The supreme court hearing on Crypto vs RBI resumed on August 21 with RBI’s counsel, Shyam Divan, reading the IMC report pointing out the disadvantages of Crypto.
During the course of arguments, the judge interrupts and asks how you are concerned with consumer protection, it is not your concern. It is Govt. concern and not yours.
Further, the counsel briefed about the suitability of ban with the example of China.
The infamous Crypto banning bill was referred to by the counsel which criminalizes the act of dealing with Crypto. Also highlighted the 27 Nov 2017 meeting which mentions deliberations going on between relevant authorities even prior to April 6 circular. Meaning thereby the authorities were watchful of the situation even prior to banking ban.
Various portions of the IMC report were being read to prove that RBI decision is based on well-substantiated research.
Meanwhile, the judge asks for various reports mentioned in the IMC report which the Govt. claims as confidential. Consequently, the Judge immediately calls the Solicitor General.
Justice Nariman directs Solicitor General to submit page 85 of IMC report mentions certain papers in Para 8 and also the earlier Interdisciplinary report by tomorrow in compilation with a copy to each party.
The counsel came to the FATF report. Divan highlighted various advantages of Crypto laid down in FATF. but finally concludes that its ability to be used for cross border payments is something which can potentially undermine the monetary policy.
Also explained the risks difficulty part of the FATF document. The counsel elaborates with an Example of Silk Road online black market for selling illegal drugs, is being taken to prove the potential risks of Cryptocurrency to be used in illicit activities.
Further, the RBI counsel requested the judges to read the counter affidavit filed in response to the IAMAI petition. Divan pointed out that page 59 and 60 of the counter affidavit talked about the incidents of hacking that happened with various exchanges worldwide and publications regarding these incidents. Following that, the counsel read the Finance Ministry’s reply to the petition.
While reading out IAMAI petition in court, the RBI counsel said that the figures (number of users, revenue, etc.) mentioned on page 7 of IAMAI petition is sizable enough to alarm the regulator to take action although its overall size is negligible. After perusing through the petition, the RBI counsel moved to relevant statutes/ legislation.
A document containing discussion before the enactment of Payment and Settlement Systems Act (PSS), was being read. The document read, “This document mentions the necessity and concerns of enacting payment and settlement systems Act 2007. Unauthorized alternate of payments was one of the concerns.”
The judge pointed out that payment means that it has to be through legal tender always. Seconding that, the RBI counsel said cryptocurrency is an alternative to that. Justice Nariman interrupted and said that it was not RBI’s case that exchanges are covered by PSS Act so this is immaterial. Counsel answered that prima facie they were not, but there is a potential threat to undermine the monetary policy. Corroborating the RBI’s stance, the counsel said that the central bank, in fact, had the right to issue guidelines and formulate policies.
The counsel read out Section 36 (1) (a) of the Banking Regulation Act and stated that it covered the scope of banking ban circular and RBI was well empowered to do it (pass the banking ban). Following this, the court dispersed for lunch.
The court has resumed. RBI counsel is referring to a judgment (Citation of the judgment is: 1992 2 SCC 343 ) which explains the provisions of the Banking Regulation Act. The counsel Reads that action under 35A of Banking Regulation Act has ‘Statutory Force of Law’.
The RBI Counsel argues that the RBI circular is in a supplement to the statutory provisions enunciated by Banking Regulation Act which has to be considered to be having statutory force.
Justice Nariman asked which provision says that you have to be ‘satisfied’? Counsel answers Section 35 A of Banking regulation Act and Section 18 of PSS Act, 2007.
Judge asks so this satisfaction is not in connection of you being an administrative authority but in the shoes of a legislature’s delegatee? Counsel says yes since RBI has to deal with the challenges posing threat to the established system.
More judgments are being read by RBI Counsel in their favor. With this Mr. Divan concludes his arguments saying India will make laws as per its needs.
The judge has asked the Petitioners that RBI is an expert body which has taken a decision on the basis of a study, who are we to interfere in their policy? The question is not whether it is arbitrary or not, bit whether they can legislate or not when they are ‘satisfied’ under 35A!
Further, The Counsel of Petitioner Rajdeep Singh & Ors. started argued how RBI changed its stance from caution to prohibition.
Mr. Sood started with that RBI circular is irrational and a result of no application of mind. there is manifest arbitrariness. Justice Nariman questions they are the expert body, they monitored the position, in the realm of economic policy and financial policy they have taken action, so what do you have to say on the point of satisfaction?
Mr. Sood answers My Lord “ yes it is a question but the point of satisfaction can be considered when there is data to substantiate that.
Secondly, the satisfaction of one authority cannot be allowed to be taken effect from the satisfaction of other authority. Which means RBI cannot take action based on the study held by others”.
Sood Readout Ministry of Finances advisory, which says that two things raise concern.
1. its use as a payment system
2. its use in illicit activities.
So the Govt. has also not advocated about the complete ban. it only said that vices should be eradicated/ regulated.
Further, Justice Nariman directs the counsel to turn to the representation filed by the exchanges with RBI. Where they have said that there is no need to ban. and also read the reply given by RBI to it.
Mr. Sood reads out the suggestions given to RBI by exchanges. That Money laundering Act can be made applicable to exchanges as intermediaries making them responsible for reporting directly. or enjoining on banks to make additional requirements for exchanges.
Now justice Nariman questions RBI “why you have not properly responded to the representation. You just said that we are forwarding to Govt. Angrily says this is not an answer.”
Justice Nariman Reiterates further that “this is mot an answer, Mr. Counsel. Do you still want to give an answer? Exchanges are not asking to uplift the ban but they are only asking you to reconsider. If you don’t give an answer to it, I will pass the judgment.”
Justice Nariman directs that RBI must respond to the representation in the manner appropriate. Offers to defer the case for 2 weeks as part-heard, let the answer come on reconsideration of banking ban by RBI.
After hearing arguments The court claimed that “ we are of the view that detailed representations by exchanges pursuant to this court’s order 17.05.2018 have not been answered point by point, therefore RBI to reply them within 2 weeks. SG to furnish various docs within 1 week.”