI 
2020 (3) TMI 364
X X X X Extracts X X X X
X X X X Extracts X X X X
....serve Bank of India Act, 1934 (hereinafter, "RBI Act, 1934") and Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007, directing the entities regulated by RBI (i) not to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies and (ii) to exit the relationship with such persons or entities, if they were already providing such services to them. 1.3. Challenging the said Statement and Circular and seeking a direction to the respondents not to restrict or restrain banks and financial institutions regulated by RBI, from providing access to the banking services, to those engaged in transactions in crypto assets, the petitioners have come up with these writ petitions. The petitioner in the first writ petition is a specialized industry body known as 'Internet and Mobile Association of India' which represents the interests of online and digital services industry. The petitioners in the second writ petition comprise of a few companies which run online crypto assets exchange platforms, the shareholders/founders of these companies and a few individual crypto assets traders. It....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es (VCs) Reserve Bank has repeatedly through its public notices on December 24, 2013, February 01, 2017 and December 05, 2017, cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. 2. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of VCs. 3. Regulated entities which already provide such services shall exit the relationship within three months from the date of this circular. 4. These instructions are issued in exercise of powers conferred by section 35A read with section 36(1)(a) of Banking Regulation Act, 1949, section 35A read with section 36(1)(a) and section 56 of the Banking Regulation Act, 1949....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted in real money (such as Paypal, Alipay, Google Checkout etc.). Therefore, a short-term typologies project was initiated by FATF for promoting fuller understanding of the parties involved in convertible virtual currency systems and for developing a risk matrix. 2.4. On 24-12-2013, a Press Release was issued by RBI cautioning the users, holders and traders of virtual currencies about the potential financial, operational, legal and customer protection and security related risks that they are exposing themselves to. The Press Release noted that the creation, trading or usage of VCs, as a medium of payment is not authorized by any central bank or monetary authority and hence may pose several risks narrated in the Press Release. 2.5. On 27-12-2013, newspapers reported the first ever raid in India by the Enforcement Directorate, of 2 Bitcoin trading firms in Ahmedabad, by name, rBitco.in and buysellbitco.in. This was stated to be India's first raid on a Bitcoin trading firm and the second globally, after Federal Bureau of Investigation of the United States of America conducted a raid in October of the same year. 2.6. Thereafter, a report titled "Virtual Currenc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sector happens to be the most efficient way of movement of funds for terrorist organisations, the report acknowledged the emergence of new payment products and services in part 4 of the report. The report took note of different methods of terrorist financing, such as self-funding, crowd funding, social network fund raising with prepaid cards etc. Coming to virtual currencies, the report noted the following: "Virtual currencies have emerged and attracted investment in payment infrastructure built on their software protocols. These payment mechanisms seek to provide a new method for transmitting value over the internet. At the same time, virtual currency payment products and services (VCPPS) present ML/TF risks. The FATF made a preliminary assessment of these ML/TF risks in the report Virtual Currencies Key Definitions and Potential AML/CFT Risks. As part of a staged approach, the FATF has also developed Guidance focusing on the points of intersection that provide gateways to the regulated financial system, in particular convertible virtual currency exchangers. Virtual currencies such as bitcoin, while representing a great opportunity for financial innovation, have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tee formed a sub-group within the CPMI Working Group on Retail Payments, to undertake an analysis of digital currencies. On the basis of the findings of the subgroup, CPMI of BIS submitted a report in November 2015 on Digital currencies. The sub-group identified three key aspects relating to the development of digital currencies one of which was that the assets featured in digital currency schemes, typically have some monetary characteristics such as being used as a means of payment, but are not backed by any authority. In Note 1 under the Executive Summary of the said report, it was stated as follows: "although digital currencies typically do have some, but not all the characteristics of a currency, they may also have characteristics of a commodity or other asset. Their legal treatment can vary from jurisdiction to jurisdiction." (emphasis supplied) Paragraph 4 of the said report dealt with the "implications for central banks, of digital currencies and their underlying decentralized payment mechanisms". In the said paragraph, the report indicated that "digital currencies represent a technology for settling peer to peer payments without trusted third parties and may involve a non-s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ta security and consumer protection on one hand and far reaching potential impact on the effectiveness of monetary policy itself on the other hand. The report took note of the fact that many central banks around the world, had already started examining the feasibility of creating their own digital currencies, after fretting over them initially. 2.12. In January 2017, the Institute for Development and Research in Banking Technology (IDRBT) established by RBI in 1996 as an institution to work at the intersection of banking and technology submitted a Whitepaper on "Applications of blockchain technology to banking and financial sector in India". While dealing with the applications of blockchain technology in chapter 3, the whitepaper also enlisted the advantages and disadvantages of digital currency. While the advantages indicated were (i) control and security, (ii) transparency and (iii) very low transaction cost, the disadvantages indicated were risk and volatility. 2.13. On 01-02-2017, RBI again issued a Press Release cautioning users, holders and traders of virtual currencies. Closely on the heels of this Press Release, the Government of India, Ministry of Finance, constitute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat of creating or trading in crypto-currencies. 2.15. In August 2017, Securities and Exchange Board of India (SEBI) established a 10-member advisory panel to examine global fintech developments and report on opportunities for the Indian securities market. The goal of the new Committee on Financial and Regulatory Technologies was to help prepare India to adopt fintech solutions and foster innovations within the country. 2.16. On 02-11-2017, the Government of India constituted a committee chaired by the Secretary (Department of Economic Affairs) and comprising of Secretary, Ministry of Electronic and Information Technology, Chairman, SEBI and Deputy Governor, RBI (InterMinisterial Committee) to propose specific actions to be taken in relation to VCs. 2.17. At that stage, two persons, by name, Siddharth Dalmia and Vijay Pal Dalmia came up with a writ petition in WP (C) No.1071 of 2017 under Article 32 of the Constitution of India seeking the issue of a writ of mandamus directing the respondents to declare as illegal and ban all virtual currencies as well as ban all websites and mobile applications which facilitate the dealing in virtual currencies. Similarly, another person,....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the Financial Stability Board2 (FSB) sent out a communication dated 13-03-2018. It was indicated in the said communication that as per the initial assessment of FSB, crypto assets did not pose risks to global financial stability, as their combined global market value even at their peak, was less than 1% of global GDP. But the report also noted that the initial assessment was likely to change and that crypto assets raised a host of issues around consumer and investor protection as well as their use to shield illicit activity and for money laundering and terrorist financing. 2.23. The communique issued by G-20, after the meeting of its Finance Ministers and Central Bank Governors on March 19-20, 2018 also acknowledged that technological innovation including that underlying crypto assets, has the potential to improve the efficiency and inclusiveness of the financial system and the economy more broadly. But it also noted that crypto assets do raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. Though crypto assets lacked the key attributes of sovereign currencies, they could, at some point, have fi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith law. 2.29. In the meantime, the Internet and Mobile Association of India came up with the second of the writ petitions on hand, namely WP (C) No. 528 of 2018 and notice was ordered in the said writ petition on 03-07-2018. While doing so, this Court issued a direction to RBI to dispose of the representation, if any, already submitted by the Association. Accordingly, RBI considered the representation and issued two communications dated 06-07-2018 and 09-07-2018. 2.30. On 23-07-2018, SEBI sent its comments on the 2018 Bill, to the Department of Economic Affairs. Their primary objection to the Bill was that they are not best suited to be the regulators of crypto assets and tokens. 2.31. Next came the Annual Report of RBI for the year 20172018. It contained a separate Box II.3.2 on "Cryptocurrency: Evolving challenges". The relevant portion of the same reads as follows: "Though cryptocurrency may not currently pose systemic risks, its increasing popularity leading to price bubbles raises serious concerns for consumer and investor protection, and market integrity. Notably, Bitcoins lost nearly US$200 billion in market capitalisation in about two months from the peak....
X X X X Extracts X X X X
X X X X Extracts X X X X
....China's exchanges hosted a disproportionately large volumes of global Bitcoin trading until their ban recently. [...] Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode, which may also involve increased usage of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on AML/CFT and taxation issues, require close watch." (emphasis supplied) 2.32. In this background, all the four writ petitions namely WP (C) Nos. 1071 and 1076 of 2017 (seeking a ban) and WP (C) Nos. 373 and 528 of 2018 (challenging the indirect ban) came up for hearing, along with the transfer petitions, on 25-10-2018, when this Court was informed that the Union of India had already constituted a committee and that this Inter-Ministerial Committee was deliberating on the issue. Therefore, the writ petitions were adjourned to enable the Committee to come up with their recommendations. 2.33. It appears that the Committee so constituted, submitted a report on 28-02-2019 indicating the action to be taken in relation to virtual currencies. A bill kno....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, which range from barter transactions to mode of payment to legal tender. Countries like China have imposed a complete ban. iv. The mining of non-official virtual currencies is very resourceintensive requiring enormous amounts of electricity which may prove to be an environmental disaster. v. They may also affect the ability of the Central Banks to carry out their mandates. vi. China has not only banned trading in cryptocurrencies but also used its firewall to ban crypto currency exchanges. China even blocked crypto currency focused accounts from WeChat and cryptocurrency related content from Baidu. However, Chinese traders use VPNs to circumvent these bans. The report dated 28-02-2019 of the Inter-Ministerial Committee finally made certain recommendations which included a complete ban on private cryptocurrencies. 2.34. It is important to note here that the report of the InterMinisterial Committee dated 28-02-2019 not only recommended a ban, but also specifically endorsed the stand taken by RBI to eliminate the interface of institutions regulated by RBI from crypto currencies. 2.35. As a matter of fact, the issue of the impugned Circular by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ise reply to the representations dated 29-05-2018 and 30-05-2018. The reply already given by RBI to the representations dated 29-05-2018 and 30-05-2018 was found by this Court to be inadequate and hence this direction. Accordingly, RBI gave a detailed point-wise reply on 04-092019 and 18-09-2019. Thereafter, the present writ petitions were taken up for hearing. 3. FLASHBACK 3.1. The archeological excavations carried out at the (world wide web) sites, reveal that this digital currency civilization is just 12 years old (at the most, 37 years). But these excavations became necessary since virtual currencies, known by different names such as crypto assets, crypto currencies, digital assets, electronic currency, digital currency etc., elude an exact and precise definition, making it impossible to identify them as belonging either to the category of legal tender solely or to the category of commodity/good or stock solely. 3.2. Any attempt to define what a virtual currency is, it appears, should follow the Vedic analysis of negation namely "neti, neti". Avadhuta Gita of Dattatreya says, "by such sentences as 'that thou are', our own self or that which is untrue and composed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a communally maintained database that would come to be known as the blockchain. The process by which this all happened had many layers, and it would take even experts, months to understand how they all worked together. But the basic elements of the system can be sketched out in rough terms, and were in Satoshi's paper, which would become known as the Bitcoin white paper. According to the paper, each user of the system could have one or more public Bitcoin addresses - sort of like bank account numbers - and a private key for each address. The coins attached to a given address could be spent only by a person with the private key corresponding to the address. The private key was slightly different from a traditional password, which has to be kept by some central authority to check that the user is entering the correct password. In Bitcoin, Satoshi harnessed the wonders of public-key cryptography to make it possible for a user - let's call her Alice again - to sign off on a transaction, and prove she has the private key, without anyone else ever needing to see or know her private key. Once Alice signed off on a transaction with her private key she would broad....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the process of creating new coins would stop after 21 million were out in the world. When Martti Malmi, a student at the Helsinki University of Technology, joined hands with Satoshi to improvise the project and to market it, he formulated the philosophy in the following words: "Be safe from the unfair monetary policies of the monopolistic Central Banks and the other risks of centralized power over a money supply. The limited inflation of Bitcoin system's money supply is distributed evenly (by CPU power) throughout the network, not monopolized to a banking elite." 3.7. Therefore, it is beyond any pale of doubt that irrespective of the metamorphosis (or gene mutation) it has undergone over the years, bitcoin, the Adam or Manu of the race of cryptocurrencies, was developed as an alternative to fiat currency. Keeping this birth chart of virtual currencies in mind, let us now see how the petitioners are aggrieved by the impugned decisions of RBI, the grounds on which they challenge the same and the justification sought to be provided by RBI. 4. BACKGROUND SCORE (of the petitioners) 4.1. The theme of the song of the petitioners in one of the writ petitions, as fine-tun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uch power can be tested on certain well established parameters. They are - (i) application of mind/satisfaction/relevant and irrelevant considerations (ii) Malice in law/colorable exercise of power (iii) M.S. Gill reasoning (iv) Calibration/Proportionality III. All other stake holders such as the Department of Economic Affairs of the Government of India, Securities and Exchange Board of India, Central Board of Direct Taxes, etc., have actually recognized the positive and beneficial aspects of cryptocurrencies as digital assets and the Distributed Ledger Technology from which crypto currencies emanate and hence have recommended only a regulatory regime, but RBI has taken a contra position without any rational basis. IV. Many of the developed and developing economies of the world, multinational and international bodies and the courts of various countries have scanned crypto currencies, but found nothing pernicious about them and even the attempt of the Government of India to bring a legislation banning crypto currencies, is yet to reach its logical end. V. RBI should have taken into account the fact that the members of Pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....emes and bidirectional flow schemes, by targeting only bidirectional flow schemes. III. VCs do not qualify as money, as they do not fulfill the four characteristics of money namely medium of exchange, unit of account, store of value and constituting a final discharge of debt and since RBI has accepted this position, they have no power to regulate it. IV. Considering the fact that historically, money as understood in the social sense and money as understood in the legal sense, are different, the courts in different jurisdictions such as USA and Singapore have understood VCs to be akin to money or funds at times or as commodities/intangible properties at other times. V. The impugned Circular is manifestly arbitrary, based on nonreasonable classification and it imposes disproportionate restrictions. VI. A decision to prohibit an article as res extra commercium is a matter of legislative policy and must arise out of an Act of legislature and not by a notification issued by an executive authority. 4.3. In addition to the aforementioned legal contentions, Shri Nakul Dewan learned Senior Counsel also submitted that as a result of the impugned Circular, the virtual cur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gned decision of RBI is legislative in character and is in the realm of an economic policy decision taken by an expert body warranting a hands-off approach from the Court. (vi) The impugned decision is within the range of wide powers conferred upon RBI under the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934 and the Payment and Settlement Systems Act, 2007. (vii) No one has an unfettered fundamental right to do business on the network of the entities regulated by RBI. (viii) The impugned decisions do not violate any of the rights guaranteed by Articles 14, 19 and 21 of the Constitution of India. (ix) The impugned decisions are not excessive, confiscatory or disproportionate in as much as RBI has given three months' time to the affected parties to sever their relationships with the banks. This is apart from the repeated cautions issued to the stakeholders by RBI through Press Releases from the year 2013. (x) The ambit of the 2013 press release was much wider than just consumer protection. RBI cautioned users, holders and traders of VCs about the potential financial, operational, legal, customer protection and security r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 6.1. In the light of the above factual matrix and the rival contentions, let us now see how the plot before us, unfolds. I. No Power at all for RBI (Ultra vires) 6.2. The first ground of attack revolves around the power of RBI to deal with, regulate or even ban VCs and VCEs. The entire foundation of this contention rests on the stand taken by the petitioners that VCs are not money or other legal tender, but only goods/commodities, falling outside the purview of the RBI Act, 1934, Banking Regulation Act, 1949 and the Payment and Settlement Systems Act, 2007. In fact, the impugned Circular of RBI dated 0604-2018 was issued in exercise of the powers conferred upon RBI by all these three enactments. Therefore, if virtual currencies do not fall within subject matter covered by any or all of these three enactments and over which RBI has a statutory control, then the petitioners will be right in contending that the Circular is ultra vires. 6.3. Hence it is necessary (i) first to see the role historically assigned to a central bank such as RBI, the powers and functions conferred upon and entrusted to RBI and the statutory scheme of all the above three enactments and (ii) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le right to issue notes with the Government of India. 6.7. The question of absorption of the three Presidency Banks into a central bank came up for consideration on and off. Though the Chamberlain Commission, known as the Royal Commission on Indian Finance and Currency, appointed in 1913, felt the need for setting up a central bank, the proposal did not materialize. But after the First World War, the Presidency Banks themselves favoured an amalgamation. Therefore, the Imperial Bank of India Bill providing for the amalgamation of all the three Presidency Banks was passed in September 1920 and came into effect in January 1921. The trend of setting up central banks gained momentum internationally, after the International Financial Conferences held at Brussels in 1920 and at Genoa in 1922. 6.8. But the maintenance of an overvalued exchange rate to help British exporters, gave rise to a clash between the colonial administration and Indian business interests. The Congress sought devaluation and hence a Royal Commission was set up in 1925 to examine the matter. This Royal Commission on Indian Currency and Finance, also known as Hilton Young Commission (to which Dr. B. R.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of the monetary systems of the world it is not possible to determine what will be suitable as a permanent basis for the Indian monetary system; AND WHEREAS it is essential to have a modern monetary policy framework to meet the challenge of an increasingly complex economy; BUT WHEREAS it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures; AND WHEREAS the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth; AND WHEREAS the monetary policy framework in India shall be operated by the Reserve Bank of India; 6.15. It may be observed from the newly substituted paragraphs that RBI is now vested with the obligation to operate the monetary policy framework in India. An indication of the primary objective of the monetary policy is provided in paragraph 3 which says that the maintenance of price stability is the prime objective even while the object....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... government. Sub-section (2) of Section 22 goes one step further by stipulating that on and from the date on which Chapter III comes into force, the central government shall not issue any currency notes. 6.20. Section 26(1) makes every bank note a legal tender at any place in India in payment, which is guaranteed by the central government. Since a bank note issued by RBI is a legal tender guaranteed by the central government, the central government is also vested with the power under sub-section (2) of Section 26 to declare any series of bank notes of any denomination, to cease to be legal tender. But this can be done only on the recommendation of the Central Board of Directors of RBI. 6.21. Under Section 38, the central government is prohibited from putting into circulation any rupees, except through RBI. Similarly, RBI is also prohibited from disposing of rupee coin otherwise than for the purpose of circulation. 6.22. Chapter IIIB which contains provisions relating to nonbanking institutions (NBFCs) receiving deposits and financial institutions, contains two important provisions, one in Section 45JA and another in Section 45L. Sub section (1) of Section 45JA reads as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r, to furnish to the Bank in such form, at such intervals and within such time, such statements, information or particulars relating to the business of such financial institutions or institution, as may be specified by the Bank by general or special order; (b) give to such institutions either generally or to any such institution in particular, directions relating to the conduct of business by them or by it as financial institutions or institution. (2) Without prejudice to the generality of the power vested in the Bank under clause (a) of sub-section (1), the statements, information or particulars to be furnished by a financial institution may relate to all or any of the following matters, namely, the paid-up capital, reserves or other liabilities, the investments whether in Government securities or otherwise, the persons to whom, and the purposes and periods for which, finance is provided and the terms and conditions, including the rates of interest, on which it is provided. (3) In issuing directions to any financial institution under clause (b) of sub-section (1), the Bank shall have due regard to the conditions in which, and the objects for which, the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....settlement of the trades in respect of the transactions mentioned therein, on the Stock Exchanges recognised under section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). 6.29. It is important to note that Section 45W(1) contains merely an illustrative list of transactions. This is seen by the use of the expression "other instruments of like nature" appearing in the above provision. 6.30. A careful scan of the RBI Act, 1934 in its entirety would show that the operation/regulation of the credit/financial system of the country to its advantage, is a thread that connects all the provisions which confer powers upon RBI, both to determine policy and to issue directions. 6.31. RBI Act, 1934 is not the only Act from which RBI derives its powers. The Banking Regulation Act, 1949 is also a source of power for RBI to do certain things. This can be seen from the Statement of Objects and Reasons for the Banking Regulation Act, 1949. One of the main features of the Bill as indicated in the Statement of Objects and Reasons was "widening the powers of RBI so as to enable it to come to the aid of the banking companies in times of emergency". 6.32. Section 5 of the Ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., all banking companies are bound to follow the policy. 6.36. No company can carry on banking business in India unless it holds a license issued by RBI. Under Section 22(1), RBI has power to issue license, subject to certain terms and conditions as it may think fit to impose. 6.37. Every banking company is obliged under Section 27(1) of the Banking Regulation Act, 1949 to submit to RBI, monthly returns in the prescribed form, showing its assets and liabilities. RBI is conferred with powers under Section 29A even to call for information about the affairs of any associate enterprise of a banking company. Under sub-section (2) of Section 29A, RBI can even cause an inspection of any associate enterprise of a banking company. A power to conduct special audit of a banking company's accounts is also conferred upon RBI under Section 30(1B). 6.38. Section 35A of Banking Regulation Act, 1949 empowers RBI to issue directions to banking companies. Such directions are binding on the banking companies. The directions under Section 35A may be issued (i) in public interest (ii) in the interest of banking policy (iii) to prevent the affairs of the banking company from being conducted....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies came into existence and a need to fast track paper-based cheque processing increased, the banks came together to set up clearing houses. The clearing houses developed the procedure of netting (arriving at the multilateral net settlement). But with the advent of technology, new payment systems such as MICR clearing, Electronic Funds Transfer Systems, cash-based payment systems, RTGS (real time gross settlement) etc. became popular. The development of multiple payment systems, which operated only in the realm of contracts among various stakeholders, did not have a legislative sanction. Therefore, an Act known as the Payment and Settlement Systems Act, 2007 was enacted with the object of providing for the regulation and supervision of payment systems in India and to designate RBI as the authority for that purpose. 6.42. It is seen from the Statement of Objects and Reasons of the Bill that RBI is empowered to regulate and supervise various payment and settlement systems in India including those operated by non-banks, card companies, other payment system providers and the proposed umbrella organization for retail payments. The Act further empowers RBI to (i) lay down the procedur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... or from any other company which is also a subsidiary of the same holding company; (d) any other person whom the Reserve Bank may, after considering the interests of monetary policy or efficient operation of payment systems, the size of any payment system or for any other reason, by notification, exempt from the provisions of this section. 6.46. Chapter IV of the Act specifies the regulatory and supervisory powers of RBI. Under Section 10, RBI is empowered to prescribe certain standards and guidelines for the proper and efficient management of the payment systems. The Section reads as follows: 10. Power to determine standards.- (1) The Reserve Bank may, from time to time, prescribe- (a) the format of payment instructions and the size and shape of such instructions; (b) the timings to be maintained by payment systems; (c) the manner of transfer of funds within the payment system, either through paper, electronic means or in any other manner, between banks or between banks and other system participants; (d) such other standards to be complied with the payment systems generally; (e) the criteria for membership ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Reserve Bank is of the opinion that,- (a) a payment system or a system participant is engaging in, or is about to engage in, any act, omission or course of conduct that results, or is likely to result, in systemic risk being inadequately controlled; or (b) any action under clause (a) is likely to affect the payment system, the monetary policy or the credit policy of the country, the Reserve Bank may issue directions in writing to such payment system or system participant requiring it, within such time as the Reserve Bank may specify - (i) to cease and desist from engaging in the act, omission or course of conduct or to ensure the system participants to cease and desist from the act, omission or course of conduct; or (ii) to perform such acts as may be necessary, in the opinion of the Reserve Bank, to remedy the situation. 6.49. Section 18 of the Payment and Settlement Systems Act, 2007 further empowers RBI to issue directions to system providers or the system participants or any other person generally, to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest. The Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entity of virtual currencies. Fixing the identity of VCs 6.52. As we have stated in Part 3 of this judgment, the exact identity of virtual currencies eludes precision. Some call it an exchange of value, some call it a stock and some call it a good/commodity. There may be no difficulty in accepting the divergence of views, if those views are not driven by fear of regulation. But if someone presents it as currency to a regulator of stock market and presents it as a commodity to a regulator of money market and so on and so forth, the definition will not merely elude a proper molecular structure but also elude regulation. This is where the problem of law lies. George Friedman, the founder and Chairman of Geopolitical Futures LLC, an online publication, aptly summarized this dilemma as follows: "Bitcoin is neither fish nor fowl...But both pricing it as a commodity when no commodity exists and trying to make it behave as a currency, seem problematic. The problem is not that it is not issued by the Government nor that it is unregulated. The problem is that it is hard to see what it is." 6.53. It is now universally accepted that Satoshi envisioned a digital analog to old-fas....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he future, large crypto currencies holdings could complicate monetary policy management" Eventually the conclusions reached in the report are as follows:- * Crypto currencies today do not do a good job at fulfilling the main functions of money. * They may be favored by some for ideological, technological or monetary policy reasons. * The blockchain technology they use does have some important advantages in controlling fraud and maintaining privacy. * But they also open up avenues for tax evasion and criminal activity. 6.58. The petitioners claim that today virtual currency is not money or other legal tender, but good/tradable commodity and hence RBI has no role in regulating/banning the same. RBI has also taken a stand that VCs are not recognized as legal tender, but they seek to justify the impugned decisions, on the ground that VCs are capable of being used as a medium of exchange. Therefore, it is necessary to see how VCs were defined (i) by regulators in different jurisdictions and (ii) by the governments and other statutory authorities of various countries, through statutory instruments and non-statutory directives and (iii) by courts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are already covered elsewhere in the FATF Recommendations. For the purposes of applying the FATF Recommendations, countries should consider virtual assets as "property," "proceeds," "funds," "funds or other assets," or other "corresponding value." 3. European Central Bank 2012:12 A virtual currency is a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community. This definition may need to be adapted in future if fundamental characteristics change. 2017:13 Absent a universally accepted definition, 'virtual currencies' can be defined as digital representations of value which, despite not being issued by a central bank or another comparable public authority, nor being 'attached', subject to certain exceptions, to a fiat currency, are voluntarily accepted, by natural or legal persons, as a means of exchange, and which are stored, transferred and traded electronically, without a tangible, real-world representation. This definition of 'virtual currencies' captures decentralised, peer-to-peer ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rency gain or loss for U.S. federal tax purposes. 2018:18 Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country's traditional currency. 7. Securities and Exchange Commission, USA Bitcoin has been described as a decentralized, peer-to-peer virtual currency that is used like money - it can be exchanged for traditional currencies such as the U.S. dollar, or used to purchase goods or services, usually online. Unlike traditional currencies, Bitcoin operates without central authority or banks and is not backed by any government.19 Speaking broadly, crypto currencies purport to be items of inherent value (similar, for instance, to cash or gold) that are designed to enable purchases, sales and other financial transactions. They are intended to provide many of the same functions as long-established currencies such as the U.S. dollar, euro or Japanese yen but do not have the backing of a government or other body.20 8. Commodity Futures Trading Commission, USA Section 1a(9) of the Act (US Commodity Exchange Act) defines "commodity" to include, among other thin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted Assets; the same applies in the following item) which can be used in relation to unspecified persons for the purpose of paying consideration for the purchase or leasing of goods or the receipt of provision of services and can also be purchased from and sold to unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system; and (ii) property value which can be mutually exchanged with what is set forth in the preceding item with unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system. 2019 amendment to this Act (to come into force from April 2020) uses the term "crypto assets (angoshisan)" in place of the term "virtual currency". The 2019 Amendment added crypto assets to the term "financial instruments" for the purposes of defining underlying assets of the derivative transactions subject to derivative regulations under the FIEA (Financial Instruments and Exchange Act), and therefore the same regulations applicable to other derivative transactions under the FIEA will apply to crypto asset derivative transactions. These regula....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unctions as - (a) a medium of exchange; (b) a unit of account; or (c) a store of value, that does not have legal tender status or carry any security or guarantee in any jurisdiction. "currency or money" means coin and paper money of any jurisdiction that is designated as legal tender or is customarily used and accepted as a medium of exchange, including virtual currency as a means of payment. 5. Estonia Money Laundering and Terrorist Financing Prevention Act, 2017 Section 3(9): cryptocurrencies (virtual currencies) are value represented in digital form that is digitally transferable, preservable, or tradable and that which natural persons or legal persons accept as a payment instrument, but that is not the legal tender of any country or funds (banknotes or coins, scriptural money held by banks, or electronic money). 6. Latvia Law on Prevention of Money Laundering and Terrorism and Proliferation Financing, as amended in 2017 Section 1 (22): virtual currency - a digital representation of value which can be transferred, stored or traded digitally and operate as a means of exchange, but has not been recognised as a legal means of payment, cannot ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iament that crypto currencies are actual currencies.31 15. Slovakia Ministry of Finance, Slovakia published guidance Virtual currencies must be treated as "short term financial assets other than money".32 16. European Union European Union's Directive 2018/843 of 30 May 2018 (5th Anti-Money Laundering Directive)33 Article 3(18): 'Virtual Currencies' means a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically. 17. United Kingdom HM Revenue & Customs, UK34 Bank of England36 Cryptoassets (or 'cryptocurrency' as they are also known) are cryptographically secured digital representations of value or contractual rights that can be: * transferred * stored * traded electronically HMRC does not consider cryptoassets to be currency or money. Cryptocurrencies have a unique identity and cannot therefore be directly comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ards; Virtual currency- A digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account, or a store of value but only to the extent defined as stored value under subdivision (19) of this section, but does not have legal tender status as recognized by the United States Government. Connecticut [General Statutes of Connecticut, Sec. 36a-596] Florida [Florida Money Laundering Act (Fla. Stat. § 896.101)] "Virtual currency" means any type of digital unit that is used as a medium of exchange or a form of digitally stored value or that is incorporated into payment system technology. Virtual currency shall be construed to include digital units of exchange that (A) have a centralized repository or administrator; (B) are decentralized and have no centralized repository or administrator; or (C) may be created or obtained by computing or manufactu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tual currency is a digital representation of value that has an equivalent value in real currency, such as the United States Dollar (USD), and/or acts as a substitute for real currency. A prominent example of convertible virtual currency is Bitcoin, a form of e-currency that has been around since 2008. "Virtual currency" means a digital representation of value used as a medium of exchange, a unit of account, or a store of value, but does not have legal tender status as recognized by the United States government. "Virtual currency" does not include the software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed ledger systems to verify ownership or authenticity in a digital capacity when the virtual currency is not used as a medium of exchange. (xxii) "Virtual currency" means any type of digital representation of value that: (A) Is used as a medium of exchange, unit of account or store of value; and (B) Is not recognized as legal tender by the United States government. 6.59. It may be seen from the contents of the tables given above that there is unanimity of opinion among....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Luxembourg has taken an official position that crypto currencies are actual currencies. Some of the states in the Unites States of America have passed laws recognizing virtual currencies as electronic medium of exchange. 6.62. It is clear from the above that the governments and money market regulators throughout the world have come to terms with the reality that virtual currencies are capable of being used as real money, but all of them have gone into the denial mode (like the proverbial cat closing its eyes and thinking that there is complete darkness) by claiming that VCs do not have the status of a legal tender, as they are not backed by a central authority. But what an article of merchandise is capable of functioning as, is different from how it is recognized in law to be. It is as much true that VCs are not recognized as legal tender, as it is true that they are capable of performing some or most of the functions of real currency. 6.63. The word "currency" is defined in Section 2(h) of the Foreign Exchange Management Act, 1999 (hereinafter, "FEMA") to include "all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers' cheque....
X X X X Extracts X X X X
X X X X Extracts X X X X
....encies within the meaning of any of the statutory enactments from which RBI draws its energy and power. 6.65. But we do not think that RBI's role and power can come into play only if something has actually acquired the status of a legal tender. We do not also think that for RBI to invoke its power, something should have all the four characteristics or functions of money. Moss v. Hancock (supra), itself a century old decision (1899), relies upon the definition of 'money' as given by F. A. Walker in his treatise 'Money, Trade and Industry' (actual title of the book appears to be 'Money in its relation to Trade and Industry'), published in 1879 to the effect that "money is that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or the credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities." 6.66. But that 1879 definition cannot be accepted as perfect, final and everlasting, in modern times. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... defines 'money' under Section 2(75) to mean "the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveler cheque, money order, postal or electronic remittance or any other instrument recognised by RBI, when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value." 6.69 In CIT v. Kasturi & Sons Ltd. (1999) 3 SCC 346), a question arose as to whether the replacement by the insurer, of an article destroyed by one of the perils as against which coverage is provided, would be taken to be "money" within the meaning of Section 41(2) of the Income Tax Act, 1961. This court held that the word "money" used in Section 41(2) has to be interpreted only as actual money or cash and not as any other thing or benefit which could be evaluated in terms of money. 6.70. In Dhampur Sugar Mills Ltd. v. Commissioner of Trade Tax(2006) 5 SCC 624) Case No. 4: 13-Cv-416 (August 6, 2013), this court was concerned with the question whether the adjustment of price of molasses from the amount of license fee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing criminal enterprise (iii) computer hacking conspiracy and (iv) money laundering conspiracy, for which the Grand jury returned indictment. The allegation against the defendant was that Ulbricht engaged in these offences by designing, launching and administering a website called Silk Road, as an online marketplace for illicit goods and services. According to the prosecution, Bitcoin was used to launder the proceeds. The website was available only to those using Tor (abbreviation for 'The Onion Router'), a free and open source software and a network that allows anonymous, untraceable internet browsing. Payments were allowed only through Bitcoin. Opposing the money laundering charge, Ulbricht contended that the use of Bitcoin did not involve a legally cognizable financial transaction. But the court held "Bitcoins carry value-that is their purpose and function-and act as a medium of exchange. Bitcoins may be exchanged for legal tender, be it US dollars, euros or some other currency". 6.74. The decision in Ulbricht (supra) was closely followed by another decision of the same court in United States v. Faiella. 39F. Supp. 3d 544 (2014). This was also a case where the defendants were....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith operating Coin.mx, as an unlicensed money transmitting business. The government alleged that Murgio and his co-conspirators attempted to shield the true nature of his Bitcoin exchange business by operating through several front companies, to convince financial institutions that Coin.mx was just a members-only association of individuals interested in collectable items. Count one of the indictments was the alleged conspiracy in the operation of an unlicensed money transmitting business, punishable under 18 U. S. C. § 1960. Under Section 1960, a business must (i) transfer on behalf of public, (ii) funds and (iii) in violation of licensing and registration requirements, to qualify as an unlicensed money transmitting business. The court concluded that Bitcoins are funds within the plain meaning of the term, as the word "funds" would mean pecuniary resources, generally accepted as a medium of exchange or means of payment. Interestingly, the defendant's contention that Bitcoin is a commodity as held by CFTC was rejected by the court. 6.78. However, despite the opinion of other District courts in four previous cases, the United States District Court, Eastern district of New Yor....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by all merchants or service providers. .... With such volatility they have a limited ability to act as a store of value, another important attribute of money. This court is not an expert in economics, however it is very clear, even to someone with limited knowledge in the area, that Bitcoin has a long way to go before it is equivalent of money. The Florida Legislature may choose to adopt statutes regulating virtual currency in future. At this time, however, attempting to fit the sale of Bitcoin into a statutory scheme regulating money services businesses is like fitting a square peg in a round hole" 6.81. But the decision of the Circuit Court was appealed to the Third District Court of Appeal, State of Florida. By an opinion rendered on 30-01-2019, reported as State of Florida v. Michell Abner Espinoza 264 So. 3d 1055 (2019)the Court of Appeal reversed the decision of the Circuit Court and held, after referring to the June 2014 Report of FATF titled "Virtual currencies: key definitions and potential AML/CFT risks" that given the plain language of the Florida statutes governing money service businesses and the nature of bitcoin and how it functions, Espinoza was acting both as a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al tender in the sense of being a regulated currency issued by a government but do have the fundamental characteristic of intangible property as being an identifiable thing of value". The decision of the Commercial Court was appealed to the Court of Appeal. While dismissing Quoine's appeal on breach of contract claim, but allowing it on breach of trust claim, the Court of Appeal held in Quoine Pte Ltd v. B2C2 Ltd [2020] SGCA (I) 02 that though crypto currencies are capable of assimilation into the general concepts of property, there are difficult questions as to the type of property that is involved. Therefore, the Court of Appeal did not take a final position on the question, since it felt that the precise nature of the property right involved, was not clear. 6.83. In a very recent decision, in AA v. Persons Unknown & others Re Bitcoin [2019] EWHC 3556 (Comm), the English High Court ruled that Bitcoin is property. But this decision was on the basis of the definition adopted by UK Jurisdictional Taskforce of the Law Tech Delivery Panel, in its "Legal Statement on the Status of Cryptoassets and Smart Contracts", that crypto assets constitute property under English law. The facts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Provincial Bank and Law Tech Delivery Panel's Legal Statement, though it did not constitute a statement of the law. Bryan J. was convinced that the statement's detailed legal analysis of the proprietary status of cryptocurrencies was "compelling" and should be adopted by the court. Thus, what prevailed with the court was the definition provided by Law Tech Delivery Panel's UK Jurisdiction Task Force, which, unlike RBI, did not enjoy a statutory status, but was only an industry-led government backed initiative. 6.84. The ruling of the European Court of Justice in Skatteverket v. David Hedqvist Case C-264/14 dated 22-10-2015, was with particular reference to the identity of virtual currencies. ECJ was in this case asked to decide a reference from Supreme Administrative Court, Sweden on whether transactions to exchange a traditional currency for the 'Bitcoin' virtual currency or vice versa, which Mr. Hedqvist wished to perform through a company, were subject to value added tax. The opinion of the court was to the effect that: (i) Bitcoin with bidirectional flow which will be exchanged for traditional currencies in the context of exchange transactions cannot be cat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s dilemma. Nothing prevented RBI from adopting a short circuit by notifying VCs under the category of "other similar instruments" indicated in Section 2(h) of FEMA, 1999 which defines 'currency' to mean "all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers' cheque, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments as may be notified by the Reserve Bank." After all, promissory notes, cheques, bills of exchange etc. are also not exactly currencies but operate as valid discharge (or the creation) of a debt only between 2 persons or peer-to-peer. Therefore, it is not possible to accept the contention of the petitioners that VCs are just goods/commodities and can never be regarded as real money. 6.87. Once we are clear about the above confusion, and once it is accepted that some institutions accept virtual currencies as valid payments for the purchase of goods and services, there is no escape from the conclusion that the users and traders of virtual currencies carry on an activity that falls squarely within the purview of the Reserve Bank of India. The statutory obligation that RBI has, as a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....an impact on the financial system of the country, can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system. The expression "management of the currency" appearing in Section 3(1) need not necessarily be confined to the management of what is recognized in law to be currency but would also include what is capable of faking or playing the role of a currency. 6.91. It is ironical that virtual currencies which took avatar (according to its creator Satoshi) to kill the demon of a central authority (such as RBI), seek from the very same central authority, access to banking services so that the purpose of the avatar is accomplished. As we have pointed out elsewhere, the very creation of digital currency/ Bitcoin was to liberate the monetary system from being a slave to the central authority and from being operated in a manner prejudicial to private interests. Therefore, the ultra vires argument cannot be accepted when the provision of access to banking services without any interference from the central authority over a long period of time is perceived as a threat to the very existence of the central authority. Hence, we hold....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icy and must arise out of an Act of legislature and not by a mere executive notification. But we must remember that in Khoday Distilleries Ltd. v. State of Karnataka (1995) 1 SCC 574, while dealing with prohibitions on alcohol it was held that what articles and goods should be allowed to be produced, possessed, sold and consumed is to be left to the judgment of legislative and executive wisdom. 6.94. In any case, the projection of the impugned decisions of RBI as a total prohibition of an activity altogether, may not be correct. The impugned Circular does not impose a prohibition on the use of or the trading in VCs. It merely directs the entities regulated by RBI not to provide banking services to those engaged in the trading or facilitating the trading in VCs. Section 36(1)(a) of the Banking Regulation Act, 1949 very clearly empowers RBI to caution or prohibit banking companies against entering into certain types of transactions or class of transactions. The prohibition is not per se against the trading in VCs. It is against banking companies, with respect to a class of transactions. The fact that the functioning of VCEs automatically gets paralyzed or crippled because of the i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsactions illegal, it cannot strike at the documents recording such transactions. The court held that Section 22A cannot control the transactions which fall outside the scope of the Act, through a subordinate legislation. 6.96. But the said decision is of no assistance to the petitioners, since none of the provisions of the RBI Act or the Banking Regulation Act are under challenge before us. The delegation itself is not in question before us. Unlike the Registration Act, Section 36(1)(a) of the Banking Regulation Act, 1949 empowers RBI to specifically target transactions. Moreover, RBI's role in the economy of the country is not akin to the power of any other delegate. 6.97. While holding that price fixation may normally be a legislative act, this court pointed out in Union of India & Anr v. Cynamide India ltd. & Anr (1987) 2 SCC 720): "...with the proliferation of delegated legislation, there is a tendency for the line between legislation and administration to vanish into an illusion. Administrative, quasi-judicial decisions tend to merge in legislative activity and, conversely, legislative activity tends to fade into and present an appearance of an administrative o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....powered by Parliament to enact a policy and to issue directions which have a statutory force and when the delegatee (RBI) issues such guidelines (policy) having statutory force, such guidelines have got to be read as supplement to the provisions of the BR Act, 1949. The "banking policy" is enunciated by RBI. Such policy cannot be said to be ultra vires the Act." (emphasis supplied) 6.100. In his treatise on Administrative Law, Durga Das Basu states Ch. 4, Pg. 121, 6th Edition, 2004: The scope of judicial review is narrowed down when a statute confers discretionary power upon an executive authority to make such rules or regulations or orders 'as appear to him to be necessary' or 'expedient', for carrying out the purposes of the statute or any other specified purpose. In such a case, the check of ultra vires vanishes for all practical purposes inasmuch as the determination of the necessity or expediency is taken out of the hands of the Courts and the only ground upon which Courts may interfere is that the authority acted mala fide or never applied his mind to the matter, or applied an irrelevant principle in making a statutory order. (emphasis supplied) 6.101.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lated by it, has caused a collateral damage to some establishments like the petitioners', who do not come within the reach of RBI's net. 6.105. The power of a statutory authority to do something has to be tested normally with reference to the persons/entities qua whom the power is exercised. The question to be addressed in such cases is whether the authority had the power to do that act or issue such a directive, qua the person to whom it is addressed. While persons who suffer a collateral damage can certainly challenge the action, such challenge will be a very weak challenge qua the availability of power. 6.106. Apart from the provisions of the RBI Act, 1934 and the Banking Regulation Act, 1949, the impugned Circular also refers to the power under Section 18 of the Payment and Settlement Systems Act, 2007. In order to buttress their contention regarding the availability of power to regulate, the petitioners refer to the definition of the expression "payment system" under Section 2(1)(i) of the said Act and contend that VCEs do not operate any payment system and that since the power to issue directions under Section 18 is only to regulate the payment systems, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ayment obligation" means an indebtedness that is owned by one system participant to another system participant as a result of clearing or settlement of one or more payment instructions relating to funds, securities or foreign exchange or derivatives or other transactions; 6.111. Therefore, in the overall scheme of the Payment and Settlement Systems Act, 2007, it is impossible to say that RBI does not have the power to frame policies and issue directions to banks who are system participants, with respect to transactions that will fall under the category of payment obligation or payment instruction, if not a payment system. Hence, the argument revolving around Section 18 should fail. II. Mode of exercise of power: Satisfaction/Application of mind/relevant and irrelevant considerations 6.112. That takes us to the next question whether the power was exercised properly in a manner prescribed by law. The argument of Shri Ashim Sood, learned Counsel for the petitioner is that assuming that RBI has the requisite power under Section 35A(1) of Banking Regulation Act, 1949 to do what it has done, the necessary sine qua non is the "satisfaction". Section 35A(1) of the Banking....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on FinTech and Digital Banking. This Working Group submitted a report in November 2017, after which RBI issued a third press release on 05-12-2017. Thereafter RBI also sent a mail on 02-04-2018 to the central government, enclosing a note on regulating crypto assets. To be fair to RBI, even this note examined the pros and cons of banning and regulating crypto currencies. 6.116. All the above sequence of events from June 2013 up to 02-04-2018 would show that RBI had been brooding over the issue for almost five years, without taking the extreme step. Therefore, RBI can hardly be held guilty of non-application of mind. If an issue had come up again and again before a statutory authority and such an authority had also issued warnings to those who are likely to be impacted, it can hardly be said that there was no application of mind. For arriving at a "satisfaction" as required by Section 35A(1) of Banking Regulation Act, 1949 and Section 45JA and 45L of RBI Act, 1934, it was not required of RBI either to write a thesis or to write a judgement. 6.117. In fact, RBI cannot even be accused of not taking note of relevant considerations or taking into account irrelevant con....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks. * There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws. The Reserve Bank has also stated that it is presently examining the issues associated with the usage, holding and trading of VCs under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations. 6.118. When a series of steps taken by a statutory authority over a period of about five years disclose in detail what triggered their action, it is not possible to see the last of the orders in the series in isolation and conclude that the satisfaction arrived at by the authority is not ref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tained in the counteraffidavit of RBI to the effect that "VCs are outside the ambit of the central authority's effective sphere of control and management" and also referring to the stand taken by RBI in their letter dated 04-092019 to the effect that "neither VCs nor the businesses involved in providing VC based services come under the regulatory purview of RBI", it was contended by Shri Ashim Sood that the impugned Circular is a colourable exercise of power and tainted by malice in law, in as much as it seeks to achieve an object completely different from the one for which the power is entrusted. State of Punjab & Anr v. Gurdial Singh & Ors (1980) 2 SCC 471), Collector (District Magistrate) Allahabad & Anr v. Raja Ram Jaiswal (1985) 3 SCC 1), and Kalabharati Advertising v. Hemant Vimalnath Narichania & Ors (2010) 9 SCC 437 are relied upon in this regard. 6.122. But the above contention is completely misconceived. There can be no quarrel with the proposition that RBI has sufficient power to issue directions to its regulated entities in the interest of depositors, in the interest of banking policy or in the interest of the banking company or in public interest. If the exerc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....enactment (ii) the decision in Bihar Public Service Commission v. Saiyed Hussain Abbas Rizwi & Anr (2012) 13 SCC 61), wherein it was held that the term "public interest" does not have a rigid meaning and takes its colour from the statute in which it occurs (iii) the decision in Utkal Contractors & Joinery (P) Ltd. & Ors v. State of Orissa & Ors (1987) 3 SCC 279), wherein it was held that the words of a statute take their colour from the reason for it and (iv) the decision in Empress Mills v. Municipal Committee, Wardha (1958) SCR 1102), wherein it was held that general words and phrases must usually be construed as being limited to the actual object of the Act, it was contended that the expression 'public interest' appearing in Section 35A(1)(a) of the Banking Regulation Act, 1949, cannot be given an expansive meaning. 6.125. But the said argument does not take the petitioners anywhere. As we have indicated elsewhere, the power under Section 35A to issue directions is to be exercised under four contingencies namely (i) public interest (ii) interest of banking policy (iii) interest of the depositors and (iv) interest of the banking company. The expression "banking policy" i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... money laundering, the Department of Economic Affairs which is concerned with the economic policies of the State, SEBI which is concerned with security contracts and CBDT which is concerned with the tax regime relating to goods and services, did not see any grave threat and that therefore RBI's reaction is knee-jerk, is not acceptable. Enforcement Directorate can step in only when actual money laundering takes place, since the statutory scheme of Prevention of Money Laundering Act deals with a procedure which is quasi-criminal. SEBI can step in only when the transactions involve securities within the meaning of Section 2(h) of the Securities Contracts (Regulation) Act, 1956. CBDT will come into the picture only when the transaction related to the sale and purchase of taxable goods/commodities. Every one of these stakeholders has a different function to perform and are entitled to have an approach depending upon the prism through which they are obliged to look at the issue. Therefore, RBI cannot be faulted for not adopting the very same approach as that of others. IV. Light-touch approach of the other countries 6.129. The argument that most of the countries except very few lik....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t when fully anonymous VCs are concerned. In any case, we are not experts to say whether the safety valves put in place could have addressed all issues raised by RBI. VI. Different types of VCs require different treatments 6.132. Drawing our attention to a Report by the European Parliament under the caption 'Cryptocurrencies and Blockchain', released in July 2018, it is contended by Shri Ashim Sood, learned Counsel for the petitioners that all virtual currencies are not fully anonymous. While some, such as Dash and Monero are fully anonymous, others such as Bitcoin are pseudo-anonymous. Therefore, it is contended that banning transactions only in fully anonymous VCs could have been a better and less intrusive measure. An identical argument is advanced by Shri Nakul Dewan learned Senior Counsel for the petitioners, with reference to a report of October 2012 of the European Central Bank on "Virtual Currency Schemes". According to the said Report, Virtual Currency schemes can be classified into three types, depending upon their interaction with traditional real money and real economy. They are (i) closed virtual currency schemes basically used in an online game (ii) virtual curr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....II. Acceptance of DLT and rejection of VCs is a paradox 6.136. It was argued that the acceptance of the Distributed Ledger Technology and the rejection of VCs is actually a contradiction in terms. This argument is based upon the various reports, both of RBI and of the Inter-Ministerial Group, to the effect that DLT is part of FinTech. 6.137. The above contention, in legal terms, is about the irrationality of the impugned decision. But there is nothing irrational about the acceptance of a technological advancement/innovation, but the rejection of a by-product of such innovation. There is nothing like a "take it or leave it" option. VIII. RBI's decisions do not qualify for Judicial deference 6.138. It is contended by Shri Ashim Sood, learned Counsel for the petitioners that the impugned Circular does not have either the status of a legislation or the status of an executive action, but is only the exercise of a power conferred by statute upon a statutory body corporate. Therefore, it is his contention that the judicial rule of deference as articulated in R.K. Garg v. Union of India (1981) 4 SCC 675), BALCO Employees' Union (Regd.) v. Union of India & Ors (2002) 2 SCC 333),....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al (1986) 4 SCC 566), P.M. Ashwathanarayana Setty v. State of Karnataka (1989) Supp (1) SCC 696), Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India (supra), T. Velayudhan v. Union of India (1993) 2 SCC 582), Delhi Science Forum v. Union of India (1996) 2 SCC 405), Bhavesh D. Parish v. Union of India (2000) 5 SCC 471), Ugar Sugar Works ltd. v. Delhi Administration & Ors (2001) 3 SCC 635), BALCO Employees' Union (Regd.) v. Union of India (supra), Govt. of Andhra Pradesh & Ors v. P. Laxmi Devi (2008) 4 SCC 720), Villianur Iyarkkai Padukappu Maiyam v. Union of India (2009) 7 SCC 561), D.G. of Foreign Trade v. Kanak Exports (2016) 2 SCC 226), State of J & K v. Trikuta Roller Flour Mills Pvt. Ltd. (2018) 11 SCC 260), and Pioneer Urban Land and Infrastructure Ltd. v. Union of India (2019) 8 SCC 416), as the entire history of the doctrine of deference from Lochner Era has been summarized by this court in Swiss Ribbons Pvt. Ltd. v. Union of India (supra). In fact, even the learned Counsel for the petitioners is ad idem with the learned Senior Counsel for RBI that economic regulations require due judicial deference. The actual argument of the learned Counsel for the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thorities/banks are ensured an independence, but unfortunately Section 8(4) of the RBI Act, 1934 gives a tenure not exceeding five years, as the central government may fix at the time of appointment. Though the shorter tenure and the choice given to the central government to fix the tenure, to some extent, undermines the ability of the incumbents of office to be absolutely independent, the statutory scheme nevertheless provides for independence to the institution as such. Therefore, we do not accept the argument that a policy decision taken by RBI does not warrant any deference. IX. Article 19(1)(g) challenge & Proportionality 6.142. The next ground of attack is on the basis of Article 19(1)(g). Any restriction to the freedom guaranteed under Article 19(1)(g) should pass the test of reasonableness in terms of Article 19(6). It is contended by the petitioners that since access to banking is the equivalent of the supply of oxygen in any modern economy, the denial of such access to those who carry on a trade which is not prohibited by law, is not a reasonable restriction and that it is also extremely disproportionate. It is further contended that the right to access the banking ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....There can also be no quarrel with the proposition that banking channels provide the lifeline of any business, trade or profession. This is especially so in the light of the restrictions on cash transactions contained in Sections 269SS and 269T of the Income Tax Act, 1961. When currency itself has undergone a metamorphosis over the centuries, from stone to metal to paper to paperless and we have ushered into the digital age, cashless transactions (not penniless transactions) require banking channels. Therefore, the moment a person is deprived of the facility of operating a bank account, the lifeline of his trade or business is severed, resulting in the trade or business getting automatically shut down. Hence, the burden of showing that larger public interest warranted such a serious restriction bordering on prohibition, is heavily on RBI. 6.145. In the counter-affidavit filed in WP (C) No. 528 of 2018, RBI has raised 2 fundamental objections in this regard. The first is that corporate bodies/entities who have come up with the challenge are not 'citizens' and hence, not entitled to maintain a challenge under Article 19(1)(g). This objection may hold good in respect of the writ pet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pugned action on the touchstone of Article 19(1)(g), we may have to understand the fundamental distinction between (i) the purchase and sale of virtual currencies by and between two individuals or entities and (ii) the business of online exchanges that provide certain services such as the facility of buying and selling of virtual currencies, the storing or securing of the virtual currencies in what are known as wallets and the conversion of virtual currencies into fiat currency and vice versa. The buying and selling of crypto currencies through VC Exchanges can be by way of hobby or as a trade/business. The distinction between the two is that there may or may not exist a profit motive in the former, while it would, in the latter. 6.148. Persons who engage in buying and selling virtual currencies, just as a matter of hobby cannot pitch their claim on Article 19(1)(g), for what is covered therein are only profession, occupation, trade or business. Therefore hobbyists, who are one among the three categories of citizens (hobbyists, traders in VCs and VC Exchanges), straightaway go out of the challenge under Article 19(1)(g). 6.149. The second and third categories of citizens name....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ware device such as pen drive. 6.152. All the above types of wallets except the desktop wallet allow a great degree of flexibility, in that they can be accessed from anywhere in the world. For instance, paper wallets are printed in the form of QR codes that can be scanned, and a transaction completed by using the private keys. Similarly, mobile wallets run as an app on the smartphone and hence they allow a person to use the crypto currency stored in the wallet for buying anything, even while travelling abroad, provided the vendor accepts payments in crypto currencies. Paper wallets and mobile wallets can also be used to draw fiat currency from virtual currency ATMs available in countries like USA, Canada, Switzerland, etc. 6.153. In other words, most of the wallets except perhaps desktop wallet, have great mobility and have transcended borders. Therefore, despite the fact that the users and traders of virtual currencies are also prevented by the impugned Circular from accessing the banking services, the impugned Circular has not paralyzed many of the other ways in which crypto currencies can still find their way to or through the market. 6.154. Persons who have suffered a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hya Pradesh (2016) 7 SCC 353). These four tests are (i) that the measure is designated for a proper purpose (ii) that the measures are rationally connected to the fulfillment of the purpose (iii) that there are no alternative less invasive measures and (iv) that there is a proper relation between the importance of achieving the aim and the importance of limiting the right. The court in the said case held that a mere ritualistic incantation of "money laundering" or "black money" does not satisfy the first test and that alternative methods should have been explored. 6.157. Let us now see whether the impugned Circular would fail the four-pronged test. In fact, the Privy Council originally set forth in Elloy de Freitas v. Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1999] 1 AC 69], only a three-fold test namely (i) whether the legislative policy is sufficiently important to justify limiting a fundamental right (ii) whether the measures designed to meet the legislative objective are rationally connected to it and (iii) whether the means used to impair the right or freedom are no more than is necessary to accomplish the objective. These three tests cam....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... activities or the development of radiological, biological, nuclear or chemical weapons. In addition to these procedural safeguards, Section 63 of the aforesaid Act provided for a remedy to a person affected by any such decision of the Treasury, to apply to the High Court or in Scotland, to the Court of Session. Section 63(3) specifically recognized the application of the principles of judicial review, to the applications filed against such measures. 6.159. It is in the context of those specific statutory prescriptions for judicial review available in UK (unlike in India) that Bank Mellat challenged the Treasury's decision. The challenge was both on procedural and substantive grounds. By a majority of 6 to 3, the Supreme Court of the United Kingdom allowed the appeal of the Bank on procedural grounds. On the substantive grounds, the appeal of the Bank was allowed by a majority of 5 to 4. 6.160. Lord Reed who wrote a dissent both on the procedural grounds and the substantive grounds, traced the history of the doctrine of proportionality as follows: 68. The idea that proportionality is an aspect of justice can be traced back via Aquinas to the Nicomachean Ethics and be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eight or respect given to the assessment of the primary decision-maker - depends upon the context. 70. As I have mentioned, proportionality is also a concept applied by the European Court of Human Rights. As the court has often stated, inherent in the whole of the Convention is a search for a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual's fundamental rights (see eg Sporrong and Lönnroth v Sweden (1982) 5 EHRR 35, para 69). The court has described its approach to striking such a balance in different ways in different contexts, and in practice often approaches the matter in a relatively broad-brush way. In cases concerned with A1P1, for example, the court has often asked whether the person concerned had to bear an individual and excessive burden (see eg James v United Kingdom (1986) 8 EHRR 123, para 50). The intensity of review varies considerably according to the right in issue and the context in which the question arises. Unsurprisingly, given that it is an international court, its approach to proportionality does not correspond precisely to the various approaches adopted in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t or freedom are no more than is necessary to accomplish the objective." De Freitas was a Privy Council case concerned with fundamental rights under the constitution of Antigua and Barbuda, and the dictum drew on South African, Canadian and Zimbabwean authority. The three criteria have however an affinity to those formulated by the Strasbourg court in cases concerned with the requirement under articles 8 to 11 that an interference with the protected right should be necessary in a democratic society (eg Jersild v Denmark (1994) Publications of the ECtHR Series A No 298, para 31), provided the third limb of the test is understood as permitting the primary decisionmaker an area within which its judgment will be respected. 73. The De Freitas formulation has been applied by the House of Lords and the Supreme Court as a test of proportionality in a number of cases under the Human Rights Act. It was however observed in Huang v Secretary of State for the Home Department [2007] UKHL 11; [2007] 2 AC 167, para 19 that the formulation was derived from the judgment of Dickson CJ in R v Oakes [1986] 1 SCR 103, and that a further element mentioned in that judgment was the need t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....maginative indeed if he could not come up with something a little less drastic or a little less restrictive in almost any situation, and thereby enable himself to vote to strike legislation down (Illinois Elections Bd v Socialist Workers Party (1979) 440 US 173, 188 189); especially, one might add, if he is unaware of the relevant practicalities and indifferent to considerations of cost. To allow the legislature a margin of appreciation is also essential if a federal system such as that of Canada, or a devolved system such as that of the United Kingdom, is to work, since a strict application of a "least restrictive means" test would allow only one legislative response to an objective that involved limiting a protected right. 76. In relation to the fourth criterion, there is a meaningful distinction to be drawn (as was explained by McLachlin CJ in Alberta v Hutterian Brethren of Wilson Colony [2009] 2 SCR 567, para 76) between the question whether a particular objective is in principle sufficiently important to justify limiting a particular right (step one), and the question whether, having determined that no less drastic means of achieving the objective are available, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ity, was not specific to Bank Mellat but an inherent risk of banking, and the risk posed by Bank Mellat's access to those markets was no different from that posed by other comparable banks. (iv) Singling out Bank Mellat, according to the court, was arbitrary and irrational, and disproportionate to any contribution which it could rationally be expected to make to the direction's objective. (v) By contrast, the minority were satisfied that, in view of the wide margin of appreciation given to the Treasury in these matters, the direction was rationally connected to the objective and was proportionate. 6.162. We cannot and need not go as far as the majority had gone in Bank Mellat. U.K. has a statute where standards of procedure for judicial review are set out and the majority decision was on the application of those standards. But even by our own standards, we are obliged to see if there were less intrusive measures available and whether RBI has at least considered these alternatives. On the question of availability of alternatives, the July 2018 report of the European Union Parliament (titled 'Cryptocurrencies and Blockchain') is relied upon by Shri Ashim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....spects surrounding cryptocurrencies that are aimed at making it impossible to verify their users and criminally sanctioning these aspects seems to be in line with the Council's conclusions of April 2018 on how to respond to malicious cyber activities, under which that the use of ICT for malicious purposes is unacceptable. Whatever the answer may be, we must again avoid being naive: even if a ban would be imposed, how do we detect a breach, given that the purpose of the object of the ban just is to obscure identities? Nevertheless, it would be worthwhile to consider introducing a ban. If authorities then bump into the prohibited activities, they have a legal basis for prosecution, insofar not yet available. Possibly, imposing a ban could also have a deterrent effect. Of course, again there is the tension with data protection, but arguably in the balance of things the interest of authorities and society to more effectively combat money laundering, terrorist financing and tax evasion via well-defined specific bans outweighs the interest of persons desiring to hide their identities completely. In any event, imposing a ban should always be focused on specific aspects facilitating th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eer VC exchanges. In P2P transfers, while the exchange provides a portal to match the orders of a seller and buyer, the consideration would flow directly from the buyer to the seller without the exchanges being an intermediary for this leg of the trade. The exchanges would only act as the intermediary for the storing the VCs till the time the transfer of the consideration from the buyer to the seller is complete. In other words, the exchanges act as an escrow agent for the transaction between the buyer and the seller. The buyers in the P2P transaction transfer the consideration directly to the seller's bank account. In any case, the capital flight problem mentioned by the petitioner is not new and existed even before the issuance of the Circular. As mentioned earlier, the IAMAI VC exchanges allowed their customers to transfer VCs to foreign wallet addresses, even before the issuance of the Circular, exposing the customers to the risks of violating FEMA, AML/CFT guidelines. The issues highlighted by IAMAI have been considered by the RBI. The RBI, as the banking and financial regulator of Indian markets, assessed the risks and benefits arising from the exponential and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....have to be acted upon swiftly and stringently dealt with. It is an admitted fact that VCs have been used to purchase illegal and illicit goods ranging from guns and ammunition to drugs. Therefore, the RBI's measures under the Circular become all the more necessary. With the Circular coming into effect, the banking system and the RBI's regulated entities would not be facilitating persons looking to obtain VCs for illegal trades. Th additional measures taken by the RBI by way of the Circular were necessary as, despite multiple cautions, 5 million Indian users engaged in VC trades of INR 1 billion daily." (emphasis supplied) 6.165. In Annexure B to their second response dated 18-092019, RBI has also dealt with every one of the additional safeguards proposed by one of the writ petitioners, by name, Discidium Internet Labs Pvt, Ltd. and demonstrated as to how these safeguards may not be sufficient to ring fence the regulated entities: Safeguards proposed by petitioners Response of RBI Development of a dashboard and central repository The technology and concept of a dashboard that is accessible by all the relevant government authorities is yet to be tested in India and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....permitted only for banks for individuals desirous of receiving any benefit or subsidy under any scheme notified under Section 7 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies Benefits and Services) Act, 2016 or if an individual voluntarily uses his/her Aadhaar number for identification purpose. Moreover, the adoption of Aadhaar based electronic KYC may not be sufficient to address the risks stated by the RBI in the Press Releases. This is because for the RBI to issue norms/measures that sufficiently resolves and/or mitigated the stated risks of dealing in VCs, it has to be privy to the technicalities of the various types of VCs, their characteristics and difficulties and drawbacks. There is still a high level of uncertainty and ambiguity surrounding VCs. Regulators around the world are still in fact contemplating how to regulate initial coin offerings and how to tax them. The RBI is keeping a close tab on all such developments including the regulatory stand taken by each jurisdictions across the world and will consider implementing the same to the extent of its jurisdiction and in line with the policy framework that will be adopted by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....surance policies offered by them. Therefore, the insurance providers may not, either suo moto or on account of IRDA's directions, offer insurance policies to protect VCs. Further, this cautious approach includes various limitation or exclusion of liability clauses. Therefore, the insurance policies may not provide adequate cover in the event of any value degradation, loss or theft of VCs. Moreover, the highly speculative and fluctuating value of VCs is a risk which ought not to be borne by the insurance providers, who are already suffering from the various financial frauds in the Indian monetary and banking system. Formation of an investor DILPL suggests setting up an investor protection and education fund, for which the VC exchanges would protection and education fund transfer all proceeds earmarked towards their corporate social responsibility ("CSR") obligations under the Companies Act, 2013. This suggestion, as per the RBI, would not protect the customers as claimed by Discidium as the steps would be insufficient to provide adequate cover to customers. Notably, Discidium has not suggested that it create any additional buffer for the education and protection of its c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nction (ii) that the consistent stand taken by RBI up to and including in their reply dated 04-09-2019 is that RBI has not prohibited VCs in the country and (iii) that even the Inter-Ministerial Committee constituted on 02-11-2017, which initially recommended a specific legal framework including the introduction of a new law namely, Crypto-token Regulation Bill 2018, was of the opinion that a ban might be an extreme tool and that the same objectives can be achieved through regulatory measures. Paragraph 7 of the 'Noteprecursor to report' throws light on the same and hence it is reproduced as follows: "Options 7. The Committee has considered various approaches to achieve the objectives and notes: Achieving the objectives by doing nothing i. Issuing warnings may prevent unsophisticated consumers from dealing in VCs but it would not deter VC service providers or those raising funds through Initial Coin Offerings (ICOs), mis-sell or run Ponzi schemes. ii. The recourse available to customers would be inadequate. iii. Persons who provide VC services without necessary fit and proper criteria including capital and technology would conti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gislation to be known as "Banning of Cryptocurrency and Regulation of Official Digital Currency Act, 2019". The draft of the bill contained a proposal to ban the mining, generation, holding, selling, dealing in, issuing, transferring, disposing of or using crypto currency in the territory of India. At the same time, the bill contemplated (i) the creation of a digital rupee as a legal tender, by the central government in consultation with RBI and (ii) the recognition of any official foreign digital currency, as foreign currency in India. 6.171. In case the said enactment (2019) had come through, there would have been an official digital currency, for the creation and circulation of which, RBI/central government would have had a monopoly. But that situation had not arisen. The position as on date is that VCs are not banned, but the trading in VCs and the functioning of VC exchanges are sent to comatose by the impugned Circular by disconnecting their lifeline namely, the interface with the regular banking sector. What is worse is that this has been done (i) despite RBI not finding anything wrong about the way in which these exchanges function and (ii) despite the fact that VCs are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of setting aside the same does not arise. 7.2. There is still one more issue left. It is the freezing of the account of Discidium Internet Labs Pvt. Ltd., which is petitioner no. 6 in WP (C) No. 373 of 2018. This company seems to have had an amount of Rs. 12,05,36,667.83/- in current account no. 3677101984 with the Central Bank of India, Worli, Mumbai. When the petitioner made a request on 21-05-2018 to close the account and issue a demand draft, the Central Bank replied that they had referred the matter to their higher authorities/regulators. Therefore, petitioner no. 6 has come up with an application in I.A. No. 110424 of 2019 for appropriate directions. 7.3. RBI has filed a reply to this application conceding that it had not directed the bank to freeze the account. It is specifically stated in paragraph 12 of the affidavit-in-reply of RBI that they did not issue any direction to the Central Bank of India to freeze the account. However, RBI has taken a stand that the prayer for release of the amount does not arise out of or incidental to the main writ petition. 7.4. But we think that the lukewarm response of RBI in this regard is wholly unjustified. Admittedly, the ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....try, a universal definition has yet to emerge and could quickly change as the VC ecosystem continues to transform. 9 This type of VCs is backed by the combination of existing tangible assets or national currencies and the creditworthiness of the issuer. 10 Guidance for a Risk-Based Approach - Virtual Currencies, FATF, page 26 (June 2015) available at http://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBAVirtual-Currencies.pdf (Last accessed on 27-02-2020). 11 Glossary of the FATF Recommendations (updated on October 2018) available at https://www.fatf-gafi.org/glossary/u-z/ (Last accessed on 27-02-2020). 12 Virtual Currency Schemes, European Central Bank, page 13 (October 2012) available at http://www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf (Last accessed on 27-02-2020). 13 Phoebus Athanassiou, Impact of Digital Innovation on the Processing of Electronic Payments and Contracting: An Overview of Legal Risks, Legal Working Paper Series, No. 16, European Central Bank (October 2017) available at https://www.ecb.europa.eu/pub/pdf/scplps/ecb.lwp16.en.pdf?344b9327fec917bd7a8fd7 0864a94f6e (Last accessed on 27-02-2020). 14 EBA Opinion on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....001.pdf (Last accessed on 27-02-2020). 23 Guide for cryptocurrency users and tax professionals (Last modified on 27 June 2019) available at https://www.canada.ca/en/revenue-agency/programs/about-canadarevenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html (Last accessed on 27-02-2020). 24 Virtual Currency (Last modified on 26 June 2019) available at https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agencycra/compliance/digital-currency.html (Last accessed on 27-02-2020). 25 As amended in June 2019, which amendment is yet to come into force. 26 Regulation of Cryptocurrency Around the World - Israel, Report of The Law Library of Congress, Global Legal Research Center (June 2018) available at https://www.loc.gov/law/help/cryptocurrency/world-survey.php#israel (Last accessed on 27-02-2020). 27 Regulation of Cryptocurrency Around the World - Mexico, Report of The Law Library of Congress, Global Legal Research Center (June 2018) available at https://www.loc.gov/law/help/cryptocurrency/world-survey.php#mexico (Last accessed on 27-02-2020). 28 Regulation of Cryptocurrency Around the World - Austria, Report of The Law Library of Congre....