9 Oct, 2019

RBI Presents its Arguments on Crypto Matter in Supreme Court

After a valiant show put up by the counsel for the Internet and Mobile Association of India (IAMAI) and the Indian cryptocurrency exchanges on Tuesday, it is the turn of the counsel of Reserve Bank of India (RBI) to do their bit.

In the midst of RBI’s arguments, the judge said, “How you are concerned with the consumer protection, it is not your concern. It is the government’s concern and not yours.”

The counsel for RBI, Shyam Divan, countered by providing the sustainability of a ban by citing China. Following that, the senior advocate brought up the recommendation part of the Inter Ministerial Committee (IMC) report which was submitted to the Parliament recently.  Divan, then, brought up the meeting which took place on November 27 in which he said deliberations were going on even before the banking ban and stated that  the authorities were watchful of the situation even prior to the ban.

Along with this, various portions of the IMC report were being read and the judge asked for the reports which the government had deemed confidential. Following this the judge called the Solicitor General. Crypto Kanoon reported that Justice Nariman directed SG to submit all these papers (page 85 of IMC report mentions certain papers in Para 8) and also the earlier Inter disciplinary report by tomorrow in compilation with a copy to each party.

Divan stated that there are various advantages of Crypto laid down in Financial Action Task Force (FATF). But he concluded that its ability to be used for cross border payments is something which can potentially undermine monetary policy. Examples of bad actors and criminal activities pertaining to cryptocurrency use such as Silk Road and TOR (The Onion Router) has been taken to emphasize the point of potential risks involved. The FATF report which was published in 2018 was also being read out in which the organization was concerned about illegal activities in cryptocurrencies.

The RBI counsel requested the judges to read the counter affidavit filed in response to the IAMAI petition. Divan pointed out that the 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 statues/ 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 were one of the concerns.”

Also refers to Section 18 of the PSS Act emphasizing that RBI has power to issue policy in order to manage or operate its payment system and in public interest etc. Points out that RBI has wide powers to regulate its entities is there is a threat to the payment system.

Read S.18 pic.twitter.com/NiOpSUFRCs

— Crypto Kanoon (@cryptokanoon) August 21, 2019

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 potential threat to undermine monetary policy. Corroborating the RBI’s stance, the counsel said that the central bank, infact, had the right to issue guidelines and forumlate 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.