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SUPREME COURT OF INDIA
ROHINTON FALI NARIMAN, ANIRUDDHA BOSE, V. RAMASUBRAMANIAN, JJ.
INTERNET AND MOBILE ASSOCIATION OF INDIA - Petitioner
Versus
RESERVE BANK OF INDIA - Respondent
Writ Petition (Civil) No.528 of 2018 WITH Writ Petition (Civil) No.373 of 2018
Decided on : 04-03-2020
(a) Reserve Bank of India Act, 1934 - Preamble, section 3, 17, 20, 21, 22, 26, 28A, 38, 45JA, 45L, 45U, 45W - RBI conferred power to determine policy and issue directions for operation/regulation of the credit/financial system of the country to its advantage. (Para 6)
(b) Banking Regulation Act, 1949 - Section 21, 22, 35, 36 - RBI empowered to determine policy in relation to advances to be followed by banking companies - The determination of policy may be in (i) public interest (ii) interests of depositors or (iii) interests of the banking policy - RBI also empowered to issue license and issue directions to banking companies subject to certain terms and conditions as it may think fit to impose - RBI also empowered to caution or prohibit banking companies against entering into any particular transaction or class of transactions. (Para 6)
(c) Payment and Settlement Systems Act, 2007 - Sections 3, 17, 18 - Designating RBI as authority for regulation and supervision of payment systems - RBI also authorized to issue directions to a payment system, a system participant, or system providers. (Para 6)
(d) Virtual currency - Not having status of a legal tender - But constituting digital representations of value - Capable of functioning as (i) a medium of exchange and/or (ii) a unit of account and/or (iii) a store of value - Capable of being used as real money - Thus capable of performing some or most of the functions of real currency - Section 2(h), Foreign Exchange Management Act, 1999. (Para 6)
(e) Reserve Bank of India Act, 1934 - Preamble, section 3, 17, 20, 21, 22, 26, 28A, 38, 45JA, 45L, 45U, 45W r/w Section 21, 22, 35, 36, Banking Regulation Act, 1949; Sections 3, 17, 18, Payment and Settlement Systems Act, 2007 - Role and power of RBI - Not dependent upon something acquiring status of a legal tender, or having all the four characteristics or functions of money. (Para 6)
(f) Word and Phrases - Money - Not defined in RBI Act, 1934, Banking Regulation Act, 1949, Payment and Settlement Systems Act, 2007 or Coinage Act, 2011 - Sale of Goods Act, 1930 excludes money from definition of goods - Section 2(b) of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 and Clause (33) of Section 65B of the Finance Act, 1994 and Section 2(75), Central Goods and Services Tax Act, 2017 define money - Finance Act identifies many instruments other than legal tender, including deferred payment or other valuable consideration would also come within the meaning of money could come within the definition of money. (Para 6)
(g) Foreign Exchange Management Act, 1999 - Section 2(h) - “Currency” - Promissory notes, cheques, bills of exchange etc. not exactly currencies but operate as valid discharge (or the creation) of a debt only between 2 persons or peer-to-peer - Virtual currency having these attributes cannot be said to be just goods/commodities and can never be regarded as real money. (Para 6)
(h) Virtual currency - An intangible property - Can act under certain circumstances as money (even without faking a currency) - RBI has statutory power over such activity - Impugned decision of RBI not ultra vires - Section 3, Reserve Bank of India Act, 1934 - Expression “management of the currency” would also include what is capable of faking or playing the role of a currency. (Para 6)
(i) Words and phrases - Regulate - Power to regulate includes power to prohibit. (Para 6)
(j) Section 3 r/w Section 36(1)(a), Banking Regulation Act, 1949 - Impugned Circular not imposing a prohibition on use of or trading in VCs - Merely directing entities regulated by RBI not to provide banking services to those engaged in trading or facilitating trading in VCs - RBI empowered to caution or prohibit banking companies against entering into certain types of transactions or class of transactions - Prohibition not per se against trading in VCs - Power of RBI is not merely curative but also preventive. (Para 6)
(k) Interpretation of statute - Delegated legislation - Regulations - Supporting legislation - Have force of law - An Act should be read with the Regulations made thereunder. (Para 6)
(l) Payment and Settlement Systems Act, 2007 - Section 18 - RBI has power to frame policies and issue directions to banks who are system participants, with respect to transactions falling under category of payment obligation or payment instruction, if not a payment system. (Para 6)
(m) RBI Act, 1934 - Section 45JA and 45L r/w Section 35A(1), Banking Regulation Act, 1949 - Satisfaction of RBI to issue directions - Application of mind - Before issuing impugned Circular RBI brooding over the issue for almost five years - No non-application of mind on part of RBI - RBI neither required to write a thesis or a judgment for arriving at a “satisfaction”. (Para 6)
(n) Administration of justice - Judicial review - Malice in law/colourable exercise of power - RBI not directing closing of any account - Only directing Banks not to provide services for facilitating any person or entity in dealing with or settling VCs - Not amounting to closing or freezing of any account in relation to other ventures - Impugned circular not falling under malice in law or colourable exercise of power. (Para 6)
(o) Reserve Bank of India Act, 1934 - Section 3 - Vires of the circular issued thereunder - MS Gill test may not always be applicable where larger public interest is involved - In such situations, additional grounds can be looked into for examining the validity of an order. (Para 6)
(p) RBI Act - Section 3 - Circular - Challenge on ground of other enforcement agencies not taking any action - Functions of RBI and other agencies different - Each entitled to have a different approach - RBI cannot be faulted for not adopting the very same approach as that of others - Circular can also not be tested on approach adopted by other countries. (Para 6)
(q) Interpretation - Report - Should be accepted in total, if at all - Cannot be accepted selectively. (Para 6)
(r) Administration of justice - Rationality - Acceptance of a technological advancement/ innovation, but rejection of a by-product of such innovation - Not irrational - There is nothing like a “take it or leave it” option. (Para 6)
(s) RBI Act, 1934 - Section 3(1), 21(1), 22(1) and 38 - RBI cannot be equated to any other statutory body, the Act being pre-constitutional legislation - Power conferred upon the delegate in other statutes can be tinkered with, amended or even withdrawn - Not so in case of RBI - It is specifically empowered to do certain things to the exclusion of even the central government - Its decisions cannot be held in status to even lower than an executive decision. (Para 6)
(t) Constitution of India - Article 19(1)(g) - Circular issued under section 3(1), RBI Act, 1934 - Circular seeking to protect only the regulated entities, by ring-fencing them - Hitting VC Exchanges indirectly - Circular severing connection between virtual currency and fiat currency looking to the growth of a parallel economy - Cannot be very lightly nullified as offending Article 19(1)(g). (Para 6)
(u) Constitution of India - Article 19(1)(g) - Circular issued under section 3(1), RBI Act, 1934 - Proportionality - Instantly Circular not forcing members to do deal in cash - Circular lowering the potential adverse impact of VCs on the banking sector and the digitization of the Indian payments industry though such effect not actually noticed - No data about degree of harm suffered by entities regulated by RBI on account of the provision of banking services to the online platforms running VC exchanges - Impugned measure not proportionate. (Para 6)
Facts of the case:
Reserve Bank of India issued a “Statement on Developmental and Regulatory Policies” on April 5, 2018, paragraph 13 of which directed the entities regulated by RBI (i) not to deal with or provide services to any individual or business entities dealing with or settling virtual currencies and (ii) to exit the relationship, if they already have one, with such individuals/ business entities, dealing with or settling virtual currencies (VCs).
Following the said Statement, RBI also issued a circular dated April 6, 2018, in exercise of the powers conferred by Section 35A read with Section 36(1)(a) and Section 56 of the Banking Regulation Act, 1949 and Section 45JA and 45L of the Reserve Bank of India 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.
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 must be stated here that the individuals who are some of the petitioners in the second writ petition are young high-tech entrepreneurs who have graduated from premier educational institutions of technology in the country.
Finding of the Court:
The petitioners are entitled to succeed and the impugned Circular dated 06-04-2018 is liable to be set aside on the ground of proportionality.
Result: Appeals allowed.
Certainly. Based on the provided legal document, the key points are as follows:
Virtual currencies are digital representations of value that do not have the status of legal tender but can function as a medium of exchange, a unit of account, or a store of value, and may be used as real money under certain circumstances (!) (!) .
Virtual currencies are not classified as goods or commodities; rather, they are intangible properties that can act as money without being recognized as legal tender (!) (!) .
The regulatory authority, RBI, has statutory powers to regulate activities related to virtual currencies, including the power to prohibit, even without their acquiring the status of currency or full money functions (!) (!) .
The RBI circular directing regulated entities not to deal with or facilitate transactions in virtual currencies is within its statutory powers and aims to prevent potential risks to the financial system, consumer protection, and national security, especially concerning illegal activities like money laundering and terror financing (!) (!) (!) (!) .
The circular does not impose a total ban on virtual currencies or prohibit their use entirely; instead, it restricts banking services to entities involved in dealing with virtual currencies, which affects their operational capacity but does not criminalize ownership or individual transactions outside banking channels (!) (!) .
The measures taken by RBI are based on extensive ongoing assessments, reports, and warnings issued over several years, reflecting a considered approach rather than arbitrary action (!) (!) (!) .
The power of RBI to regulate includes the authority to take preventive and curative actions, and its decisions are supported by detailed application of relevant considerations, including risks to monetary stability, financial integrity, and national security (!) (!) (!) .
The regulation of virtual currencies is justified by their potential to facilitate illegal activities, their impact on monetary policy, and the need to safeguard the banking and payment infrastructure (!) (!) (!) (!) .
The regulation and restrictions are proportionate to the risks identified, and less restrictive measures have been considered but found insufficient to address concerns, especially regarding illegal activities and financial stability (!) (!) .
The constitutional challenge under Article 19(1)(g) is addressed by the proportionality of the measures, which aim to balance individual trade rights with public interest, national security, and the integrity of the financial system (!) (!) (!) .
The RBI’s actions are within its statutory mandate, and its decision-making process is supported by extensive factual and legal considerations, including international practices and global regulatory standards (!) (!) [
JUDGMENT :
V. Ramasubramanian, J.
1. THE STORY LINE:
1.1. Reserve Bank of India (hereinafter, “RBI” ) issued a “Statement on Developmental and Regulatory Policies” on April 5, 2018, paragraph 13 of which directed the entities regulated by RBI (i) not to deal with or provide services to any individual or business entities dealing with or settling virtual currencies and (ii) to exit the relationship, if they already have one, with such individuals/ business entities, dealing with or settling virtual currencies (VCs).
1.2. Following the said Statement, RBI also issued a circular dated April 6, 2018, in exercise of the powers conferred by Section 35A read with Section 36(1)(a) and Section 56 of the Banking Regulation Act, 1949 and Section 45JA and 45L of the Reserve 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 must be stated here that the individuals who are some of the petitioners in the second writ petition are young high-tech entrepreneurs who have graduated from premier educational institutions of technology in the country.
Contents of the impugned Statement and Circular of RBI:
1.4. The Statement dated 05-04-2018 issued by RBI, impugned in these writ petitions, sets out various developmental and regulatory policy measures for the purpose of (i) strengthening regulation and supervision (ii) broadening and deepening financial markets (iii) improving currency management (iv) promoting financial inclusion and literacy and (v) facilitating data management. Paragraph 13 of the said statement which falls under the caption “currency management” deals directly with virtual currencies and the same constitutes the offending portion of the impugned Statement. Therefore, paragraph 13 of the impugned Statement alone is extracted as follows:
13. Ring-fencing regulated entities from virtual currencies
Technological innovations, including those underlying virtual currencies, have the potential to improve the efficiency and inclusiveness of the financial system. However, Virtual Currencies (VCs), also variously referred to as crypto currencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others.
Reserve Bank has repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by RBI shall not deal with or provide services to any individual or business entities dealing with or settling VCs. Regulated entities which already provide such services shall exit the relationship within a specified time. A circular in this regard is being issued separately.
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