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

A with a particular Bitcoin address. What’s more, each user of the system could be confident that, at every moment in time, there would be only one public, unalterable record of what everyone in the system owned. To believe in this, the users didn’t have to trust Satoshi, as the users of DigiCash had to trust David Chaum, or users of the dollar had to trust the B Federal Reserve. They just had to trust their own computers running the Bitcoin software, and the code Satoshi wrote, which was open source, and therefore available for everyone to review. If the users didn’t like something about the rules set down by Satoshi’s software, they could change the rules. C People who joined the Bitcoin network were, quite literally, both customers and owners of both the bank and the mint.” 3.5. That Satoshi and the Cypherpunks who participated in the initial experiments developed Bitcoin as an alternative to conventional currency, to counter the problems of debasement of D currency by central agencies, was made clear by Satoshi himself when he said: “The root problem with conventional currency is all the trust that’s required to make it work. The Central Bank must be trusted not to debase the currency but the history of fiat currencies is full of breaches of that trust.” E 3.6. What attracted people to Satoshi’s proposal, was the fact that while Central Banks had no restraints in unlimited printing of money, thereby devaluing all savings and holdings, the Bitcoin software had rules to ensure that the process of creating new coins would stop after 21 million were out in the world. When Martti Malmi, a student at the Helsinki University of Technology, joined hands with Satoshi to improvise F the project and to market it, he formulated the philosophy in the following words: “Be safe from the unfair monetary policies of the monopolistic Central Banks and the other risks of centralized power over a money supply. The limited inflation of Bitcoin system’s G money supply is distributed evenly (by CPU power) throughout the network, not monopolized to a banking elite.” 3.7. Therefore, it is beyond any pale of doubt that irrespective of the metamorphosis (or gene mutation) it has undergone over the years, bitcoin, the Adam or Manu of the race of cryptocurrencies, was developed as an alternative to fiat currency. Keeping this birth chart of

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virtual currencies in mind, let us now see how the petitioners are aggrieved by the impugned decisions of RBI, the grounds on which they challenge the same and the justification sought to be provided by RBI.

4. BACKGROUND SCORE (of the petitioners) 4.1. The theme of the song of the petitioners in one of the writ petitions, as fine-tuned by Shri Ashim Sood, learned Counsel, can be summarized as follows: I. RBI has no power to prohibit the activity of trading in virtual currencies through VC exchanges since: (i) Virtual currencies are not legal tender but tradable commodities/ C digital goods, not falling within the regulatory framework of the RBI Act, 1934 or the Banking Regulation Act, 1949. (ii) Virtual currencies do not even fall within the credit system of the country, so as to enable RBI to fall back upon the Preamble to the RBI Act 1934, which gives a mandate to RBI to operate the currency and credit system of the country to its advantage. (iii) Neither the power to regulate the financial system of the country to its advantage conferred under Section 45JA, nor the power to regulate the credit system of the country conferred under Section 45L of the RBI Act, 1934 exercisable in public interest and upon arriving at a satisfaction, is so elastic as to cover goods that do not fall within the purview of the financial system or credit system of the country. (iv) The power to issue directions “in the public interest” conferred under Section 35A(1)(a) of the Banking Regulation Act, 1949 F and the power to caution or prohibit banking companies against entering into any particular transaction conferred under Section 36(1)(a) do not extend to the issue of blanket directions that would deny access by virtual currency exchanges, to the banking services of the country, as the expression “public interest” appearing in a particular provision in a statute should take its colour from the G context of the statute. (v) The power conferred upon RBI under Section 10(2) of the Payment and Settlement Systems Act, 2007 to issue guidelines for proper and efficient management of payment systems and under Section 18 of the said Act to lay down policies relating to H

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A the regulation of payment systems and to give directions pertaining to the conduct of business relating to payments systems, exercisable in public interest upon being satisfied, is also not applicable to virtual currency exchanges, as the services rendered by them do not fall within the definition of the expression “payment system” under Section 2(1)(i) of the said Act. B II. Assuming but not admitting that RBI has the power to deal with the activities carried on by VCEs, the mode of exercise of such power can be tested on certain well established parameters. They are – (i) application of mind/satisfaction/relevant and irrelevant C considerations (ii) Malice in law/colorable exercise of power (iii) M.S. Gill reasoning (iv) Calibration/Proportionality D III. All other stake holders such as the Department of Economic Affairs of the Government of India, Securities and Exchange Board of India, Central Board of Direct Taxes, etc., have actually recognized the positive and beneficial aspects of cryptocurrencies as digital assets and the Distributed Ledger Technology from which crypto currencies emanate and hence have recommended only a regulatory regime, but RBI has taken a contra position without any rational basis. IV. Many of the developed and developing economies of the world, multinational and international bodies and the courts of various countries have scanned crypto currencies, but found nothing pernicious about them and even the attempt of the Government of India to bring a legislation banning crypto currencies, is yet to reach its logical end. V. RBI should have taken into account the fact that the members of Petitioner association have taken necessary precautions including avoiding cash transactions, ensuring compliance with KYC norms, of their own accord and allowing peer-to-peer transactions only within the country. VI. RBI has not applied its mind to the fact that not every crypto currency is anonymous. The report of the European Parliament also classified VCs into anonymous and pseudo-anonymous. Therefore, if the problem sought to be addressed is anonymity of transactions, the H

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same could have been achieved by resorting to the least invasive option of prohibiting only anonymous VCs. VII. It is a paradox that blockchain technology is acceptable to RBI, but crypto currency is not. VIII. The benefit of the rule of judicial deference to economic policies of the state is not available to RBI, as the impugned Circular is an exercise of power by a statutory body corporate and is neither a legislation nor an exercise of executive power. In any case, there is no deference in law to process but only to opinion emanating from the process. No study was undertaken by RBI before the impugned measure was taken and hence, the impugned decisions are not even based upon knowledge or expertise. IX. While regulation of a trade or business through reasonable restrictions imposed under a law made in the interests of the general public is saved by Article 19(6) of the Constitution, a total prohibition, especially through a subordinate legislation such as a directive from RBI, D of an activity not declared by law to be unlawful, is violative of Article 19(1)(g). Whether a directive would tantamount to “regulation” or “prohibition”, depends upon the impact of the directive. 4.2. The contentions of the petitioners in the other writ petition (WP (C) No. 373 of 2018), as set to tune by Shri Nakul Dewan, learned E Senior Counsel, are: I. The immediate effect of the impugned Circular is to completely severe the ties between the virtual currency market and the formal Indian economy, without actually a legislative ban on the trading of VCs, thereby promoting cash and black-market transactions. F II. The impugned Circular fails to take note of the difference between various VC schemes such as closed VC schemes, unidirectional flow VC schemes and bidirectional flow VC schemes and unreasonably differentiates between unidirectional flow schemes and bidirectional flow schemes, by targeting only bidirectional flow schemes. G III. VCs do not qualify as money, as they do not fulfill the four characteristics of money namely medium of exchange, unit of account, store of value and constituting a final discharge of debt and since RBI has accepted this position, they have no power to regulate it. H

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A IV. Considering the fact that historically, money as understood in the social sense and money as understood in the legal sense, are different, the courts in different jurisdictions such as USA and Singapore have understood VCs to be akin to money or funds at times or as commodities/ intangible properties at other times. B V. The impugned Circular is manifestly arbitrary, based on non- reasonable classification and it imposes disproportionate restrictions. VI. A decision to prohibit an article as res extra commercium is a matter of legislative policy and must arise out of an Act of legislature and not by a notification issued by an executive authority. C 4.3. In addition to the aforementioned legal contentions, Shri Nakul Dewan learned Senior Counsel also submitted that as a result of the impugned Circular, the virtual currency exchange (VCE) run by one of the petitioners in one writ petition was shut down on 30-03-2019, the VCE run by another petitioner became non-operational, though their D website still opens and the VCE run by yet another petitioner by name Discidium Internet Labs Pvt. Ltd., not only became non-operational, but an amount of Rs. 12 crores lying in their account also got frozen. However, one VCE by name CoinDCX alone survives, by operating on a peer-to-peer (P2P) basis.

E 4.4. In support of their respective contentions, Shri Ashim Sood and Shri Nakul Dewan, the learned counsels, relied upon a number of decisions of this court and other courts. We shall refer to them when we take up their contentions for analysis.

5Copy pinpoint5. SCRIPT (of RBI) F 5.1. RBI has filed counter-affidavit in one of these writ petitions, covering the entire gamut. But the response of RBI to the contentions of the petitioners is available not only in the counter-affidavit, but also in some communications issued by them pursuant to certain interim directions issued by this court. G 5.2. For instance, this Court passed an interim direction on 21-08- 2019, after hearing lengthy arguments, directing the Reserve Bank of India to give a detailed point-wise reply to the representations dated 29- 05-2018 and 30-05-2018. Pursuant to the said interim direction, RBI gave a detailed point-wise reply on 04-09-2019 and 18-09-2019. Therefore, RBI’s stand in these cases has to be culled out not only from H

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the counter-affidavit but also from the orders passed/replies issued to A the representations of the writ petitioners, during the pendency of these writ petitions. 5.3. In brief, the response of RBI to the issues raised by the petitioners, as articulated by Shri Shyam Divan, learned Senior Counsel, can be summarized as follows: B (i) Virtual currencies do not satisfy the criteria such as store of value, medium of payment and unit of account, required for being acknowledged as currency. (ii) Virtual currency exchanges do not have any formal or structured mechanism for handling consumer disputes/ grievances. C

(iii) Virtual currencies are capable of being used for illegal activities due to their anonymity/pseudo-anonymity. (iv) Increased use of virtual currencies would eventually erode the monetary stability of the Indian currency and the credit system. D (v) The impugned decision of RBI is legislative in character and is in the realm of an economic policy decision taken by an expert body warranting a hands-off approach from the Court. (vi) The impugned decision is within the range of wide powers conferred upon RBI under the Banking Regulation Act, 1949, the Reserve E Bank of India Act, 1934 and the Payment and Settlement Systems Act, 2007. (vii) No one has an unfettered fundamental right to do business on the network of the entities regulated by RBI. (viii) The impugned decisions do not violate any of the rights F guaranteed by Articles 14, 19 and 21 of the Constitution of India. (ix) The impugned decisions are not excessive, confiscatory or disproportionate in as much as RBI has given three months’ time to the affected parties to sever their relationships with the banks. This is apart from the repeated cautions issued to the stakeholders by RBI through G Press Releases from the year 2013. (x) The ambit of the 2013 press release was much wider than just consumer protection. RBI cautioned users, holders and traders of VCs about the potential financial, operational, legal, customer protection and security related risks they were exposing themselves to. H

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A (xi) The host of material taken note of by RBI in their reports, the reports of the committees to which RBI was a party and the cautions repeatedly issued by RBI over a period of 5 years, would demonstrate the application of mind on the part of RBI. They also demonstrate that RBI did not proceed in haste but proceeded with great care and caution. Therefore, the satisfaction arrived at by them was too loud and clear to B be ignored. The standard for considering the impugned Circular, is the existence of material and not the adequacy or sufficiency of such material. (xii) In any case, there is no complete ban on virtual currencies or on the use of distributed ledger technology by the regulated entities. C (xiii) The impugned decisions were necessitated in public interest to protect the interest of consumers, the interest of the payment and settlement systems of the country and for protection of regulated entities against exposure to high volatility of the virtual currencies. RBI is empowered and duty bound to take such pre-emptive measures in public D interest and the power to regulate includes the power to prohibit. (xiv) The impugned decisions were necessitated because in the opinion of RBI, VC transactions cannot be termed as a payment system, but only peer-to-peer transactions which do not involve a system provider under the Payments and Settlement Systems Act. Despite this, VC E transactions have the potential to develop as a parallel system of payment. (xv) The KYC norms followed by the VCEs are far below what other participants in the payments and monetary system follow. In any case, KYC norms are ineffective, as the inherent characteristic of anonymity of VCs does not get remedied. F (xvi) Cross-border nature of the trade in VCs, coupled with the lack of accountability, has the potential to impact the regulated payments system managed by RBI. A large constituent of the VC universe does not hold membership of the Petitioner association or is not even accountable for their acts but is material and instrumental in driving the G VC trade. (xvii) RBI or any other Government authority would not be able to curtail, limit, regulate or control the generation of VCs and their transactions, resulting in ever-present and inevitable financial risks.

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6Copy pinpoint6. UNFOLDING OF THE PLOT A 6.1. In the light of the above factual matrix and the rival contentions, let us now see how the plot before us, unfolds. I. No Power at all for RBI (Ultra vires) 6.2. The first ground of attack revolves around the power of RBI B to deal with, regulate or even ban VCs and VCEs. The entire foundation of this contention rests on the stand taken by the petitioners that VCs are not money or other legal tender, but only goods/commodities, falling outside the purview of the RBI Act, 1934, Banking Regulation Act, 1949 and the Payment and Settlement Systems Act, 2007. In fact, the impugned Circular of RBI dated 06-04-2018 was issued in exercise of the powers C conferred upon RBI by all these three enactments. Therefore, if virtual currencies do not fall within subject matter covered by any or all of these three enactments and over which RBI has a statutory control, then the petitioners will be right in contending that the Circular is ultra vires. D 6.3. Hence it is necessary (i) first to see the role historically assigned to a central bank such as RBI, the powers and functions conferred upon and entrusted to RBI and the statutory scheme of all the above three enactments and (ii) then to investigate what these virtual currencies really are. Therefore, we shall divide our discussion in this E regard into two parts, the first concerning the role, powers and functions of RBI and the second concerning the identity of virtual currencies. Role assigned to, functions entrusted to and the powers conferred upon RBI as a Central Bank 6.4. The Reserve Bank of India was established under Act 2 of F 1934 for the purpose of (i) regulating the issue of bank notes, (ii) keeping of reserves with a view to securing monetary stability in the country and (iii) operating the currency and credit system of the country to its advantage. The role of a central bank such as the Reserve Bank in an economy is to manage (i) the currency (ii) the money supply and (iii) G interest rates. The unique feature of a central bank is the monopoly that it has on increasing the monetary base in the state and the control it has in the printing of the national currency. The central bank virtually functions as “a lender of last resort” to banks suffering a liquidity crisis.

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A 6.5. Historians trace the rise of modern central banks to the establishment of the Bank of England under a Royal Charter granted on 27-07-1694 through the Tunnage Act, 1694. The establishment of this bank in 1694 was not actually for stimulating the economy but for financing the war that England had with France. The currency crisis of 1797 and the creation of a ratio between the gold reserves held by the B Bank of England and the notes that the bank could issue, under the Bank Charter Act, 1844 brought huge changes in the way the central bank was supposed to function. 6.6. In so far as India is concerned, the functions of a central bank were originally conferred upon the Imperial Bank of India, established C in the year 1921, under the Imperial Bank of India Act, 1920. The reason why and the manner in which the Imperial Bank was established, is quite interesting to see. At the time when the British Crown took over the control of the territories in India, after the Sepoy Mutiny of 1857, there were three Presidency Banks, one in Calcutta, another in Bombay D and the third in Madras. All these three banks established respectively in 1809, 1840 and 1843, were authorized to issue notes up to certain specified limits. But this privilege was withdrawn in 1862 under the Paper Currency Act, which vested the sole right to issue notes with the Government of India. E 6.7. The question of absorption of the three Presidency Banks into a central bank came up for consideration on and off. Though the Chamberlain Commission, known as the Royal Commission on Indian Finance and Currency, appointed in 1913, felt the need for setting up a central bank, the proposal did not materialize. But after the First World War, the Presidency Banks themselves favoured an amalgamation. F Therefore, the Imperial Bank of India Bill providing for the amalgamation of all the three Presidency Banks was passed in September 1920 and came into effect in January 1921. The trend of setting up central banks gained momentum internationally, after the International Financial Conferences held at Brussels in 1920 and at Genoa in 1922. G 6.8. But the maintenance of an overvalued exchange rate to help British exporters, gave rise to a clash between the colonial administration and Indian business interests. The Congress sought devaluation and hence a Royal Commission was set up in 1925 to examine the matter. This Royal Commission on Indian Currency and Finance, also known as Hilton H

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Young Commission (to which Dr. B. R. Ambedkar also contributed a A statement), recommended the creation of a strong Central Bank for India in 1926. Though a bill known as the Gold Standard and Reserve Bank of India Bill, 1927 to give effect to the recommendations was introduced in the Legislative Assembly, it was withdrawn on 10-02-1928. From 1930 onwards, the question of establishing a Reserve Bank B received fresh impetus, when Constitutional reforms for the country were undertaken. 6.9. The White Paper on Indian Constitutional Reforms, presented in March 1933, assumed that a Reserve Bank, free from political influence, would have to be set up and should already be successfully operating before the first Federal Ministry was installed. C

6.10. Subsequently, a Departmental Committee (hereinafter referred to, as “the India Office Committee”) was appointed in London by the India Office, which submitted a report dated 14-03-1933. This report was followed up by the appointment of the “London Committee”, which endorsed the India Office Committee’s view that the Reserve D Bank should be free from any political influence. 6.11. Therefore, a Bill drafted on the basis of the recommendations of the London Committee was introduced in September 1933. In 1934, the Bill was passed. The Reserve Bank of India commenced operations as the country’s central bank on 01-04-1935. Under the Reserve Bank E (Transfer of Public Ownership) Act, 1948, the bank was nationalized. 6.12. Once the historical background of the creation of RBI is understood, it will be easy to appreciate its role in the economy of the country and the functions and powers exercised by it statutorily. F 6.13. As the Preamble of the RBI Act suggests, the object of constitution of RBI was threefold namely (i) regulating the issue of bank notes (ii) keeping of reserves with a view to securing monetary stability in the country and (iii) operating the currency and credit system of the country to its advantage. G 6.14. In fact, the original Preamble of the Act contained only three paragraphs. But paragraphs 2 and 3 of the Preamble were substituted with 3 new paragraphs by Act 28 of 2016. Paragraphs 2 and 3 of the original Preamble and paragraphs 2 to 4 substituted in 2016, are presented in a tabular column as follows: H

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A Paragraphs 2 and 3 as they original ly stood Paragraphs 2 to 4 now substituted

AND WHEREAS in the present AND WHEREAS it is essential to have a modern disorganisati on of the monetary systems of monetary policy framework to meet the challenge the world it is not possible to determine what of an increasingly complex economy; will be suitable as a permanent basis for the Indian monet ary system; AND WHEREAS the primary objective of the monetary policy is to maintain price stability BUT WHEREAS it is expedient to make while keeping in mind the objective of growth; B temporary provision on the basis of the existing monetary system, and to leave the AND WHEREAS the monetary policy question of the monetary standard best suited framework in India shall be operated by the to India to be considered when the Reserve Bank of India; international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures;

C 6.15. It may be observed from the newly substituted paragraphs that RBI is now vested with the obligation to operate the monetary policy framework in India. An indication of the primary objective of the monetary policy is provided in paragraph 3 which says that the maintenance of price stability is the prime objective even while the D objective of growth is to be kept in mind. Paragraph 2 recognizes the necessity to have a modern monetary policy framework to meet the challenge of an increasingly complex economy. 6.16. Therefore, it is clear that after the amendment under Act 28 of 2016, the very task of operating the monetary policy framework has been conferred exclusively upon RBI. E 6.17. Though the expression “monetary policy” is not defined in the Act, an entire chapter under the title “Monetary Policy” containing Sections 45Z to 45ZO was inserted as Chapter IIIF. The provisions of this chapter are given overriding effect upon the other provisions of the Act, under Section 45Z. Under Section 45ZA(1), the central government F is empowered to determine the inflation target in terms of the consumer price index, once in every 5 years, in consultation with RBI. The policy rate required to achieve the inflation target is to be determined by a Monetary Policy Committee, constituted under Section 45ZB. 6.18. The object of establishment of RBI is also spelt out in Section G 3(1). It says that “a bank to be called the Reserve Bank of India shall be constituted for the purpose of taking over the management of the currency from the Central Government and of carrying on the business of banking in accordance with the provisions of this Act”. H

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 353 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

6.19. Chapter III of the Act enlists the central banking functions of RBI. Section 17 authorizes RBI to carry on and transact several kinds of businesses listed therein, one of which, referred in sub-section (15) is the making and issue of bank notes. Section 20 which forms part of Chapter III, obliges RBI (i) to accept monies for account of the central government (ii) to make payments up to the amount standing to the credit of its account and (iii) to carry out its exchange, remittance and other banking operations including the management of the public debt of the Union. Under Section 21, the central government is obliged to entrust all its money, remittance, exchange and banking transactions in India with RBI. Under Section 22(1), RBI has the sole right to issue bank notes in India (however, the central government has the power under Section 28A(2) to issue Government of India notes of the denominational value of Rs. 1/-). It may also issue currency notes of the Government of India, on the recommendations of the Central Board, for a period fixed by the central government. Sub-section (2) of Section 22 goes one step further by stipulating that on and from the date on which Chapter III comes into force, the central government shall not issue any currency notes. 6.20. Section 26(1) makes every bank note a legal tender at any place in India in payment, which is guaranteed by the central government. Since a bank note issued by RBI is a legal tender guaranteed by the central government, the central government is also vested with the power under sub-section (2) of Section 26 to declare any series of bank notes of any denomination, to cease to be legal tender. But this can be done only on the recommendation of the Central Board of Directors of RBI. 6.21. Under Section 38, the central government is prohibited from putting into circulation any rupees, except through RBI. Similarly, RBI is also prohibited from disposing of rupee coin otherwise than for the purpose of circulation. 6.22. Chapter IIIB which contains provisions relating to non-banking institutions (NBFCs) receiving deposits and financial institutions, contains two important provisions, one in Section 45JA and another in Section G 45L. Sub section (1) of Section 45JA reads as follows: 45JA. Power of Bank to determine policy and issue directions.— (1) If the Bank is satisfied that, in the public interest or to regulate the financial system of the country to H

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A its advantage or to prevent the affairs of any non-banking financial company being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the non-banking financial company, it is necessary or expedient so to do, it may determine the policy and give directions to all or any of the non-banking financial companies relating to income recognition, accounting standards, making of proper provision for bad and doubtful debts, capital adequacy based on risk weights for assets and credit conversion factors for off balance-sheet items and also relating to deployment of funds by a non-banking financial company or a class of non-banking financial companies or non-banking financial companies generally, as the case maybe, and such non-banking financial companies shall be bound to follow the policy so determined and the direction so issued. D 6.23. It may be seen that the aforesaid provision uses certain words similar to those found in paragraph 1 of the Preamble. While paragraph 1 of the Preamble speaks about the power of RBI to operate the currency and credit system of the country to its advantage, Section 45JA speaks about the power of RBI to regulate the financial system of the country to its advantage. E 6.24. The salient feature of Section 45JA is that it empowers RBI, both (i) to determine the policy and (ii) to give directions to all NBFCs in respect of certain matters. The concerns sought to be addressed by Section 45JA(1) are (i) public interest (ii) financial system of the country (iii) interests of the depositors and (iv) interests F of NBFCs. 6.25. Section 45L addresses yet another concern namely, the regulation of the credit system of the country to its advantage. Section 45L reads as follows:

G 45L. Power of Bank to call for information from financial institutions and to give directions.— (1) If the Bank is satisfied for the purpose of enabling it to regulate the credit system of the country to its advantage it is necessary so to do, it may— H

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(a) require financial institutions either generally or any group of financial institutions or financial institution in particular, to furnish to the Bank in such form, at such intervals and within such time, such statements, information or particulars relating to the business of such financial institutions or institution, as may be specified by the Bank by general or special order; (b) give to such institutions either generally or to any such institution in particular, directions relating to the conduct of business by them or by it as financial institutions or institution. (2) Without prejudice to the generality of the power vested in the Bank under clause (a) of sub-section (1), the statements, information or particulars to be furnished by a financial institution may relate to all or any of the following matters, namely, the paid-up capital, reserves or other liabilities, the investments whether in Government securities or otherwise, the persons to whom, and the purposes and periods for which, finance is provided and the terms and conditions, including the rates of interest, on which it is provided. (3) In issuing directions to any financial institution under clause (b) of sub-section (1), the Bank shall have due regard to the conditions in which, and the objects for which, the institution has been established, its statutory responsibilities, if any, and the effect the business of such financial institution is likely to have on trends in the money and capital markets. 6.26. It may be seen that the phrase “credit system of the country to its advantage”, as found in paragraph 1 of the Preamble, is repeated in sub-section (1) of Section 45L. The only difference between the two is that paragraph 1 of the Preamble speaks about the operation of the credit system, while Section 45L (1) speaks about regulation of the credit system. While exercising the power to issue directions conferred by clause (b) of sub-section (1) of Section 45L, RBI is obliged under sub-section (3) of Section 45L to have due regard to certain things, one of them being “the effect the business of such financial institution is likely to have on trends in the money and capital markets”.

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A 6.27. Chapter IIID of the Act contains provisions for the regulation of transactions in derivatives, money markets or securities, etc. The expression “money market instruments” is defined in clause (b) of Section 45U as follows: 45U(b) “money market instruments” include call or notice money, term money, repo, reverse repo, certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as the Bank may specify from time to time; 6.28. Section 45W empowers RBI to determine the policy relating to interest rates or interest rate products and to give directions in that behalf to all or any of the agencies dealing in securities, money market instruments, etc., for the purpose of regulating the financial system of the country to its advantage. Section 45W(1) reads as follows: 45W. Power to regulate transactions in derivatives, money market instruments, etc.—(1) The Bank may, in public interest, or to regulate the financial system of the country to its advantage, determine the policy relating to interest rates or interest rate products and give directions in that behalf to all agencies or any of them, dealing in securities, money market instruments, foreign exchange, derivatives, or other instruments of like nature as the Bank may specify from time to time: Provided that the directions issued under this sub-section shall not relate to the procedure for execution or settlement of the trades in respect of the transactions mentioned therein, on the Stock Exchanges recognised under section 4 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956). 6.29. It is important to note that Section 45W(1) contains merely an illustrative list of transactions. This is seen by the use of the expression “other instruments of like nature” appearing in the above provision. G 6.30. A careful scan of the RBI Act, 1934 in its entirety would show that the operation/regulation of the credit/financial system of the country to its advantage, is a thread that connects all the provisions which confer powers upon RBI, both to determine policy and to issue directions. H

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6.31. RBI Act, 1934 is not the only Act from which RBI derives its powers. The Banking Regulation Act, 1949 is also a source of power for RBI to do certain things. This can be seen from the Statement of Objects and Reasons for the Banking Regulation Act, 1949. One of the main features of the Bill as indicated in the Statement of Objects and Reasons was “widening the powers of RBI so as to enable it to come to the aid of the banking companies in times of emergency”. 6.32. Section 5 of the Banking Regulation Act, 1949 which contains the interpretation clause defines the expression “banking policy” under clause (ca) of Section 5. This definition reads as follows: 5(ca) “banking policy” means any policy which is specified from time to time by the Reserve Bank in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources; D

6.33. Since Banking Regulation Act, 1949 was issued after the RBI Act, 1934 and the nationalization of RBI, Section 5(ca) borrows certain words such as “interest of the banking system” and “interest of the monetary stability” and “economic growth” from the RBI Act, 1934. E 6.34. Section 8 of the Banking Regulation Act, 1949 prohibits a banking company from directly or indirectly dealing in the buying or selling or bartering of goods. The Explanation to Section 8 also defines the word “goods”, for the purposes of Section 8. Section 8 reads as follows: F 8 - Prohibition of trading – Notwithstanding anything contained in section 6 or in any contract, no banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realisation of security given to or held by G it, or engage in any trade, or buy, sell or barter goods for others otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business as is referred to in clause (i) of sub-section (1) of section 6: H

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A PROVIDED that this section shall not apply to any such business as is specified in pursuance of clause (o) of sub- section (1) of section 6. Explanation.—For the purposes of this section, “goods” means every kind of movable property, other than actionable B claims, stocks, shares, money, bullion and specie, and all instruments referred to in clause (a) of sub-section (1) of section 6. 6.35. Section 21 empowers RBI to determine the policy in relation to advances to be followed by banking companies. The C determination of policy may be in (i) public interest (ii) interests of depositors or (iii) interests of the banking policy. Once a policy is determined by RBI under Section 21(1), all banking companies are bound to follow the policy. 6.36. No company can carry on banking business in India unless it holds a license issued by RBI. Under Section 22(1), RBI has power to issue license, subject to certain terms and conditions as it may think fit to impose. 6.37. Every banking company is obliged under Section 27(1) of the Banking Regulation Act, 1949 to submit to RBI, monthly returns in the prescribed form, showing its assets and liabilities. RBI is conferred with powers under Section 29A even to call for information about the affairs of any associate enterprise of a banking company. Under sub- section (2) of Section 29A, RBI can even cause an inspection of any associate enterprise of a banking company. A power to conduct special audit of a banking company’s accounts is also conferred upon RBI under F Section 30(1B). 6.38. Section 35A of Banking Regulation Act, 1949 empowers RBI to issue directions to banking companies. Such directions are binding on the banking companies. The directions under Section 35A may be issued (i) in public interest (ii) in the interest of banking policy (iii) to G prevent the affairs of the banking company from being conducted in a manner prejudicial to the interests of the depositors or of the banking company itself and (iv) to secure the proper management of the banking company. Section 35A(1) reads as follows: 35A. Power of the Reserve Bank to give directions.—(1) H Where the Reserve Bank is satisfied that—

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(a) in the public interest; or A (aa) in the interest of banking policy; or (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or B

(c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking company in particular, it may, from time to time, issue such directions as it deems fit, and the banking companies or the banking company, as the case may be, shall be bound to comply with such directions. 6.39. Section 35AA and Section 35AB, inserted by the Amendment Act 30 of 2017 (pursuant to the enactment of Insolvency and Bankruptcy Code, 2016), empowers RBI respectively (i) to issue directions to any banking company to initiate insolvency resolution process, if so authorized by the central government and (ii) to issue directions to any banking company for the resolution of stressed assets. 6.40. Section 36(1)(a) empowers RBI to caution or prohibit banking companies against entering into any particular transaction or class of transactions. Section 36(1)(a) reads follows:

36. Further powers and functions of Reserve Bank.—(1) The Reserve Bank may—(a) caution or prohibit banking companies generally or any banking company in particular against entering into any particular transaction or class of transactions, and generally give advice to any banking company; Part IIA and IIAB of the Banking Regulation Act, 1949 confers powers upon the Reserve Bank (i) under Section 36AA to remove managerial or other persons from office (ii) under Section 36AB to appoint additional directors and (iii) under Section 36ACA to order the supersession of the board of directors. 6.41. For a long time, RBI drew its powers only from the aforesaid 2 enactments, namely RBI Act, 1934 and the Banking Regulation Act,

1949. But with the passage of time, as the industrial economy grew and H

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A several banking companies came into existence and a need to fast track paper-based cheque processing increased, the banks came together to set up clearing houses. The clearing houses developed the procedure of netting (arriving at the multilateral net settlement). But with the advent of technology, new payment systems such as MICR clearing, Electronic Funds Transfer Systems, cash-based payment systems, RTGS (real time gross settlement) etc. became popular. The development of multiple payment systems, which operated only in the realm of contracts among various stakeholders, did not have a legislative sanction. Therefore, an Act known as the Payment and Settlement Systems Act, 2007 was enacted with the object of providing for the regulation and supervision of payment systems in India and to designate RBI as the authority for that purpose. 6.42. It is seen from the Statement of Objects and Reasons of the Bill that RBI is empowered to regulate and supervise various payment and settlement systems in India including those operated by non-banks, card companies, other payment system providers and the proposed umbrella organization for retail payments. The Act further empowers RBI to (i) lay down the procedure for authorization of payment systems (ii) lay down the operation and technical standards for payment systems (iii) issue directions and guidelines to system providers (iv) call for information and furnish returns and documents from the service providers E (v) audit and inspect the systems and premises of the system providers (vi) lay down the duties of the system providers and (vii) make regulations for carrying out the provisions of the Act. 6.43. Section 2(1)(i) defines a “payment system”. The Section reads as follows: F 2(1)(i) “payment system” means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange;

G Explanation.- For the purposes of this clause, “payment system” includes the systems enabling credit card operations, debit card operations, smart card operations, money transfer operations or similar operations; 6.44. Under Section 3 of the Payment and Settlement Systems Act, 2007 RBI is the designated authority for the regulation and supervision of payment systems under the Act.

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 361 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

6.45. Chapter III of the Act deals with “authorisation of payment systems”. Section 4(1) of the Payment and Settlement Systems Act, 2007 provides that any person other than RBI seeking to commence or operate a payment system shall take authorization from the Reserve Bank in that regard. Section 4(1) reads as follows:

4. Payment system not to operate without authorisation.—(1) B No person, other than the Reserve Bank, shall commence or operate a payment system except under and in accordance with an authorisation issued by the Reserve Bank under the provisions of this Act: Provided that nothing contained in this section shall apply to— (a) the continued operation of an existing payment system on commencement of this Act for a period not exceeding six months from such commencement, unless within such period, the operator of such payment system obtains an authorisation under this Act or the application for authorisation made under section 7 of this Act is refused by the Reserve Bank; (b) any person acting as the duly appointed agent of another person to whom the payment is due; (c) a company accepting payments either from its holding company or any of its subsidiary companies or from any other company which is also a subsidiary of the same holding company; (d) any other person whom the Reserve Bank may, after considering the interests of monetary policy or efficient operation of payment systems, the size of any payment system or for any other reason, by notification, exempt from the provisions of this section. 6.46. Chapter IV of the Act specifies the regulatory and supervisory powers of RBI. Under Section 10, RBI is empowered to prescribe certain standards and guidelines for the proper and efficient management of the payment systems. The Section reads as follows:

10. Power to determine standards.—(1) The Reserve Bank may, from time to time, prescribe— H

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A (a) the format of payment instructions and the size and shape of such instructions; (b) the timings to be maintained by payment systems; (c) the manner of transfer of funds within the payment system, either through paper, electronic means or in any other manner, B between banks or between banks and other system participants; (d) such other standards to be complied with the payment systems generally;

C (e) the criteria for membership of payment systems including continuation, termination and rejection of membership; (f) the conditions subject to which the system participants shall participate in such fund transfers and the rights and obligations of the system participants in such funds. D (2) Without prejudice to the provisions of sub-section (1), the Reserve Bank may, from time to time, issue such guidelines, as it may consider necessary for the proper and efficient management of the payment systems generally or with reference to any particular payment system. E 6.47. Section 11 of the Act provides that any change in the system which would affect the structure or the operation of the payment system would require prior approval from the Reserve Bank. Section 11 reads as follows:

11. Notice of change in the payment system.—(1) No system provider shall cause any change in the system which would affect the structure or the operation of the payment system without— (a) the prior approval of the Reserve Bank; and (b) giving notice of not less than thirty days to the system participants after the approval of the Reserve Bank: Provided that in the interest of monetary policy of the country or in public interest, the Reserve Bank may permit the system provider to make any changes in a payment system without giving notice to the system participants under clause (b) or H

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 363 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

requiring the system provider to give notice for a period longer A than thirty days. (2) Where the Reserve Bank has any objection, to the proposed change for any reason, it shall communicate such objection to the systems provider within two weeks of receipt of the intimation of the proposed changes from the system provider. B (3) The system provider shall, within a period of two weeks of the receipt of the objections from the Reserve Bank forward his comments to the Reserve Bank and the proposed changes may be effected only after the receipt of approval from the Reserve Bank. C 6.48. Section 17 empowers RBI 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. The Section reads as follows: D

17. Power to issue directions.—Where the Reserve Bank is of the opinion that,— (a) a payment system or a system participant is engaging in, or is about to engage in, any act, omission or course of conduct that results, or is likely to result, in systemic risk being inadequately controlled; or (b) any action under clause (a) is likely to affect the payment system, the monetary policy or the credit policy of the country, the Reserve Bank may issue directions in writing to such payment system or system participant requiring it, within such time as the Reserve Bank may specify – (i) to cease and desist from engaging in the act, omission or course of conduct or to ensure the system participants to cease and desist from the act, omission or course of conduct; or G (ii) to perform such acts as may be necessary, in the opinion of the Reserve Bank, to remedy the situation. 6.49. Section 18 of the Payment and Settlement Systems Act, 2007 further empowers RBI to issue directions to system providers or the system participants or any other person generally, to H

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A regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest. The Section reads as follows:

18. Power of Reserve Bank to give directions generally.— Without prejudice to the provisions of the foregoing, the B Reserve Bank may, if it is satisfied that for the purpose of enabling it to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest, it is necessary so to do, lay down policies relating to the regulation of payment systems including electronic, non-electronic, domestic and international payment C systems affecting domestic transactions and give such directions in writing as it may consider necessary to system providers or the system participants or any other person either generally or to any such agency and in particular, pertaining to the conduct of business relating to payment systems. D 6.50. Thus, the RBI Act, 1934, the Banking Regulation Act, 1949 and the Payment and Settlement Systems Act, 2007 cumulatively recognize and also confer very wide powers upon RBI (i) to operate the currency and credit system of the country to its advantage (ii) to take over the management of the currency from central government E (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.

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6.51. Having taken note of the role of RBI as a central bank in the economy of the country, the functions entrusted to them and the powers conferred upon them under various statutes, let us undertake the exercise of fixing the identity of virtual currencies. Fixing the identity of VCs 6.52. As we have stated in Part 3 of this judgment, the exact identity of virtual currencies eludes precision. Some call it an exchange of value, some call it a stock and some call it a good/commodity. There may be no difficulty in accepting the divergence of views, if those views are not driven by fear of regulation. But if someone presents it as currency to a regulator of stock market and presents it as a commodity to a regulator of money market and so on and so forth, the definition will not merely elude a proper molecular structure but also elude regulation. This is where the problem of law lies. George Friedman, the founder and Chairman of Geopolitical Futures LLC, an online publication, aptly summarized this dilemma as follows: “Bitcoin is neither fish nor fowl…But both pricing it as a commodity when no commodity exists and trying to make it behave as a currency, seem problematic. The problem is not that it is not issued by the Government nor that it is unregulated. The problem is that it is hard to see what it is.” 6.53. It is now universally accepted that Satoshi envisioned a digital analog to old-fashioned gold, a new kind of universal money that could be owned by everyone and spent anywhere. It was designed to live with a cleverly constructed de-centralized network without central authority. Satoshi himself defined it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” 6.54. It is true that though, at its birth, it was conceived of only as an alternative to money, crypto currencies assumed different shapes, different shades and different utility values over the past decade and more. Several international monetary agencies/watchdogs are dabbling to find out what these are and they are also divided in their opinion. For instance, in a report submitted on 22-01-2019 to the International G Monetary Fund (IMF), by Jeffrey Franks, Director of its Europe Office, under the title ‘Cryptocurrencies and Monetary Policy’, it is pointed out as follows:-

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A 1. Money has evolved over time, to meet customary demands, but its basic functions such as (A) retaining a store of value; (B) acting as means of payment and (C) acting as a unit of account, have all remained the same.

2. There are four basic characteristics of a crypto currency like bitcoin, they are (A) digital in nature (B) private (C) global and (D) run on an autonomous and de-centralized algorithm. 6.55. According to the said report, there are four factors which lie behind the rise of crypto currencies. They are: (1) the development of blockchain technology (2) concerns about conventional money and banking, that arose out of the sub-prime mortgage crisis in 2008 and the unconventional monetary policies/quantitative easing (3) privacy concerns and (4) political views about the role of the Government. 6.56. The IMF report says that crypto currencies perform poorly in terms of the three basic functions of currencies. While the store of value increased 2000% from January 2017 to December 2017, there was also a fall during the year 2018. As means of payment, the acceptance of crypto currencies, according to the IMF report is very low and a few companies such as Microsoft, Dish network etc. have begun to accept crypto currencies for limited transactions. As a unit of account, so far, no goods or services are priced in crypto currencies. E 6.57. On its potential impact on the monetary policies of governments, the IMF report says the following:- “But in the future, large crypto currencies holdings could complicate monetary policy management” F Eventually the conclusions reached in the report are as follows:- • Crypto currencies today do not do a good job at fulfilling the main functions of money. • They may be favored by some for ideological, technological or monetary policy reasons. G • The blockchain technology they use does have some important advantages in controlling fraud and maintaining privacy. • But they also open up avenues for tax evasion and criminal activity.

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6.58. The petitioners claim that today virtual currency is not money or other legal tender, but good/tradable commodity and hence RBI has no role in regulating/banning the same. RBI has also taken a stand that VCs are not recognized as legal tender, but they seek to justify the impugned decisions, on the ground that VCs are capable of being used as a medium of exchange. Therefore, it is necessary to see how VCs were defined (i) by regulators in different jurisdictions and (ii) by the governments and other statutory authorities of various countries, through statutory instruments and non-statutory directives and (iii) by courts of different jurisdictions. DEFINITION OF VCs – BY REGULATORS C S.No. Regulator Definition of Virtual Currency

1. International Monetary VCs are digital representations of value, issued Fund 7 by private developers and denominated in their own unit of account.8

VCs can be obtained, stored, accessed, and transacted electronically, and can be used for a variety of purposes, as long as the transacting parties agree to use them.

The concept of VCs covers a wider array of “currencies,” ranging from simple IOUs (I owe you) of issuers (such as Internet or mobile coupons and airline miles), to VCs backed by assets such as gold,9 and “cryptocurrencies” such as Bitcoin.

As digital representation of value, VCs fall within the broader category of digital currencies. However, they differ from other digital currencies, such as e-money, which is a digital payment mechanism for (and denominated in) fiat currency. VCs, on the other hand, are not denominated in fiat currency and have their own unit of account.

VCs fall short of the legal concept of currency or money. G 7 Virtual Currencies and Beyond: Initial Considerations, IMF Staff Discussion Note, Dong He et al., page 7, 16, 17 (January 2016) (available at https://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf, last accessed on 27-02-2020) – presented by IMF Managing Director, Christine Lagarde, presented at the World Economic Forum (https://www.ccn.com/imf-director-talks-up-virtual-currencies-and-blockchain-tech/, last accessed on 27-02-2020). 8 Given the fast evolving nature of the industry, a universal definition has yet to emerge and could quickly change as the VC ecosystem continues to transform. 9 H This type of VCs is backed by the combination of existing tangible assets or national currencies and the creditworthiness of the issuer.

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A At present, VCs do not completely fulfill the three economic roles associated with money: high price volatility of VCs limits their ability to serve as a reliable store of value; the current small size and limited acceptance network of VCs significantly restrics their use as a medium of exchange; as of now, there is little evidence that VCs are used as an independent unit of account.

2. Financial Action Task June 2015:10 Force Virtual currency is a digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status (i.e., when tendered to a creditor, is a valid and legal offer of payment) in any jurisdiction. It is not issued nor guranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the virtual currency. D October 2018:11 Virtual Asset — A virtual asset is a digital representation of value that can be digitally traded, or transferred, and can be used for payment or investment purposes. Virtual assets do not include digital representations of flat currencies, securities E and other financial assets that are already covered elsewhere in the FATF Recommendations. For the purposes of applying the FATF Recommendations, countries should consider virutal assets as "property," "proceeds," "funds," "funds or other assets," or other "corresponding value." F

3. European Central Bank 2012:12 A virutal currency is a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virutal community. This definition may need to be adapted to future if G fundamental characteristics change. 10 Guidance for a Risk-Based Approach – Virtual Currencies, FATF, page 26 (June 2015) available at http:/ /www.fatf-gafi.org/media/fatf/documents/reports/Guidance-RBA-Virtual-Currencies.pdf (Last accessed on 27- 02-2020). 11 Glossary of the FATF Recommendations (updated on October 2018) available at https://www.fatf-gafi.org/ glossary/u-z/ (Last accessed on 27-02-2020). 12 Virtual Currency Schemes, European Central Bank, page 13 (October 2012) available at http:// H www.ecb.europa.eu/pub/pdf/other/virtualcurrencyschemes201210en.pdf (Last accessed on 27-02-2020).

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2017:13 A Absent a university accepted definition, 'virual currencies' can be defined as digital representation of value which, despite not being issued by a central bank or another comparable public authority, nor being 'attached', subject to certain exceptions, to a flat currency, are voluntarily accepted, by natural or legal persons, as a means of exchange, and which are stored, transferred and traded electronically, without a tangible, real-world representation.

This definition of ‘virutal currencies’ captures decentralised, peer-to-peer VCs – as distinct from E-money or Internet (software)-based schemes, which merely facilitate transactions denominated in fiat money or in central bank- issued digital currencies – which, while devoid of legal tender status, fulfil, at least to some extent, all three traditional functions of money by way of agreement within their user community. This definition does not, however, extend to centrally-issued digital currencies, such as the central bank digital currencies under consideration, at the time of writing, in several jurisdictions.

European Banking Authority in 2014:14 E VCs are defined as a digital representation of value that is neither issued by a central bank or public authority nor necessarily attached to a FC, but is used by natural or legal persons as a means of exchange and can be transferred, stored or traded electronically. F

4. European Securities and Crypto-asset: A type of private asset that Markets Authority15 depends primarily on cryptography and Distributed Ledger Technology (DLT) or similar technology as part of their perceived or inherent value...Crypto-asset additionally means an asset that is not issued by a central bank. G 13 Phoebus Athanassiou, Impact of Digital Innovation on the Processing of Electronic Payments and Contracting: An Overview of Legal Risks, Legal Working Paper Series, No. 16, European Central Bank (October 2017) available at https://www.ecb.europa.eu/pub/pdf/scplps/ecb.lwp16.en.pdf?344b9327fec 917bd7a8fd70864a94f6e (Last accessed on 27-02-2020). 14 EBA Opinion on ‘virtual currencies’, page 11, 13 (July 2014) available at https://eba.europa.eu/sites/ default/documents/files/documents/10180/657547/81409b94-4222-45d7-ba3b-7deb5863ab57/EBA-Op- 2014-08%20Opinion%20on%20Virtual%20Currencies.pdf (Last accessed on 27-02-2020). H 15 Advice - Initial Coin Offerings and Crypto-Assets (January 2019) available at https://www.esma.europa.eu/ sites/default/files/library/esma50-157-1391_crypto_advice.pdf (Last accessed on 27-02-2020).

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A 5. Financial Conduct Cryptoassets are a cryptographically secured Authority United digital representation of value or contractual Kingdom16 rights that is powered by forms of DLT and can be stored, transferred or traded electronically.

While cryptoassets can be used as a means of exchange, they are not considered to be a currency or money, as both the Bank of England and the G20 Finance Ministers and Central Bank Governors have previously set out. They are too volatile to be a good store of value, they are not widely accepted as a means of exchange, and they are not used as a unit of account.

6. Internal Revenue 2014:17 Service, Department of "virutal currency" may be used to pay for goods Treasury, USA or services, or held for investment. Virtual currency is a digital representation of value that functions as a medium of exchage, a unit of account, and/or a store of value.

Convertible VC is treated as property for U.S. federal tax purposes. General tax principles that the apply to property transactions apply to transactions using virtual currency. VC is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.

2018:18 Virutal currency, as generally defined, is a digital representation of value that function in the same manner as a country's traditional currency.

16 Guidance on Cryptoassets, Consultation Paper, CP 19/3, Financial Conduct Authority, page 7 (January 2019) available at https://www.fca.org.uk/publication/consultation/cp19-03.pdf (Last accessed on 27-02- 2020) and Guidance on Cryptoassets, Feedback and Final Guidance to CP 19/3, Policy Statement, PS19/22 G (July 2019) available at https://www.fca.org.uk/publication/policy/ps19-22.pdf (Last accessed on 27-02- 2020). 17 IRS Virtual Currency Guidance: Virtual Currency is Treated as Property for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply (March 2014) available at https://www.irs.gov/newsroom/ irs-virtual-currency-guidance (Last accessed on 27-02-2020) and https://www.irs.gov/pub/irs-drop/n-14- 21.pdf (Last accessed on 27-02-2020). 18 IRS reminds taxpayers to report virtual currency transactions (March 2018) available at https:// www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currency-transactions (Last accessed on 27- H 02-2020).

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7Copy pinpoint7. Securities and Exchange Bitcoin has been described as a decentralized, A Commission, USA peer-to-peer virutal currency that is used like money – it can be exchanged for traditional currencies such as the U.S. dollar, or used to purchase goods or services, usually online. Unlike traditional currencies, Bitcoin operates without central authority or banks and is not backed by any government.19 B

Speaking broadly, crypto currencies purport to be items of inherent value (similar, for instance, to cash or gold) that are designed to enable purchases, sales and other financial transactions. They are intended to provide C many of the same functions as long-established currencies such as the U.S. dollar, euro or Japanese yen but do not have the backing of a government or other body.20

8Copy pinpoint8. Commodity Futures Section 1a(9) of the Act (US Commodity Trading Commission, Exchange Act) defines "commodity" to include, D USA among other things, "all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in." 7 U.S.C. § 1a(9). The definition of a “commodity” is broad. See, e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142 (7th Cir. 1982). Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities. 21

9Copy pinpoint9. Financial Crimes Virtual currency is a medium of exchange that Enforcement operates like a currency in some environments, Network, Department but does not have all the attributes of real of Treasury, USA22 currency. In particular, virtual currency does not have legal tender status in any jurisdiction.

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A This guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.

10Copy pinpoint10. Canada Revenue Cryptocurrency is a digital representation of Agency (CRA)23 value that is not legal tender. It is a digital B asset…that works as a medium of exchange for goods and services between the parties who agree to use it.

CRA generally treats cryptocurrency like a commodity for purposes of Income Tax Act. C Any income from transactions involving cryptocurrency is generally treated as business income or as a capital gain, depending on the circumstances.

Virtual currency is digital asset that can be used to buy and sell goods or services. D Cryptocurrency is a blockchain-based, virtual currency. When cryptocurrency is used to pay for goods or services, the rules for barter transactions apply for income tax purposes. A barter transaction occurs when any two persons agree to exchange good or services and carry out that exchange without legal E currency. Virtual currency can also be bought or sold like commodity. 24

23 Guide for cryptocurrency users and tax professionals (Last modified on 27 June 2019) available at https:/ /www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital- currency/cryptocurrency-guide.html (Last accessed on 27-02-2020). 24 Virtual Currency (Last modified on 26 June 2019) available at https://www.canada.ca/en/revenue-agency/ H programs/about-canada-revenue-agency-cra/compliance/digital-currency.html (Last accessed on 27-02-2020).

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DEFINITIONS UNDER STATUTORY ENACTMENTS AND A NON-STATUTORY DIRECTIVES OF GOVERNMENTS S.No. Country Statutory Section/ Article defininng VC Enactment/ Non-Statutory Directive B

1. Japan Payment Article 2(5): The term “Virtual Currency” Services Act, as used in this Act means any of the following: 2009 (i) property value (limited to that which is recorded on an electronic device or any other object by electronic means, and excluding the Japanese currency, foreign currencies, and C Currency-Denominated Assets; the same applies in the following item) which can be used in relation to unspecified persons for the purpose of paying consideration for the purchase or leasing of goods or the receipt of provision of services and can also be purchased from and sold to unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system; and

(ii) property value which can be mutually exchanged with what is set forth in the preceding item with unspecified persons acting as counterparties, and which can be transferred by means of an electronic data processing system.

2019 amendment to this Act (to come into force from April 2020) uses the term “crypto assets (angoshisan)” in place of the term F “virtual currency”.

The 2019 Amendment added crypto assets to the term “financial instruments” for the purposes of defining underlying assets of the derivative transactions subject to derivative G regulations under the FIEA (Financial Instruments and Exchange Act), and therefore the same regulations applicable to other derivative transactions under the FIEA will apply to crypto asset derivative transactions. These regulations include certain conduct regulations, such as the notice requirement H

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A prior to trading, and prohibitions on making false statements, providing conclusive judgements, and engaging in uninvited solicitation.

2. Malta Virutal Article 2(2): “virtual financial asset” or “VFA” Financial means any form of digital medium recordation Asset Act, that is used as a digital medium of exchange, B 2018 unit of account, or store of value and that is not - (a) electronic money; (b) a financial instrument; or (c) a virtual token; “virtual token” means a form of digital medium recordation whose utility, value or application C is restricted solely to the acquisition of goods or services, either solely within the DLT platform on or in relation to which it was issued or within a limited network of DLT platforms.

3. Canada Proceeds of Section 1(2): virtual currency means Crime (Money (a) a digital representation of value that can be D Laundering) used for payment or investment purposes that and Terrorist is not a fiat currency and that can be readily Financing exchanged for funds or for another virtual Regulations, currency that can be readily exchanged for 200225 funds; or (b) a private key of a cryptographic system that enables a person or entity to have access E to a digital representation of value referred to in paragraph (a).

4. Bahamas Payment No specific legislation for crypto currencies. Instruments But according to Central Bank, Bahamas the (Oversight) regulations which provide a framework for a Regulations, system of national electronic payment services, F 2017 apply to crypto currencies. Article 2(1): electronic money or e-money means electronically stored monetary value as represented by a claim on the issuer, which is issued on receipt of funds for the purpose of making payment transactions and which is G accepted as a means of payment by persons other than the issuer, and includes monetary value stored magnetically or in any other tangible or intangible device (such as SIM card or software).

25 H As amended in June 2019, which amendment is yet to come into force.

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 375 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

A Bill is under consideration that would bring virtual currencies within the ambit of proceeds of crime legislation (Proceeds of Crime Bill, 2018). Clause (2) of the Bill defines: “virtual currency” as a digital representation of value which can be digitally traded and func- tions as – (a) a medium of exchange; (b) a unit of account; or (c) a store of value, that does not have legal tender status or carry any security or guarantee in any jurisdiction.

“currency or money” means coin and paper money of any jurisdiction that is designated as legal tender or is customarily used and accepted as a medium of exchange, including virtual cur- C rency as a means of payment.

5. Estonia Money Section 3(9): cryptocurrencies (virtual Laundering currencies) are value represented in digital and Terrorist form that is digitally transferable, preservable, Financing or tradable and that which natural persons or Prevention legal persons accept as a payment instrument, D Act, 2017 but that is not the legal tender of any country or funds (banknotes or coins, scriptural money held by banks, or electronic money).

6. Latvia Law on Section 1 (22): virtual currency - a digital Prevention of representation of value which can be Money transferred, stored or traded digitally and E Laundering operate as a means of exchange, but has not and Terroristm been recognised as a legal means of payment, and cannot be recognised as a banknote and coin, Proliferation non-cash money and electronic money, and is Financing, as not a monetary value accrued in the payment amended in instrument which is used in the cases referred 2017 to in Section 3, Clauses 10 and 11 of the Law F on the Payment Services and Electronic Money;

7. Liechtenstein Due Diligence Article 2(1)(l): Virtual currencies shall be Act, 2019 understood to be digital monetary units, which can be exchanged for legal tender, used to G purchase goods or services or to preserve value and thus assume the function of legal tender.

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A 8. Israel Supervision of Section 11A (7) defines financial asset. Financial Financial asset includes virtual currency.26 Services Law, 5776-2016

9. Jersey Proceeds of Article 4(4): ‘Virtual currency’ means any B Crime currency which (whilst not itself being issued (Miscellaneous by, or legal tender in, any jurisdiction) – Amendments) (a) digitally represents value; (Crown (Jersey) (b) is a unit of account; dependency) Regulations (c) functions as a medium of exchange; and 2016 (d) is capable of being digitally exchanged for money in any form. C Article 4(5): For the avoidance of doubt, virtual currency does not include any instrument which represents or stores (whether digitally or otherwise) value that can be used only to acquire goods and services in or on the premises of, or under a commercial agreement with, the issuer of the instrument. D

10. Mexico Financial It defines virtual assets as representations of Technology value electronically registered and utilized by Institutions the public as a means of payment for all types Law, 2018 of legal transactions, which may only be (Chapter on transferred electronically. 27 Virtual Assets) E

11Copy pinpoint11. Austria Ministry of Treats virtual currency as ‘other intangible Finance commodity’. 28

12Copy pinpoint12. Czech Vice Governor Treats virtual currency as ‘commodity’. 29 Republic Czech F National Bank

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 377 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

13Copy pinpoint13. Germany German The Authority qualifies virtual currencies as A Federal “units of account” and therefore, “financial Financial instruments”. Supervisory But bitcoin is considered to be crypto token Authority by German Bundesbank (because it does not fulfil the typical functions of a currency).30

Recognized before the Parliament that crypto B

14Copy pinpoint14. Luxembourg Minister of Finance currencies are actual currencies.31

15Copy pinpoint15. Slovakia Ministry of Virtual currencies must be treated as “short Finance, term financial assets other than money”. 32 Slovakia published C guidance

16Copy pinpoint16. European European Article 3(18): ‘Virtual Currencies’ means a Union Union's digital representation of value that is not Directive issued or guaranteed by a central bank or a 2018/843 of public authority, is not necessarily attached 30 May 2018 to a legally established currency and does not D (5th Anti- possess a legal status of currency or money, Money but is accepted by natural or legal persons as Laundering a means of exchange and which can be Directive) transferred, stored and traded electronically.

17Copy pinpoint17. United HM Revenue Cryptoassets (or ‘cryptocurrency’ as they Kingdom & Customs, are also known) are cryptographically secured E UK 34 digital representation of value or contractual rights that can be : • transferred • stored • traded electronically HMRC does not consider cryptoassets to be F currency or money.

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A Cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism. 35

Bank of The first part of the word ‘crypto’, means B England36 ‘hidden’ or ‘secret’ reflecting the secure technology used to record who owns what, and for making payments between users.

The second part of the word, ‘currency’, tells us the reason cryptocurrencies were designed in the first place: a type of electronic cash. C But cryptocurrencies aren't like the cash we carry. They exist electronically and use a peer- to-peer system. There is no central bank or government to manage the system or step in if something goes wrong.

18Copy pinpoint18. United New York Section 2(p): virtual currency means any type States of of digital unit that is used as a medium of America [BitLicence exchange or a form of digitally stored value. Regulation (23 Virtual currency shall be broadly construed CRR-NY to include digital units of exchange that: have 200)] a centralized repository or administrator; and decentralized and have no centralized E repository or administratory; or may be created or obtained by computing or manufacturing effort. Virtual currency shall not be construed to include any of the following: (1) digitals units that: F (i) are used solely within online gaming platforms; (ii) have no market or application outside of those gaming platforms; (iii) cannot be converted into, or redeemed for, fiat currency or virtual currencyl and (iv) may or may not be redeemable for G real-world goods, services, discounts, or purchases;

35 Policy paper on Revenue and Customs Brief 9 (2014): Bitcoin and other cryptocurrencies, HM Revenue & Customs (March 3, 2014) available at https://www.gov.uk/government/publications/revenue-and-customs- brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-other- cryptocurrencies (Last accessed on 27-02-2020). 36 What are cr yptoassets (cr yptocurrencies )? av ailable at https://www.ba nkofe ngla nd.co. uk/ H knowledgebank/what-are-cryptocurrencies (Last accessed on 27-02-2020).

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 379 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

(2) digital units that can be redeemed for goods, services, discounts, or purchases as part of a customer affinity or rewards program with the issuer and/or other designated merchants or can be redeemed for digital units in another customer affinity or rewards program, but cannot be converted into, or redeemed for, fiat currency or virtual currency; or

(3) digital units used as part of prepaid cards;

North Carolina Virtual currency– A digital representation of value that can be digitally traded and functions [Money as a medium of exchange, a unit of account, or C Transmitters a store of value but only to the extent defined Act § (53- as stored value under subdivision (19) of this 208.42)] section, but does not have legal tender status as recognized by the United States Government. Connecticut “Virtual currency” means any type of digital unit that is used as a medium of exchange or a D [General form of digitally stored value or that is Statues of incorportated into payment system Connecticut, technology. Sec. 36a-596] Virtual currency shall be construed to include digital units of exchange that (A) have a centralized repository or administratory; (B) E are decentralized and have no centralized repository or administrator; or (C) may be created or obtained by computing or manufacturing effort.

Virtual currency shall not be construed to include digital units that are used (i) solely within online gaming platforms with no market or application outside such gaming platforms, or (ii) exclusively as part of a consumer affinity or rewards program, and can be applied solely as payment for purchases with the issuer or other designated merchants, but cannot be converted into or redeemed for fiat currency.

Florida (2) (i) “Virtual currency” means a medium of exchange in electronic or digital format that is [Florida not a coin or currency of the United States or Money any other country. H

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A Laundering Act (Fla. Stat. § 896.101)]

Illinois A digital currency is an electronic medium of exchange used to purchase goods and services. [Digital A digital currency may also be exchanged for B Currency money. A digital currency, by nature of its Regulatory properties detailed below, is distinct from Guidance money. (2017)] 37

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 381 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

(January A prominent example of convertible virtual A 2015)]39 currency is Bitcoin, a form of e-currency that has been around since 2008.

Washington “Virtual currency” means a digital representation of value used as a medium of Uniform exchange, a unit of account, or a store of value, Money but does not have legal tender status as B Services Act recognized by the United States government. (RCW “Virtual currency” does not include the 19.230.010) software or protocols governing the transfer of the digital representation of value or other uses of virtual distributed leger systems to verify ownership or authenticity in a digital C capacity when the virtual currency is not used as a medium of exchange.

Wyoming (xxii) “Virtual currency” means any type of digital representation of value that: Wyoming (A) Is used as a medium of exchange, unit of Money account or store of value; and D Transmitter (B) Is not recognized as legal tender by the Act [W.S. 40- United States government. 22-102(a)]

6.59. It may be seen from the contents of the tables given above that there is unanimity of opinion among all the regulators and the E 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 IMF, the FATF, the European Central Bank, the Financial Conduct Authority of the United Kingdom, the Internal Revenue F Service of the United States, Department of Treasury and the Canadian Revenue Authority treat virtual currencies as digital representations of value. The European Central Bank went a step further by describing a virtual currency as a type of unregulated digital money. The Internal Revenue Service of the United States, Department of Treasury has G recognized that a virtual currency can function in the same manner as a country’s traditional currency. The Securities and Exchange Commission, USA also recognizes that virtual currencies are intended to perform 39 Virtual Currency, Treasury Update published by the Tax Policy Division, Michigan Department of Treasury (Vol. 1(1), November 2015) available at https://www.michigan.gov/documents/treasury/Tax-Policy- November2015-Newsletter_504036_7.pdf (Last accessed on 27-02-2020). H

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A many of the same functions as long-established currencies such as US dollar, Euro or Japanese Yen. Yet another wing of the United States Department of Treasury namely Financial Crimes Enforcement Network calls virtual currency as a medium of exchange that operates like a currency in some environments, though it may not have all the attributes of a real currency. B 6.60. The Bank of International Settlements, as pointed out in Part 2 of this judgment, got a sub-group within the Committee on Payments and Market Infrastructure (CPMI) to undertake an analysis of digital currencies. In a report submitted by them in November 2015, this sub-group recognized that though the use of private digital currencies was too low at that time for certain risks to materialize, the widespread substitution of bank notes over a period of time, with digital currencies, could lead to a decline in non-interest paying liabilities of central banks and that the conduct of the monetary policy could be affected. 6.61. Similarly, the state of Liechtenstein considers virtual currencies as digital monetary units which can be exchanged for legal tender and also be used to purchase goods or services, thereby assuming the character of a legal tender. The German Federal Financial Supervisory Authority treats virtual currencies as units of account and consequently as financial instruments. Luxembourg has taken an official position that crypto currencies are actual currencies. Some of the states in the Unites States of America have passed laws recognizing virtual currencies as electronic medium of exchange. 6.62. It is clear from the above that 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. G 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. 6.63. The word “currency” is defined in Section 2(h) of the Foreign Exchange Management Act, 1999 (hereinafter, “FEMA”) to include H

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 383 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

“all currency notes, postal notes, postal orders, money orders, A cheques, drafts, travelers’ cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments as may be notified by the Reserve Bank.” The expression “currency notes” is also defined in Section 2(i) of FEMA to mean and include cash in the form of coins and bank notes. Again, FEMA defines “Indian B currency” under Section 2(q) to mean currency which is expressed or drawn in Indian rupees, but which would not include special bank notes and special one rupee notes issued under Section 28A of the RBI Act. But RBI has taken a stand in paragraph 24 of its counter-affidavit that VCs do not fit into the definition of the expression “currency” under Section 2(h) of FEMA, despite the fact that FATF, in its report on June C 2014 on “Virtual Currencies: Key Definitions and Potential AML/CFT Risks” defined virtual currency to mean “digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status.” According to the report, legal tender status is acquired only when it is accepted as a valid and legal offer of payment when tendered to a creditor. 6.64. Traditionally ‘money’ has always been defined in terms of the 3 functions or services that it provides namely (1) a medium of exchange (2) a unit of account and (3) a store of value. But in course of time, a fourth function namely that of being a final discharge of debt or standard of deferred payment was also added. This fourth function is acquired by money through the conferment of the legal tender status by a Government/central authority. Therefore, capitalizing on this fourth dimension/function and drawing a distinction between money as understood in the social sense and money as understood in the legal sense, it was contended by Shri Nakul Dewan, learned Senior Counsel, with particular reference to the book ‘Property Rights in Money’ by David Fox and the decision of the Queen’s Bench in Moss v. Hancock40 and the decision of the US Supreme Court in Wisconsin Central Ltd v. United States,41 that so long as VCs do not qualify as money either in the legal sense (not having a legal tender status) or in the social sense G (not being widely accepted by a huge population as a medium of exchange), they cannot be treated as currencies within the meaning of

40 (1899) 2 QB 111 41 585 US ___ 2018, 138 S. Ct. 2067 (2018) H

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A any of the statutory enactments from which RBI draws its energy and power. 6.65. But we do not think that RBI’s role and power can come into play only if something has actually acquired the status of a legal tender. We do not also think that for RBI to invoke its power, something should have all the four characteristics or functions of money. Moss v. Hancock (supra), itself a century old decision (1899), relies upon the definition of ‘money’ as given by F. A. Walker in his treatise ‘Money, Trade and Industry’ (actual title of the book appears to be ‘Money in its relation to Trade and Industry’), published in 1879 to the effect that “money is that which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or the credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities.” 6.66. But that 1879 definition cannot be accepted as perfect, final and everlasting, in modern times. Cross border transactions and technological advancements have removed many shackles created by old concepts (except perhaps those created by law courts). This fact has been recognized in the dissent of Breyer, J., in Wisconsin Central (supra) when he says “…what we view as money has changed over time. Cowrie shells once were such a medium but no longer are… our currency originally included gold, coins and bullion, but after 1934, gold could not be used as a medium of exchange… perhaps one day employees will be paid in Bitcoin or some other type of currency”. In the linguistic sense, Oxford English Dictionary has already included “property or possessions of any kind viewed as convertible into money” within the definition of money. Therefore, Breyer, J., points out in his dissent “So, where does this duel of definitions lead us? Some seem too narrow; some seem too broad; some seem indeterminate. The result is ambiguity”. He therefore concluded that stock options given to employees constitute money remuneration for the services rendered. But the majority proceeded on the basis that when the law was enacted, the term ‘money’ was not used in an expansive sense.

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 385 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

6.67. Neither the RBI Act, 1934 nor the Banking Regulation Act, A 1949 nor the Payment and Settlement Systems Act, 2007 nor the Coinage Act, 2011 define the words ‘currency’ or ‘money’. But FEMA defines the words ‘currency’, ‘currency notes’, ‘Indian currency’ and ‘Foreign currency’. We have taken note of these definitions. Interestingly, Section 2(b) of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 B defines money to include a cheque, postal order, demand draft, telegraphic transfer or money order. Clause (33) of Section 65B of the Finance Act, 1994, inserted by way of Finance Act, 2012 defines ‘money’ to mean “legal tender, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveler cheque, money order, postal or electronic remittance or any other similar instrument, C but shall not include any currency that is held for its numismatic value”. This definition is important, for it identifies many instruments other than legal tender, which could come within the definition of money. 6.68. The Sale of Goods Act, 1930 does not define ‘money’ or D ‘currency’ but excludes money from the definition of the word ‘goods’. The Central Goods and Services Tax Act, 2017 defines ‘money’ under Section 2(75) to mean “the Indian legal tender or any foreign currency, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveler cheque, money order, postal or electronic remittance or any other instrument recognised by RBI, when used as a consideration to settle an obligation or exchange with Indian legal tender of another denomination but shall not include any currency that is held for its numismatic value.” 6.69 In CIT v. Kasturi & Sons Ltd.,42 a question arose as to whether the replacement by the insurer, of an article destroyed by one of the perils as against which coverage is provided, would be taken to be “money” within the meaning of Section 41(2) of the Income Tax Act,

1961. This court held that the word “money” used in Section 41(2) has to be interpreted only as actual money or cash and not as any other thing or benefit which could be evaluated in terms of money. G 6.70. In Dhampur Sugar Mills Ltd. v. Commissioner of Trade Tax,43 this court was concerned with the question whether the adjustment of price of molasses from the amount of license fee would amount to 42 (1999) 3 SCC 346 43 (2006) 5 SCC 624 H