Internet and Mobile Association vs.

Reserve Bank of India

 INTRODUCTION

In India, Reserve Bank of India(RBI) is the central banking institution that

regulates the currency in order to secure monetary stability in India and it was
nationalised on 1st July 1949. On 24th December 2013 press release issued by
RBI clarified that the creation, trading, and usage of Virtual Currencies as a
medium of exchange is not authorised by the Central Bank or monetary
authority. Similarly, at the time of the Reserve Bank of India’s circular, no
legislation prohibiting the trading of virtual currencies had been enacted. The
Reserve Bank of India published the circular in response to their worry about
the hacking of virtual currencies.
 Facts of the Case
On April 6th, 2020 reserve bank of India issued a circular on development and
regulation policies in which RBI raised concern on customer protection in regards to
virtual currency also known as cryptocurrency. The circular issued by RBI directed the
entities not to deal with virtual currency and prohibited them from providing services
to individuals or other entities in the matter of dealing or settling cryptocurrency. Such
services included maintaining accounts, registering, trading, giving loans, settling, and
transfer of amounts in accounts relating to the sale or purchase of virtual currency.

Moreover, RBI also directed the entities to end their already existing relationship with
any such individual or entities that dealt with virtual currency within three months.
 RBI stated that the purpose of the prohibition of trade of virtual currency was to
strengthen the financial market, improve currency management, promotes
financial inclusion and literacy, and facilitate data management. In turn, these
measures would prevent money laundering, data hacking, and terrorist activities.
Though during a press release in 2018 RBI raised the same issue no such threats or
risks were highlighted in the same.

A writ petition was filed by the internet and mobile association of India
challenging the proportionality of the circular issued by RBI. The petitioner argued
that RBI do not have the legislative power to prohibit the trading of virtual
currency beside it also violates the fundamental right of the Indian constitution.
 Important Provisions
SECTION 35A of Banking Regulation Act, 1949 - Power of the Reserve Bank to give
directions.
SECTION 36 of Banking Regulation Act, 1949 - Further powers and functions of Reserve
Banks.
SECTION 56 of Banking Regulation Act, 1949 - Act to apply to co-
operative societies subject to modifications.
SECTION 45JA of Reserve Bank of India Act, 1934 -Power of Bank to determine policy
and issue directions.
SECTION 45L of Reserve Bank of India Act, 1934 - Power of Bank to call for information
from financial institutions and to give directions.
 Issues Raised

1. Whether RBI have the jurisdiction to regulate and impose a ban on VCs or
cryptocurrencies?
2. Whether the circular has violated the petitioner’s fundamental right of freedom to
trade given under Article 19(1)(g) of the constitution of India?
 Judgement
Court held that the Circular was unbalanced on the grounds that none of the
RBI’s controlled elements had ‘endured any misfortune or unfavourable
impact straightforwardly or in a roundabout way, because of the interface that
the VC trades had with any of them. Furthermore, by depending on the
administrative methodologies in other purviews, the Court held that there
were elective administrative methods through which the RBI might have
accomplished its expressed targets. The push of the Court’s decision in such a
manner was that guideline would be a more proportionate reaction than
disallowance.
 Relevance of this Case
As per the above mentioned points and the judgement it is clear that that
petitioner succeed and the circular issued by Reserve Bank of India is
declared to be un-enforceable. Due to the judgement, the businesses can
rejoin the industry and hence can trade in Virtual currencies (crypto currency).
However it is important to know that the Supreme Court in it's judgement
have only stuck down the circular issued by the RBI but have not declared the
virtual currencies as legal or illegal, moreover since their is no legislation
regarding the same therefore virtual currencies remain unregulated in India.
 Recently a bill has being drafted namely “Banning of Crypto currency and
regulation of official Digital currency bill, 2019.” The bill has being drafted in
regard of the legal status of virtual currency in India, however it has not been
presented in front of the parliament or have not being discussed by the members of
parliament. As stated above too, the bill raises certain issues like holding, selling,
disposing off or any kind of trade through crypto currencies in India is to be
considered legal or not.
Thank you !