INTERNET AND MOBILE ASSOCIATION OF INDIA v. RESERVE BANK OF INDIA

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(Writ Petition (Civil) No. 528 of 2018)

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A payment system, monetary policy or the credit policy of the country and to issue directions to system providers or system participants or any other person generally, to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest – Depending on the text of the statute involved in the case and the context, various courts in different jurisdictions have identified virtual currencies to belong to different categories ranging from property to commodity to non-traditional currency to payment instrument to money to funds – Petitioners’ contention that VCs are just goods/commodities and can never be regarded as real money and that they are carrying on an activity over which RBI has no power statutorily, not accepted – Petitioners’ contention that the impugned decision is ultra vires is rejected – Impugned Circular does not impose a prohibition on the use of/ trading in VCs, the prohibition is not per se against the trading in VCs – It is against banking companies, with respect to a class of transactions – Further, RBI cannot be held guilty of non-application of mind when the sequence of events from June 2013 up to 02-04- 2018 show that RBI was brooding over the issue for almost five years – Also, the contention that the impugned Circular is vitiated by malice in law and is a colorable exercise of power cannot be sustained – Impugned Circular cannot be assailed on the basis of E M. S. Gill test either – It is no doubt true that RBI has very wide powers however, the availability of power is different from the manner and extent to which it can be exercised – RBI has not so far found, the activities of VCEs to have actually impacted adversely, the way the entities regulated by RBI function – When the consistent F stand of RBI is that they have not banned VCs and when the Government of India is 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 is not possible to hold that the impugned measure is proportionate – G Impugned Circular dtd. 06.04.18 is set aside on the ground of proportionality – Statement dtd. 05.04.18, though challenged, is not in the nature of a statutory direction and hence the question of setting aside the same does not arise – Finance Act, 2016 – Banking Regulation Act, 1949 – ss.5, 8, 21, 22, 27, 29A, 30(1B), 35AA, 35AB, 35A(1)(a), 36(1)(a), 36AA – Payment and Settlement Systems Act, H 2007 – ss.2(1); 2(1)(g), (h), (i), (p) and ss.3, 4(1), 10(2), 11, 17, 18

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A advantage (ii) to take over the management of the currency from central government (iii) to have the sole right to make and issue bank notes that would constitute legal tender at any place in India (iv) regulate the financial system of the country to its advantage (v) to have a say in the determination of inflation target in terms of the consumer price index (vi) to have complete control over banking companies (vii) to regulate and supervise the payment systems (viii) to prescribe standards and guidelines for the proper and efficient management of the payment systems (ix) to issue directions to a payment system or a system participant which in RBI’s opinion is engaging in any act that is likely to result in systemic risk being inadequately controlled or is likely to affect the payment system, the monetary policy or the credit policy of the country and (x) to issue directions to system providers or the system participants or any other person generally, to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest. D [Para 6.50][364-D-H] 1.3 Fixing the identity of VCs There is unanimity of opinion among all the regulators and the governments of various countries that though virtual currencies have not acquired the status of a legal tender, they nevertheless constitute digital representations of value and that they are capable of functioning as (i) a medium of exchange and/ or (ii) a unit of account and/or (iii) a store of value. The governments and money market regulators throughout the world have come to terms with the reality that virtual currencies are capable of being used as real money, but all of them have gone into the denial mode (like the proverbial cat closing its eyes and thinking that there is complete darkness) by claiming that VCs do not have the status of a legal tender, as they are not backed by a central authority. But what an article of merchandise is capable of functioning as, is different from how it is recognized in law to be. It is as much true that VCs are not recognized as legal tender, as it is true that they are capable of performing some or most of the functions of real currency. [Paras 6.59, 6.62][381D-E, 382E-G]

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1.4 The Court does not think that RBI’s role and power can come into play only if something has actually acquired the status of a legal tender. The Court does not also think that for RBI to invoke its power, something should have all the four characteristics or functions of money. [Para 6.65][384A-B] 1.5 Depending upon the text of the statute involved in the case and (ii) depending upon the context, various courts in different jurisdictions have identified virtual currencies to belong to different categories ranging from property to commodity to non-traditional currency to payment instrument to money to funds. While each of these descriptions is true, none of these constitute the whole truth. Every court which attempted to fix the identity of virtual currencies, merely acted as the 4 blind men in the Anekantavada philosophy of Jainism, (theory of non-absolutism that encourages acceptance of relativism and pluralism) who attempt to describe an elephant, but end up describing only one physical feature of the elephant. RBI was also caught in this dilemma. Nothing D prevented RBI from adopting a short circuit by notifying VCs under the category of “other similar instruments” indicated in Section 2(h) of FEMA, 1999 which defines ‘currency’ to mean “all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers’ cheque, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments as may be notified by the Reserve Bank.” After all, promissory notes, cheques, bills of exchange etc. are also not exactly currencies but operate as valid discharge (or the creation) of a debt only between 2 persons or peer-to-peer. Therefore, it is not possible to accept the contention of the petitioners that VCs are just goods/commodities and can never be regarded as real money. Once it is accepted that some institutions accept virtual currencies as valid payments for the purchase of goods and services, there is no escape from the conclusion that the users and traders of virtual currencies carry on an activity that falls squarely within the purview of the Reserve Bank of India. The G statutory obligation that RBI has, as a central bank, (i) to operate the currency and credit system, (ii) to regulate the financial system and (iii) to ensure the payment system of the country to be on track, would compel them naturally to address all issues that are perceived H

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A as potential risks to the monetary, currency, payment, credit and financial systems of the country. If an intangible property can act under certain circumstances as money (even without faking a currency) then RBI can definitely take note of it and deal with it. Hence it is not possible to accept the contention of the petitioners that they are carrying on an activity over which RBI has no power B statutorily. [Paras 6.85-6.87][393G, 394A-G] 1.6 RBI is the sole repository of power for the management of the currency, under Section 3 of the RBI Act. RBI is also vested with the sole right to issue bank notes under Section 22(1) and to issue currency notes supplied to it by the Government of India C and has an important role to play in evolving the monetary policy of the country, by participation in the Monetary Policy Committee which is empowered to determine the policy rate required to achieve the inflation target, in terms of the consumer price index. Therefore, anything that may pose a threat to or have an impact on the financial system of the country, can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system. The expression “management of the currency” appearing in Section 3(1) need not necessarily be confined to the management of what is recognized in law to be currency but would also include what is capable of faking or playing the role of a currency. It is ironical that virtual currencies which took avatar (according to its creator Satoshi) to kill the demon of a central authority (such as RBI), seek from the very same central authority, access to banking services so that the purpose of the avatar is accomplished. The F very creation of digital currency/ Bitcoin was to liberate the monetary system from being a slave to the central authority and from being operated in a manner prejudicial to private interests. Therefore, the ultra vires argument cannot be accepted when the provision of access to banking services without any interference from the central authority over a long period of time G is perceived as a threat to the very existence of the central authority. Hence, it is held that RBI has the requisite power to regulate or prohibit an activity of this nature. [Paras 6.90, 6.91][395D-G; 396A-B]

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1.7 If at all, the power is only to regulate, not prohibit A The projection of the impugned decisions of RBI as a total prohibition of an activity altogether, may not be correct. The impugned Circular does not impose a prohibition on the use of or the trading in VCs. It merely directs the entities regulated by RBI not to provide banking services to those engaged in the B trading or facilitating the trading in VCs. Section 36(1)(a) of the Banking Regulation Act, 1949 very clearly empowers RBI to caution or prohibit banking companies against entering into certain types of transactions or class of transactions. The prohibition is not per se against the trading in VCs. It is against banking companies, with respect to a class of transactions. The C fact that the functioning of VCEs automatically gets paralyzed or crippled because of the impugned Circular, is no ground to hold that it tantamount to total prohibition. So long as those trading in VCs do not wish to convert them into fiat currency in India and so long as the VCEs do not seek to collect their service charges or commission in fiat currency through banking channels, they will not be affected by this Circular. Admittedly, peer-to-peer transactions are still taking place, without the involvement of the banking channel. In fact, those actually buying and selling VCs without seeking to convert fiat currency into VCs or vice- versa, are not affected by this Circular. It is only the online platforms which provide a space or medium for the traders to buy and sell VCs, that are seriously affected by the Circular, since the commission that they earn by facilitating the trade is required to be converted into fiat currency. Interestingly, the petitioners argue on the one hand that there is total prohibition and argue on the other hand that the Circular does not achieve its original object of curtailing the actual trading, though it cripples the exchanges. If the first part of this submission is right, the latter cannot be and if the latter part is right, the former cannot be. When RBI exercises the powers conferred upon it, both to frame a policy and to issue directions for its enforcement, such directions become supplemental to the Act itself. The impugned Circular is intended to prohibit banking companies from entering into certain territories. The Circular is actually addressed to entities regulated by RBI and not to those who do not come within the purview of RBI’s net. But the exercise of such a power by RBI, H

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A over the entities regulated by it, has caused a collateral damage to some establishments like the petitioners’, who do not come within the reach of RBI’s net. The power of a statutory authority to do something has to be tested normally with reference to the persons/entities qua whom the power is exercised. The question to be addressed in such cases is whether the authority had the B power to do that act or issue such a directive, qua the person to whom it is addressed. While persons who suffer a collateral damage can certainly challenge the action, such challenge will be a very weak challenge qua the availability of power. [Paras 6.94, 6.99 and 6.104, 6.105][397C-G, 398A, 401-F-G, 403 A-B] C 1.8 Section 18 of the Payment and Settlement Systems Act indicates (i) what RBI can do (ii) the persons qua whom it can be done and (iii) the object for which it can be done. In other words, Section 18 empowers RBI (i) to lay down policies relating to the regulation of payment systems including electronic, non- D electronic, domestic and international payment systems affecting domestic transactions and (ii) to give such directions as it may consider necessary. These are what RBI can do under Section

18. Coming to the second aspect, the persons qua whom the powers under Section 18 can be exercised are (i) system providers (ii) system participants and (iii) any other person generally or any such agency. The expression “system provider” is defined under Section 2(1)(q) to mean a person who operates an authorized payment system. The expression “system participant” is defined in Section 2(1)(p) to mean a bank or any other person participating in a payment system, including the system provider. Other than the expressions ‘system provider’ and ‘system participant’, Section 18 also uses the expressions ‘any other person’ and ‘any such agency’. The purposes for which the power under Section 18 can be exercised, are also indicated in Section 18. They are (i) regulation of the payment systems (ii) the interest of the management and operation of any payment system and (iii) public interest. The impugned Circular is primarily addressed to banks who are “system participants” within the meaning of Section 2(1)(p). The banks certainly have a system of payment to be effected between a payer and a beneficiary, falling thereby within the meaning of the expression payment system. Therefore, in the overall scheme of the Payment and Settlement Systems Act,

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2007, it is impossible to say that RBI does not have the power to frame policies and issue directions to banks who are system participants, with respect to transactions that will fall under the category of payment obligation or payment instruction, if not a payment system. Hence, the argument revolving around Section 18 should fail. [Paras 6.106-6.109, 6.111][402B, D-G, G-H, B 403-A, D-E]

2. Mode of exercise of power: Satisfaction/Application of mind/relevant and irrelevant considerations In the facts of the present case, RBI could not be held guilty C of non-application of mind. As a matter of fact, the issue as to how to deal with virtual currencies has been lingering with RBI from June 2013 onwards. The sequence of events from June 2013 up to 02-04-2018 would show that RBI had been brooding over the issue for almost five years, without taking the extreme step. D Therefore, RBI can hardly be held guilty of non-application of mind. If an issue had come up again and again before a statutory authority and such an authority had also issued warnings to those who are likely to be impacted, it can hardly be said that there was no application of mind. For arriving at a “satisfaction” as required by Section 35A(1) of Banking Regulation Act, 1949 and Section E 45JA and 45L of RBI Act, 1934, it was not required of RBI either to write a thesis or to write a judgement. In fact, RBI cannot even be accused of not taking note of relevant considerations or taking into account irrelevant considerations. RBI has taken into account only those considerations which multinational bodies and regulators of various countries such as FATF, BIS, etc., have taken into account. This can be seen even from the earliest press release dated 24-12-2013, which is more elaborate than the impugned Circular dated 06-04-2018. When a series of steps taken by a statutory authority over a period of about five years disclose in detail what triggered their action, it is not possible to see the last of the orders in the series in isolation and conclude that the satisfaction arrived at by the authority is not reflected appropriately. In any case, pursuant to an order passed by this court on 21-08-2019, RBI gave a detailed point-wise reply to the representations of the petitioners. In these representations, the H

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A petitioners have highlighted all considerations that they thought as relevant. RBI has given its detailed responses on 04-09-2019 and 18-09-2019. Therefore, the contention that there was no application of mind and that relevant considerations were omitted to be taken note of, loses its vigour in view of the subsequent developments. [Paras 6.113, 6.116-6.118][404B, 405A-D, 406G- B H, 407A-B]

3. Malice In Law/Colorable Exercise The impugned Circular does not order either the freezing or the closing of any particular account of a particular customer. C All that the impugned Circular says is that RBI regulated entities shall exit the relationship that they have with any person or entity dealing with or settling VCs, within three months of the date of the Circular. The regulated entities are directed not to provide services for facilitating any person or entity in dealing with or settling VCs. Some of the petitioners herein are individuals and companies who run virtual currency exchanges. In case they have other businesses, the impugned Circular does not order the closure of their bank accounts relating to other businesses. The prohibition under paragraph 2 of the impugned Circular is with respect to the provision of services for facilitating any person or entity in dealing with or settling VCs. This prohibition does not extend either to the closing or the freezing of the accounts of the petitioners in relation to their other ventures. There can be no quarrel with the proposition that RBI has sufficient power to issue directions to its regulated entities in the interest of depositors, in the interest of banking policy or in the interest of the banking company or in public interest. If the exercise of power by RBI with a view to achieve one of these objectives incidentally causes a collateral damage to one of the several activities of an entity which does not come within the purview of the statutory authority, the same cannot be assailed as a colourable exercise of power or being vitiated by malice in law. To constitute colourable exercise of power, the act must have been done in bad faith and the power must have been exercised not with the object of protecting the regulated entities or the public in general, but with the object of hitting those who form the target. To constitute malice in law, the act must have been done wrongfully and willfully without reasonable H

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 309 RESERVE BANK OF INDIA or probable cause. The impugned Circular does not fall under the category of either of them. The argument that the invocation by RBI, of ‘public interest’ as a weapon, purportedly for the benefit of users, consumers or traders of virtual currencies is a colourable exercise of power also does not hold water. Once it is conceded that RBI has powers to issue directions in public interest, it is impossible to exclude users, consumers or traders of virtual currencies from the coverage. In fact, the repeated press releases issued by RBI from 2013 onwards indicate that RBI did not want the members of the public, which include users, consumers and traders of VCs, even to remotely think that virtual currencies have a legal tender status or are backed by a central authority. C Irrespective of what VCs actually do or do not do, it is an accepted fact that they are capable of performing some of the functions of real currencies. Therefore, if RBI takes steps to prevent the gullible public from having an illusion as though VCs may constitute a valid legal tender, the steps so taken, are actually taken in good faith. The repeated warnings through press releases from December 2013 onwards indicate a genuine attempt on the part of RBI to safeguard the interests of the public. Therefore, the contention that the impugned Circular is vitiated by malice in law and that it is a colorable exercise of power, cannot be sustained. The power under Section 35A to issue directions is to be exercised under four contingencies namely (i) public interest (ii) interest of banking policy (iii) interest of the depositors and (iv) interest of the banking company. The expression “banking policy” is defined in Section 5(ca) to mean any policy specified by RBI (i) in the interest of the banking system (ii) in the interest of monetary stability and (iii) sound economic growth. Public interest permeates all these three areas. This is why Section 35A(1)(a) is invoked in the impugned Circular. Therefore, the argument that the impugned decision is a colorable exercise of power and it is vitiated by malice in law is rejected. [Paras 6.120, 6.122, 6.123 and 6.125][407E-G; 408C-G; 409A-B; F-G] G

4. M. S. Gill Reasoning The impugned Circular cannot be assailed on the basis of M. S. Gill test, for two reasons. First is that in Chairman, All India Railway Recruitment Board v. K. Shyam Kumar & Ors, H

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A this court held that MS Gill test may not always be applicable where larger public interest is involved and that in such situations, additional grounds can be looked into for examining the validity of an order. In Moons Technologies ltd. case this court clarified that though there is no broad proposition that MS Gill test will not apply where larger public interest is involved, subsequent materials in the form of facts that have taken place after the order in question is passed, can always be looked at in the larger public interest, in order to support an administrative order. The second reason why the weapon of MS Gill will get blunted in this case, is that during the pendency of this case, this court passed an interim order on 21-08-2019 directing RBI to give a point-wise reply to the detailed representation made by the writ petitioners. Pursuant to the said order, RBI gave detailed responses on 04-09-2019 and 18-09-2019. Therefore, the argument based on MS Gill test has lost its potency. [Para 6.126][410A-D]

D 5. Wait and watch approach of the other stakeholders Every one of these stakeholders has a different function to perform and are entitled to have an approach depending upon the prism through which they are obliged to look at the issue. Therefore, RBI cannot be faulted for not adopting the very same approach as that of others. [Para 6.128][411B-C]

6. Light-touch approach of the other countries The judicial decision of the Court cannot be colored by what other countries have done or not done. Comparative perspective helps only in relation to principles of judicial decision making and not for testing the validity of an action taken based on the existing statutory scheme. [Para 6.129][411E]

7. Precautionary steps taken by petitioners The fact of the matter is that enhanced KYC norms may remove anonymity of the customer, but not that of the VC. The G Court is not expert to say whether the safety valves put in place could have addressed all issues raised by RBI. [Para 6.131][412A- C]

8. Different types of VCs require different treatments H The very same virtual currency can have a unidirectional or bidirectional flow depending upon the scheme with which the

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 311 RESERVE BANK OF INDIA entities come up. Moreover, the question whether anonymous A VCs alone could have been banned leaving the pseudo- anonymous, is for experts and not for this Court to decide. In any case, the stand taken by RBI is that they have not banned VCs. Hence, the question whether RBI should have adopted different approaches tow ards different VCs does not arise. [Para B 6.135][413E-F]

9. Acceptance of DLT and rejection of VCs is a paradox There is nothing irrational about the acceptance of a technological advancement/innovation, but the rejection of a by- product of such innovation. There is nothing like a “take it or leave it” option. [Para 6.137][413H, A]

10. RBI’s decisions do not qualify for Judicial deference RBI is not just like any other statutory body created by an Act of legislature. It is a creature, created with a mandate to get liberated even from its creator. This is why it is given a mandate – (i) under the Preamble of the RBI Act 1934, to operate the currency and credit system of the country to its advantage and to operate the monetary policy framework in the country (ii) under Section 3(1), to take over the management of the currency from the central government (iii) under Section 20, to undertake to accept monies for account of the central government, to make payments up to the amount standing to the credit of its account and to carry out its exchange, remittance and other banking operations, including the management of the public debt of the Union (iv) under Section 21(1), to have all the money, remittance, exchange and banking transactions in India of the central government entrusted with it (v) under Section 22(1), to have the sole right to issue bank notes in India and (vi) under Section 38, to get rupees into circulation only through it, to the exclusion of the central government. Therefore, RBI cannot be equated to any other statutory body that merely serves its master. It is specifically empowered to do certain things to the exclusion of even the central government. Therefore, to place its decisions at a pedestal lower than that of even an executive decision, would do violence to the scheme of the Act. The RBI Act, 1934 is a pre-constitutional legislation, which survived the Constitution by H

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A virtue of Article 372(1) of the Constitution. The difference between other statutory creatures and RBI is that what the statutory creatures can do, could as well be done by the executive. The power conferred upon the delegate in other statutes can be tinkered with, amended or even withdrawn. But the power B conferred upon RBI under Section 3(1) of the RBI Act, 1934 to take over the management of the currency from the central government, cannot be taken away. The sole right to issue bank notes in India, conferred by Section 22(1) cannot also be taken away and conferred upon any other bank or authority. RBI by virtue of its authority, is a member of the Bank of International C Settlements, which position cannot be taken over by the central government and conferred upon any other authority. Therefore, to say that it is just like any other statutory authority whose decisions cannot invite due deference, is to do violence to the scheme of the Act. In fact, all countries have central banks/ D authorities, which, technically have independence from the government of the country. To ensure such independence, a fixed tenure is granted to the Board of Governors, so that they are not bogged down by political expediencies. Therefore, the argument that a policy decision taken by RBI does not warrant any deference cannot be accepted. [Paras 6.139, 6.141][414-D-G; 416-B-E, H] E 11.1 Article 19(1)(g) challenge & Proportionality The buying and selling of crypto currencies through VC Exchanges can be by way of hobby or as a trade/business. The distinction between the two is that there may or may not exist a F profit motive in the former, while it would, in the latter. Persons who engage in buying and selling virtual currencies, just as a matter of hobby cannot pitch their claim on Article 19(1)(g), for what is covered therein are only profession, occupation, trade or business. Therefore hobbyists, who are one among the three categories of citizens (hobbyists, traders in VCs and VC G Exchanges), straightaway go out of the challenge under Article 19(1)(g). The second and third categories of citizens namely, those who have made the purchase and sale of VCs as their occupation or trade, and those who are running online platforms and VC exchanges can certainly pitch their claim on the basis of Article H

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19(1)(g). Technically speaking, the second category of citizens cannot claim that the impugned decision of RBI has the effect of completely shutting down their trade or occupation. Citizens who have taken up the trade of buying and selling virtual currencies are not prohibited by the impugned Circular (i) either from trading in crypto-to-crypto pairs (ii) or in using the currencies stored in their wallets, to make payments for purchase of goods and services to those who are prepared to accept them, within India or abroad. Virtual currencies cannot be stored anywhere, in the real sense of the term, as they do not exist in any physical shape or form. What is actually stored is the private keys, which can be used to access the public address and transaction signatures. C The software program in which the private and public keys of those who own virtual currencies is stored, is called a digital wallet. There are different types of wallets namely (i) paper wallet which is essentially a document that contains a public address for receiving the currency and a private key which allows the owner to spend or transfer the virtual currencies stored in the address (ii) mobile wallet, which is a tool which runs as an app on the smartphone, where the private keys are stored, enabling the owner to make payments in crypto currencies directly from the phone (iii) web wallet, in which the private keys are stored on a server which is constantly online (iv) desktop wallet, in which private keys are stored in the hard drive and (v) hardware wallet, where the private keys are stored in a hardware device such as pen drive. All the above types of wallets except the desktop wallet allow a great degree of flexibility, in that they can be accessed from anywhere in the world. Most of the wallets except perhaps desktop wallet, have great mobility and have transcended borders. Therefore, despite the fact that the users and traders of virtual currencies are also prevented by the impugned Circular from accessing the banking services, the impugned Circular has not paralyzed many of the other ways in which crypto currencies can still find their way to or through the market. Persons who have suffered a deadly blow from the impugned Circular are only those running VC exchanges and not even those who are trading in VCs. [Paras 6.147– 6.154][419-F-H; 420-A-H; 421-A-D]

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A 11.2 Though at the time when the impugned Circular was issued, RBI has not obviously addressed many of the issues flagged by the writ petitioners, RBI did in fact consider the issues raised by the petitioners, pursuant to the order passed by this court on 21-08-2019. RBI has also analyzed in Annexure B to the reply dated 18-09-2019 extracted above, the additional safeguards suggested by the petitioners, to see if the purpose of the impugned measure can be achieved through less intrusive measures. While exercising the power of judicial review the Court may not scan the response of RBI in greater detail to find out if the response to the additional safeguards suggested by the petitioners was just imaginary. But at the same time the Court cannot lose sight of three important aspects namely, (i) that RBI has not so far found, in the past 5 years or more, the activities of VC exchanges to have actually impacted adversely, the way the entities regulated by RBI function (ii) that the consistent stand taken by RBI up to and including in their reply dated 04-09-2019 D is that RBI has not prohibited VCs in the country and (iii) that even the Inter-Ministerial Committee constituted on 02-11-2017, which initially recommended a specific legal framework including the introduction of a new law namely, Crypto-token Regulation Bill 2018, was of the opinion that a ban might be an extreme tool and that the same objectives can be achieved through regulatory measures. The Crypto-token Regulation Bill, 2018 initially recommended by the Inter-Ministerial Committee contained a proposal (i) to prohibit persons dealing with activities related to crypto tokens from falsely posing these products as not being securities or investment schemes or offering investment schemes due to gaps in the existing regulatory framework and (ii) to regulate VC exchanges and brokers where sale and purchase may be permitted. The key aspects of the Crypto-token Regulation Bill, 2018, found in paragraph 13 of the ‘Note- precursor to report’ shows that the Inter-Ministerial Committee G was fine with the idea of allowing the sale and purchase of digital crypto asset at recognized exchanges. But within a year, there was a volte-face and the final report of the very same Inter- Ministerial Committee, submitted in February 2019 recommended the imposition of a total ban on private crypto currencies through a legislation to be known as “Banning of H

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Cryptocurrency and Regulation of Official Digital Currency Act, A 2019”. The draft of the bill contained a proposal to ban the mining, generation, holding, selling, dealing in, issuing, transferring, disposing of or using crypto currency in the territory of India. At the same time, the bill contemplated (i) the creation of a digital rupee as a legal tender, by the central government in consultation with RBI and (ii) the recognition of any official foreign digital currency, as foreign currency in India. In case the said enactment (2019) had come through, there would have been an official digital currency, for the creation and circulation of which, RBI/central government would have had a monopoly. But that situation had not arisen. The position as on date is that VCs are not banned, but the trading in VCs and the functioning of VC exchanges are sent to comatose by the impugned Circular by disconnecting their lifeline namely, the interface with the regular banking sector. What is worse is that this has been done (i) despite RBI not finding anything wrong about the way in which these exchanges function and (ii) despite the fact that VCs are not banned. The concern of RBI is and it ought to be, about the entities regulated by it. 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/co-operative banks/NBFCs has suffered any loss or adverse effect directly or indirectly, on account of the interface that the VC exchanges had with any of them. It is 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. It is no doubt true that RBI has very wide powers not only in view of the statutory scheme of the 3 enactments indicated earlier, but also in view of the special place and role that it has in the economy of the country. These powers can be exercised both in the form of preventive as well as curative measures. But the availability of power is different from the manner and extent to which it can be exercised. When the consistent stand of RBI is that they have not banned VCs G and when the Government of India is 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 is not possible for us to hold that the impugned measure is proportionate. [Paras 6.166 – 6.173][439-A-E; 440-E-F; 441-C- G; 442-A-D] H

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A 12. Therefore, 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. Accordingly, the writ petitions are allowed and the Circular dated 06-04-2018 is set aside. The Statement dated 05-04-2018, though challenged in one writ petition, is not in the nature of a statutory direction and hence the question of setting aside the same does not arise. There is still one more issue left. It is the freezing of the account of Discidium Internet Labs Pvt. Ltd., which is petitioner no. 6 in WP (C) No. 373 of 2018. Admittedly, the activities carried on by the said petitioner were not declared as unlawful. It is the positive case of RBI that they did not in fact freeze the accounts of petitioner no.6. Therefore, RBI is obliged to direct the Central Bank of India to defreeze the account and release the funds. Hence, RBI is directed to issue instructions forthwith to the Central Bank of India, Worli branch, to defreeze the current account no. 3677101984 of petitioner no. 6 in WP (C) No. 373 of D 2018 and to release the funds lying in the account to the company together with interest at the rate applicable. [Paras 7.1 – 7.4][442E-H, 443A-C] Shri Sitaram Sugar Co. Ltd. & Anr v. Union of India & Ors. (1990) 3 SCC 223 : [1990] 1 SCR 909;

E Jayantilal Amrit Lal Shodhan v. F.N. Rana AIR 1964

SC 648 : [1964] SCR 294 – followed. M S Gill v. The Chief Election Commissioner (1978) 1 SCC 405 : [1978] 2 SCR 272; State of Rajasthan v. Basant Nahata (2005) 12 SCC 77 : [2005] 3 Suppl. F SCR 1 – held inapplicable. CIT v. Kasturi & Sons Ltd. (1999) 3 SCC 346 : [1999] 1 SCR 1207; Dhampur Sugar Mills Ltd. v. Commissioner of Trade Tax (2006) 5 SCC 624 : [2006] 2 Suppl. SCR 673; Keshavlal Khemchand & Sons Pvt. G Ltd. v. Union of India (2015) 4 SCC 770 : [2015] 2 SCR 51; Star India Pvt. ltd. v. Dept. of Industrial Policy and Promotion and Ors. (2019) 2 SCC 104 : [2018] 14 SCR 128; Khoday Distilleries Ltd. v. State of Karnataka (1995) 1 SCC 574 : [1994] 4 Suppl. SCR 477; St. H Johns Teachers Training Institute v. Regional Director,

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NCTE (2003) 3 SCC 321 : [2003] 1 SCR 975; Udai A Singh Dagar v. Union of India (2007) 10 SCC 306 : [2007] 6 SCR 707; Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India (1992) 2 SCC 343 [1992] 1 SCR 406; ICICI Bank Ltd v. Official Liquidator of APS Star Industries Ltd (2010) 10 SCC 1 B : [2010] 12 SCR 644; Ganesh Bank of Kurunwad Ltd. & Ors v. Union of India & Ors. (2006) 10 SCC 645 : [2006] 5 Suppl. SCR 437; Chairman, All India Railway Recruitment Board v. K. Shyam Kumar & Ors. (2010) 6 SCC 614 : [2010] 6 SCR 291; PRP Exports & Ors v. Chief Secretary, Government of Tamil Nadu & Ors. C (2014) 13 SCC 692 : [2013] 16 SCR 1107; Moons Technologies Ltd. & Ors v. Union of India & Ors. (2019) SCC Online SC 624; State of Maharashtra v. Indian Hotel and Restaurants Association (2013) 8 SCC 519 : [2013] 7 SCR 654 – relied on. D K. Ramanathan v. State of Tamil Nadu 1985 (2) SCC 116 : [1985] 2 SCR 1028; Godawat Pan Masala Products IP Ltd. & Anr v. Union of India (2004) 7 SCC 68 : [2004] 3 Suppl. SCR 239; Union of India & Anr v. Cynamide India Ltd. & Anr (1987) 2 SCC 720 : [1987] 2 SCR 841; State of U.P. and Ors v. Babu Ram Upadhya E AIR 1961 SC 751 : [1961] SCR 679; D.K.V. Prasada Rao v. Govt. of A.P. AIR 1984 AP 75; State of Punjab & Anr v. Gurdial Singh & Ors. (1980) 2 SCC 471 : [1980] 1 SCR 1071; Collector (District Magistrate) Allahabad & Anr v. Raja Ram Jaiswal (1985) 3 SCC 1 F : [1985] 3 SCR 995; Kalabharati Advertising v. Hemant Vimalnath Narichania & Ors (2010) 9 SCC 437 : [2010] 10 SCR 971; Meerut Development Authority v. Assn. Management Studies & Anr. (2009) 6 SCC 171 : [2009] 6 SCR 663; Bihar Public Service Commission v. Saiyed Hussain Abbas Rizwi & Anr. (2012) 13 SCC 61 : [2012] G 11 SCR 1032; Utkal Contractors & Joinery (P) Ltd. & Ors v. State of Orissa & Ors. (1987) 3 SCC 279 : [1987] 3 SCR 317; Empress Mills v. Municipal Committee, Wardha (1958) SCR 1102; R.K. Garg v. Union of India (1981) 4 SCC 675 : [1982] 1 SCR 947; BALCO H

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A Employees’ Union (Regd.) v. Union of India & Ors, (2002) 2 SCC 333 : [2001] 5 Suppl. SCR 511; Swiss Ribbons Pvt. Ltd. & Anr v. Union of India & Ors, (2019) 4 SCC 17 : [2019] 3 SCR 535; State of Gujarat & Anr v. Shri Ambica Mills Ltd. & Anr. (1974) 4 SCC 656 : [1974] 3 SCR 760; G.K.Krishnan v. Tamil Nadu (1975) B 1 SCC 375 : [1975] 2 SCR 715; State of M.P. v. Nandlal Jaiswal (1986) 4 SCC 566 : [1987] 1 SCR 1; P.M. Ashwathanarayana Setty v. State of Karnataka (1989) Supp (1) SCC 696 : [1988] 3 Suppl. SCR 155; T. Velayudhan v. Union of India (1993) 2 SCC 582 : C [1993] 1 SCR 832; Delhi Science Forum v. Union of India (1996) 2 SCC 405 : [1996] 2 SCR 767; Bhavesh D. Parish v. Union of India (2000) 5 SCC 471 : [2000] 1 Suppl. SCR 291; Ugar Sugar Works Ltd. v. Delhi Administration & Ors. (2001) 3 SCC 635 : [2001] 2 SCR 630; Govt. of Andhra Pradesh & Ors v. P. Laxmi D Devi (2008) 4 SCC 720 : [2008] 3 SCR 330; Villianur Iyarkkai Padukappu Maiyam v. Union of India (2009) 7 SCC 561 : [2009] 9 SCR 225; D.G. of Foreign Trade v. Kanak Exports (2016) 2 SCC 226 : [2015] 15 SCR 287; State of J & K v. Trikuta Roller Flour Mills Pvt. E Ltd. (2018) 11 SCC 260 : [2017] 9 SCR 642; Pioneer Urban Land and Infrastructure Ltd. v. Union of India (2019) 8 SCC 416; Md. Yasin v. Town Area Committee (1952) SCR 572; Bennett Coleman & Co. v. Union of India (1972) 2 SCC 788 : [1973] 2 SCR 757; Md. Faruk v. State of Madhya Pradesh & Ors (1969) 1 SCC F 853 : [1970] 1 SCR 156; Modern Dental College and Research Centre v. State of Madhya Pradesh. (2016) 7 SCC 353 : [2016] 3 SCR 579– referred to. Moss v. Hancock (1899) 2 QB 111; Wisconsin Central Ltd v. United States 585 US 2018, 138 S. Ct. 2067 G (2018); SEC v. Trendon Shavers Case No. 4: 13-Cv- 416 (August 6, 2013) United States v. Ulbricht 31F. Supp. 3D 540 (2014); United States v. Faiella 39F. Supp. 3D 544 (2014); In re Coinflip Inc CFTC Docket No. 15-29 dated 17-09-2015; In the matter of TeraExchange H

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LLC. CFTC Docket No. 15-33 dated 24-09-2015; In A the matter of BFXNA Inc, d/b/a BITFINEX CFTC Docket No. 16-19 dated 02-06-2016; United States v. Murgio 209 F. Supp. 3D 698 (2016); Commodity Futures Trading Commission v. Patrick McDonnell 18- Cv-361 dated 03-06-2018; Commodity Futures Trading B Commission v. My Big Coin Pay, Inc. et al. 18-Cv-10077- RWZ dated 26-09-2018; State of Florida v. Michell Abner Espinoza F 14-2923 decided on 22-07-2016 ; State of Florida v. Michell Abner Espinoza 264 So. 3D 1055 (2019); B2C2 Ltd. v. Quoine Pte Ltd. [2019] SGHC (I) 3; National Provincial Bank v. Ainsworth [1965] 1 C AC 1175 at 1248; Quoine Pte Ltd v. B2C2 Ltd [2020] SGCA (I) 02; AA v. Persons Unknown & others Re Bitcoin [2019] EWHC 3556 (Comm); Colonial Bank v. Whinney [1885] 30 ChD; Skatteverket v. David Hedqvist Case C-264/14 dated 22-10-2015; Elloy de D Freitas v. Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1999] 1 AC 69; Huang v. Secretary of State for the Home Department [2007] UKHL 11; Bank Mellat v. HM Treasury (No. 2) [2013] UKSC 39; Illinois Elections Bd v. Socialist Workers Party (1979) 440 US 173 – E referred to. “Digital Gold: Bitcoin and the inside story of the Misfits and Millionaires Trying to Reinvent Money”- Book by Nathaniel Popper; and Virtual Currency, Treasury Update published by the Tax Policy Division, Michigan Department of Treasury (Vol. 1(1), F November 2015) – referred to. Case Law Reference [1999] 1 SCR 1207 relied on Para 6.69 [2006] 2 Suppl. SCR 673 relied on Para 6.70 G [2015] 2 SCR 51 relied on Para 6.88 [2018] 14 SCR 128 relied on Para 6.92 [1985] 2 SCR 1028 referred to Para 6.92 [2004] 3 Suppl. SCR 239 referred to Para 6.93 H

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A [1994] 4 Suppl. SCR 477 relied on Para 6.93 [2005] 3 Suppl. SCR 1 held inapplicable Para 6.95 [1987] 2 SCR 841 referred to Par 6.97 [2003] 1 SCR 975 relied on Para 6.98 B [2007] 6 SCR 707 relied on Para 6.98 [1992] 1 SCR 406 relied on Para 6.99 [1961] SCR 679 referred to Para 6.99 AIR 1984 AP 75 referred to Para 6.99 C [2010] 12 SCR 644 relied on Para 6.99 [1964] SCR 294 followed Para 6.101 [1990] 1 SCR 909 followed Para 6.102 [2006] 5 Suppl. SCR 437 relied on Para 6.103 D [1980] 1 SCR 1071 referred to Para 6.121 [1985] 3 SCR 995 referred to Para 6.121 [2010] 10 SCR 971 referred to Para 6.121 [2009] 6 SCR 663 referred to Para 6.124 E [2012] 11 SCR 1032 referred to Para 6.124 [1987] 3 SCR 317 referred to Para 6.124 [1958] SCR 1102 referred to Para 6.124

F [1978] 2 SCR 272 held inapplicable Para 6.126 [2010] 6 SCR 291 relied on Para 6.126 [2013] 16 SCR 1107 relied on Para 6.126 [1982] 1 SCR 947 referred to Para 6.138 G [2001] 5 Suppl. SCR 511 referred to Para 6.138 [2019] 3 SCR 535 referred to Para 6.138 [1974] 3 SCR 760 referred to Para 6.140 [1975] 2 SCR 715 referred to Para 6.140 H

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[1987] 1 SCR 1 referred to Para 6.140 A [1988] 3 Suppl. SCR 155 referred to Para 6.140 [1993] 1 SCR 832 referred to Para 6.140 [1996] 2 SCR 767 referred to Para 6.140 [2000] 1 Suppl. SCR 291 referred to Para 6.140 B [2001] 2 SCR 630 referred to Para 6.140 [2008] 3 SCR 330 referred to Para 6.140 [2009] 9 SCR 225 referred to Para 6.140 C [2015] 15 SCR 287 referred to Para 6.140 [2017] 9 SCR 642 referred to Para 6.140 (2019) 8 SCC 416 referred to Para 6.140 [1952] SCR 572 referred to Para 6.142 D [1973] 2 SCR 757 referred to Para 6.142 [1970] 1 SCR 156 referred to Para 6.142 [2016] 3 SCR 579 referred to Para 6.156 [2013] 7 SCR 654 relied on Para 6.172 E CIVIL ORIGINAL JURISDICTION: Writ Petition (Civil) No. 528 of 2018. [UNDER ARTICLE 32 OF THE CONSTITUTION OF INDIA] With F Writ Petition (Civil) No. 373 of 2018. Nakul Dewan, Shyam Divan, Sr. Advs., Ashim Sood, Jaideep Reddy, Alipak Banerjee, Pradhuman Gohil, Mrs. Taruna Singh Gohil, Ms. Ranu Purohit, Ms. Senu Nizar, Arman Pratap Singh, Aditya Kumar, Brijesh Ujjainwal, Rhythm Buaria, Ms. Payal Chanda, Mayank Pandey, G Avinash Menon, Ms. Tanya Dayal, Rohan Andrew Naik, V. P. Singh, Raghav Seth, Ms. Sayobani Banu, Shivam, Bharat Makker, Harpreet Singh Ajmani, Ms. Shraddha Deshmukh, Rajat Nair, Mrs. Anil Katiyar, Advs. for the appearing parties.

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