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The SC sets aside the RBI Circular, whereby, the Banks were directed not to provide services to those dealing in Virtual Currency.

Supreme Court of India

Justice V. Ramasubramanian, Justice Rohinton Fali Nariman & Justice Aniruddha Bose

The SC {INTERNET AND MOBILE ASSOCIATION OF INDIA v. RESERVE BANK OF INDIA} holds that till date, RBI has not come out with a stand that any of the entities regulated by it namely, the nationalized banks/scheduled commercial banks/cooperative banks/NBFCs has suffered any loss or adverse effect directly or indirectly, on account of the interface that the Virtual Currency ( referred to as VC) exchanges had with any of them. It was held that there must have been at least some empirical data about the degree of harm suffered by the regulated entities (after establishing that they were harmed). It was also held that it was not the case of RBI that any of the entities regulated by it has suffered on account of the provision of banking services to the online platforms running VC exchanges.

Further held that it is no doubt true that RBI has very wide powers not only in view of the statutory scheme of the enactments, but also in view of the special place and role that it has in the economy of the country. It was held that these powers can be exercised both in the form of preventive as well as curative measures. It was also held that but the availability of power is different from the manner and extent to which it can be exercised. It was held that the proportionality of such measure, for the determination of which RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none. It was also held that when the consistent stand of RBI was that they have not banned VCs and when the Government of India was unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it was not possible to hold that the impugned measure is proportionate.

Accordingly, the impugned Circular dated 06-04-2018 was set aside on the ground of proportionality by the SC. Accordingly, the writ petitions were allowed.

In the present case, 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).

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 (“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.

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 had filed these writ petitions, which came to be allowed by the SC. 

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