CRYPTO V/S RBI arguments on August 14

Compilation of all arguments in Supreme Court of India on August 14 shared by Crypto Kanoon

Case is listed in Court no 4 as item no. 1.
Court about to be resumed in few minutes.

  • After the Court starts, few minutes will go in dealing with “urgent mentioning” matters.

  • Urgent Mentioning matters are being dealt with.
    Crypto case hearing has started.Mr. Ashim Sood, Counsel for IAMAI, started explaining why Banking support is necessary.

  • Court asked cant u change your bank such as those which aint governed by RBI?‌ Counsel answered only foreign banks are there and exchanges use that there will be problem with Outward remittance which is hit by FEMA regulation.

  • Court says take permission from the concerned authority with regard to outward remittance.

  • further says you cant come under 19(1) g till the time you have alternate to dodge the banking ban.

  • Counsel says he will argue on this during the course.Now the counsel started on the legality of RBI ban as no study done by it.

  • Banking regulation Act prescribes the exercise of power by RBI only for the inner working of the Banks and for the interest of the depositors specifically in their capacity as depositors and not otherwise.

  • RBI taking actions for general consumer interest is beyond legality. A judgement in support of the above point is being read by Mr. Ashim Sood. Judgement summarises that RBI cant step out of its powers as set out in Banking regulation Act.

  • Therefore its action against private businesses in the form of 6th april circular is illegal.

  • Another judgement of the Supreme court is being read out which enumerates basic fetters on RBI is the exercise of its powers including that it must act in good faith.

  • Counsel says that RBI in its reply itself admits that RBI does not have jurisdiction to speak on the legality of Crypto as it is neither coins nor currency and RBI Act and Payment Settlements Act are not applicable on Cryptos.

  • Despite that they use ancillary powers in a diff.

  • Act and takes action against exchanges which is clearly a colorable exercise.

  • RBI acted under error of law as it says that exchanges have to show that in which provision they have a right to use crypto for exchange of goods and services.

  • However, the law says something which is not prohibited is legally permitted.

  • Banning or regulating something must be a legislative act, it is a power which cannot be exercised by way of delegation.

  • A decision to ban or regulate should have come from the legislature instead of RBI.

  • Counsel argues that doing business in Crypto is not “Res extra commercium”.

  • Res extra commercium (lat. “a thing outside commerce”) is a doctrine originating in Roman law, holding that certain things may not be the object of private rights, and are therefore insusceptible to being traded.

  • Curtailment of an economic activity must come from the legislature as it puts people out of business involved in that economic activity.

  • Further says that we are not on the legislative competence of the legislature bit just saying that the Competence has to be exercised by the legislature itself and not delegatee.

  • Virtual currencies are of many kinds/ types.

  • RBI financial stability report 2013 is being referred to show why a legislative policy is necessary for Cryptos.

  • UK’s financial conduct authority’s report on Crypto Assets is being read by the counsel.

  • It recognizes 3 kinds of Crypto Assets.

  • There is an existing differences between diff kinds of Crypto Assets.

  • However RBI says in their reply that there is no need to define virtual currencies.

  • Says that the Govt. has to apply its mind in order to deal with a modern technology, it cant just put out the entire thing in one box just because they don’t want to think over it.

  • Counsel is referring to securities contract regulation Act.

  • By showing various docs, counsel submits that RBI can exercise such power only in the case where there is an extant legislative policy of the Parliament.

  • However in the present case there is total absence of relatable legislative policy behind the action taken by RBI under Sec. 35A.

  • Judge says that there are wide powers in the existing Acts which govern RBI powers. The important question here is that whether that power is guided by the preamble of the Acts or not.

  • Counsel says that preamble of the RBI Act provide general powers only. Whereas no legislative backing for action of RBI.

  • The judge asks question “cant RBI ban an activity in order to maintain financial stability or not as provided under the Act?” Counsel answers that any power to be exercised by RBI has to be guided by some legislative Act.

  • Otherwise tomorrow RBI can say that we are banning Cheez burgers.

  • So there has to be a specific limit of delegation. In absence thereof, it will be absurd. Section 45 J confers power on RBI to formulate the policy, the judge says.

  • Counsel answers that 45J is about NBFCs however we are concerned with the Banks.

  • Counsel says 45J of RBI Act though provides power of policy formulation but RBI took action under 35A of Banking regulation Act which must be guided by the preamble of that legislation and not RBI.

  • Judge says both legislations are cognate. Judge asks what are you concerned with bitcoin or all Crypto?

  • Counsel answers crypto in general.

  • Judge says we want to understand all, give us in writing about all and how they are different. DLT is being explained.

  • How it is immutable! Crypto is an electronic token to incentivise people who serves the DLT system to maintain its integrity.

  • Crypto is being explained with very beautiful illustration.

  • Judge says there is an essence of speculation when an exchange facilitates two people to buy sell.

  • Counsel nods in agreement and says it is similar to commodity trade, share market etc.

  • People have consensus on its value. Crypto is not an undesirable outcome but it is a technology in itself.

  • No country has found the Crypto as pernicious and no country believe that it should not be regulation.

  • No country believes that it should be banned. Chart explaining other countries’ treatment to Crypto, is being read.

  • It is the same chart submission of which was directed by the court on the last date.

  • Some countries have specific laws to regulate Crypto while some have general set of guidelines.

  • Treatment of Crypto by EU, China, France has been discussed.
    Japan specifically regulates exchanges under Payment Services Act.

  • Japan implemented KYC and Anti Money laundering laws on exchanges.

  • Mexico formulated specific fintech companies in March 2018.

  • Laws in all G20 nations are being discussed.Singapore, Saudi Arabia, Australia, Malaysia.

  • South Africa, UK.USA,New York law regulating Crypto in being discussed in depth.

  • Judge says read the types of Virtual currencies as provided under NY law, as he finds it interesting.

  • Counsel submits that he does not deny that Crypto has detrimental effects also as every technology has. but these effects are required to be regulated as other countries are doing.

  • Hearing ends here. Arguments to resume on Tuesday 20th August.