Introduction:
The history of mankind has witnessed sundry mediums of exchange to fulfill their needs, commencing with the barter system, then arriving at coins, currency notes, etc. However, in the 21st century, with the technological advances being blatantly evident, we have arrived at a medium of exchange, which is intangible but is still in extensive use today. It is called cryptocurrency, which is also known as virtual currency. What makes it unique is the fact that it is decentralized, implying it is not regulated by any central authority in the world, but protected by blockchain, which ensures its security. Albeit, the value of Bitcoin, one of the most prominent cryptocurrencies, revolves around INR 34 lakhs as on the day this article has been written, the downside is the high volatility of the value of not only the said, but of all virtual currencies. Bitcoin mining is the process by which new bitcoins are created, which is performed via sophisticated hardware and complex computational math problem and equations. However, Satoshi Nakamoto, who is regarded as the creator of this most popular crypto, put a cap of 21 million units, which means that only these total units would be ever minted, giving impetus to the augmentation of its price in near future.
Background:
A circular, dated April 6, 2018, was issued by the regulator of the Indian banking system, the Reserve Bank of India, abbreviated as RBI, that the banks and the financial entities under its purview would be barred from settling transactions in virtual or cryptocurrencies. In addition to it, they were also curtailed from rendering their services to an individual or organization dealing with the same, for instance, a person buying, selling, transferring, keeping them as collateral, etc.[1]
Challenged by IAMAI:
[2]This was contested by the Internet and Mobile Association of India (IAMAI), which is a not-for-profit body representing the online and mobile value-added services industry, in the apex court of India, in which, the main grounds of challenge inculcated that since Virtual Currencies (VC’s) do not fall under the category of legal tender, they cannot be regulated. Referring to Section 2(h) of the Foreign Exchange Management Act (FEMA), 1999, and examining the definition of currency, they could fall within the ambit of ‘other similar instruments’. Additionally, these services could not be labeled as a ‘payment system’, which marks their exclusion from the Payment Settlement and Systems Act, 2007.[3] This particular step was exclaimed unjustifiable, being issued in bad faith without fulfilling the desired goal for the public and concerned stakeholders. One of the major arguments, which proved to be the deciding factor of this judgment, was the angle of Article 19(1) (g) of the Constitution of India, possessing the ‘test of proportionality, that the measure or the means adopted must be in sync to achieve the required benchmark.
Response of RBI:
RBI countered the arguments by claiming it to be within the mandate of the Banking Regulation Act, 1949, not satisfying the pre-requisite to be tagged as a store of value, medium of payment, in a nutshell, could not be acknowledged as ‘currency’. Keeping the notion of public interest into consideration, they do not have a secure long-term exchange value, they would pose a grave threat to the business on the network of entities regulated by the respondent. The KYC (Know Your Customer) norms followed by them are not at par with those adopted by other participants, proving to be unreliable and highly unproductive, igniting the danger of financial risks in a highly digitalized world, further amplified by their cross-border trade nature and lack of accountability.[4]
Verdict:
On 4 March 2020, the Supreme Court delivered the judgment of this case, in which it was ruled that the respondent had failed to establish the disruption of the functioning of existing institutions via crypto-currencies. [5]Relying on the State of Maharashtra vs. Indian Hotel and Restaurants Association, there was no rational reason as at least some empirical data was desired to verify the harm suffered by the said entities, turning to be ambiguous with the lacking of considerable reasons with a strong legal backing. Moreover, the move taken failed to pass the ‘test of proportionality, as mentioned above, which houses 4 basic requirements:
- Whether the same could have been secured with a less extreme measure, without compromising the achievement of the stated objective
- Rational connection of measure and objective
- Whether the limitation on a particular right is sufficient due to that particular rule
- Balancing the restrictions imposed on a person due to the enforcement of that legislation, against the criticality of that goal.
Conclusively, RBI’s circular failed due to these prominent interpretations, as a result of which, the circular was declared illegal and set aside, paving the way for facilitating the exchanges of crypto traders, not only in India but across the globe.
Conclusion:
As the world ushered into the digital era, humans have made novel digital practices a part of their daily routine, whether it is the payment of monthly bills, investing in stocks, purchasing gold, or whatnot. El Salvador became the first country to permit Bitcoin to be used as a legal tender.[6] The Cryptocurrency and Regulation of Official Digital Currency Bill are not likely to be introduced in the 2022 Budget Session of Parliament, as claimed by an official, due to its highly complex nature, demanding more time and cooperation. In the Union Budget 2022-23, it has been mentioned that a centrally backed virtual currency would be out by early 2023, and 30%tax would be imposed on returns derived from the trade-in VCs. The mentioned measures stand testimony to the acknowledgment of their critical role in the world’s economy, In conclusion, a balanced and inclusive approach, eliminating the possible loopholes like crypto, serving the maximum possible consumer welfare would be desirable for a long-term digitalization strategy, especially for India, which has been savoring its fruits of it in recent times and would like to level up the horizon of the same to soar the overall ease in the monetary system.
Author(s) Name: Armaan Kukreja (Panjab University)
References:
[1] Internet and Mobile Association of India vs. Reserve Bank of India <https://www.legalserviceindia.com/legal/article-3912-internet-and-mobile-association-of-india-v-reserve-bank-of-india.html>accessed 6 April 2022
[2] Supreme Court’s judgement on virtual currencies <https://www.azbpartners.com/bank/supreme-courts-judgment-on-virtual-currencies/>accessed 6 April 2022
[3] Supreme Court’s judgement on virtual currencies <https://www.azbpartners.com/bank/supreme-courts-judgment-on-virtual-currencies/>accessed 6 April 2022
[4] Mythri Jonnala , Internet and Mobile Association of India versus Reserve Bank of India, The Lex-Warrier: Online Law Journal , (2020) 5, pp.143-147 , ISSN (O): 2319-8338
[5] Sawant Singh, Neha Naik and Madhavi Doshi ‘India: SC Judgement on Cryptocurrency’<https://www.mondaq.com/india/fin-tech/930894/sc-judgement-on-cryptocurrency> accessed 6 April 2022
[6] Crypto Bill unlikely to be introduced in the budget session of Parliament <https://timesofindia.indiatimes.com/business/cryptocurrency/blockchain/crypto-bill-unlikely-to-be-introduced-in-the-budget-session-of-the-parliament/articleshow/89085631.cms> accessed 6 April 2022
