INTERNET AND MOBILE ASSOCIATION OF INDIA v. RESERVE BANK OF INDIA 2020, INSC 252 (4 March 2020)
Brief Facts of the case titled as ‘Internet and Mobile Association of India v. Reserve Bank of India’ are as under:
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).
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.
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 came up with the two writ petitions. The petitioner in the first writ petition were a specialized industry body known as ‘Internet and Mobile Association of India’ which represents the interests of online and digital services industry.
4. The petitioners in the second writ petition comprised of a few companies which run online crypto assets exchange platforms, the shareholders/founders of these companies and a few individual crypto assets traders.
5. The Statement dated 05-04-2018 and the Circular dated 06-04-2018 of RBI, impugned in the two writ petitions, were a culmination of a flurry of activities by different stakeholders, nationally and globally, over a period of about 5 years. This included a number of reports by RBI and Financial Action Task Force (FATF) including the 2015 report “Guidance for a Risk Based Approach to Virtual Currencies” which warned about the risks and gave a picture of proliferation of virtual currencies, Report by “Committee on Payments and Market Infrastructure” (CPMI) of Bank of International Settlements (BIS) on the risks in the market of digital currency, 2015 and 2016 Financial Stability reports by RBI on the same and so on.
6. On 01-02-2017, RBI issued a Press Release cautioning users, holders and traders of virtual currencies. Closely on the heels of the Press Release, the Government of India, Ministry of Finance, constituted, in April 2017, an Inter-Disciplinary Committee comprising of the Special Secretary (Economic Affairs) and representatives of the Departments of Economic Affairs, Financial Services, Revenue, Home Affairs, Electronics and Information Technology, RBI, NITI Aayog, and State Bank of India. The report recommended a number of steps including warning the general public about the risks of crypto currency and steps by the government and making the dealing in such currencies illegal.
7. Following the setting up of advisory committee by the govt., regarding the crypto currencies, report by Inter- Regulatory Working Group on Fintech and Digital Banking, set up by RBI, RBI issued another Press Release dated 05- 12-2017 reiterating the concerns expressed in earlier press releases. The Government of India, Ministry of Finance also issued a statement on 29-12-2017 cautioning the users, holders and traders of VCs that they are not recognized as legal tender and that the investors should avoid participating in them.
8. On 01-02-2018, the Minister of Finance, in his budget speech said that the Government did not consider crypto currencies as legal tender or coin and that all measures to eliminate the use of these currencies in financing illegitimate activities or as part of the payment system, were to be taken by the Government. However, he also said that the Government will explore the use of blockchain technology proactively for ushering in digital economy.
9. However, Financial Stability Board (FSB) sent out a communication dated 13-03-2018 in the wake of G-20 meet, stating 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. Although, it 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.
10. On 02-04-2018, RBI sent an e-mail to the Government, enclosing a note on regulating crypto assets. It was with reference to the record of discussions of the last meeting of the Inter-Ministerial Committee on virtual currency. That note examined the pros and cons of banning and regulating crypto currencies and suggested that it had to be done, backed by suitable legal provisions. Following which the impugned circular was issued by RBI and a number of writ petitions were filed out of which the two 528 and 373 came before the court for consideration in this case.
11. Accordingly, the writ petitions were allowed and the Circular dated 06- 04-2018 was set aside on the ground of proportionality. The Statement dated 05-04-2018, though challenged in one writ petition, was not in the nature of a statutory direction and hence the question of setting aside the same did not arise.
12. Directions were given to the RBI to defreeze the account of petitioner in petition no.373.