Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Rohinton Fali Nariman, S Ravindra Bhat and V Ramasubramania, JJ has struck down the curb on trading in virtual currency, cryptocurrency and bitcoins in India.

In the 180 pages long verdict penned by Justice Ramasubramania, it was held,

“When the consistent stand of RBI is that they have not banned Virtual currencies (VCs) and when the Government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.”

The Court was hearing the matter wherein, the Internet and Mobile Association of India (IAMAI), whose members include cryptocurrency exchanges, and others had objected to a 2018 RBI circular directing regulated entities to not deal with cryptocurrencies. The petitioners had argued that the RBI’s circular taking cryptocurrencies out of the banking channels would deplete the ability of law enforcement agencies to regulate illegal activities in the industry. IAMAI had claimed the move of RBI had effectively banned legitimate business activity via the virtual currencies (VCs).

  • Reserve Bank of India issued a “Statement on Developmental and Regulatory Policies” on April 5, 2018, paragraph 13 of which directed the entities regulated by RBI (i) not to deal with or provide services to any individual or business entities dealing with or settling virtual currencies and (ii) to exit the relationship, if they already have one, with such individuals/ business entities, dealing with or settling virtual currencies (VCs).
  • Following the said Statement, RBI also issued a circular dated April 6, 2018, in exercise of the powers conferred by Section 35A read with Section 36(1)(a) and Section 56 of the Banking Regulation Act, 1949 and Section 45JA and 45L of the Reserve Bank of India Act, 1934 and Section 10(2) read with Section 18 of the Payment and Settlement Systems Act, 2007, directing the entities regulated by RBI (i) not to deal in virtual currencies nor to provide services for facilitating any person or entity in dealing with or settling virtual currencies and (ii) to exit the relationship with such persons or entities, if they were already providing such services to them.

The Court took note of the fact that the VCs are not banned, but the trading in VCs and the functioning of VC exchanges are sent to comatose by the impugned Circular by disconnecting their lifeline namely, the interface with the regular banking sector.

“What is worse is that this has been done

      • despite RBI not finding anything wrong about the way in which these exchanges function and
      • despite the fact that VCs are not banned.”

The Court further said that the concern of RBI is and it ought to be, about the entities regulated by it. Till date, RBI has not come out with a stand that any of the entities regulated by it namely, the nationalized banks/scheduled commercial banks/cooperative banks/NBFCs has suffered any loss or adverse effect directly or indirectly, on account of the interface that the VC exchanges had with any of them.

The Court, however, held that anything that may pose a threat to or have an impact on the financial system of the country, can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system. It explained,

“RBI is the sole repository of power for the management of the currency, under Section 3 of the RBI Act. RBI is also vested with the sole right to issue bank notes under Section 22(1) and to issue currency notes supplied to it by the Government of India and has an important role to play in evolving the monetary policy of the country, by participation in the Monetary Policy Committee which is empowered to determine the policy rate required to achieve the inflation target, in terms of the consumer price index.”

The Court also rejected the contention that the impugned Circular was vitiated by malice in law and that it is a colorable exercise of power. It said,

“Irrespective of what VCs actually do or do not do, it is an accepted fact that they are capable of performing some of the functions of real currencies. Therefore, if RBI takes steps to prevent the gullible public from having an illusion as though VCs may constitute a valid legal tender, the steps so taken, are actually taken in good faith. The repeated warnings through press releases from December 2013 onwards indicate a genuine attempt on the part of RBI to safeguard the interests of the public.”

[Internet and Mobile Association of India v. Reserve Bank of India, 2020 SCC OnLine SC 275, decided on 04.03.2020]

Hot Off The PressNews

Ministry of Home Affairs has issued orders to suspend the LoC trade in Jammu & Kashmir w.e.f 19-04-2019. This action has been taken as the Government of India has been receiving reports that the Cross LoC trade routes are being misused by the Pakistan based elements for funneling illegal weapons, narcotics and fake currency, etc.

It may be recalled that the LoC trade is meant to facilitate the exchange of goods of common use between local populations across the LoC in Jammu & Kashmir. The trade is allowed through two Trade Facilitation Centres located at Salamabad, Uri, District Baramulla and Chakkan-da-Bagh, District Poonch. The trade takes place four days a week. Trade is based on the Barter system and zero duty basis.

However, reports have been received that the LoC trade is being misused on a very large scale. It has been revealed that the trade has changed its character to mostly third party trade and products from other regions, including foreign countries, are finding their way through this route. Unscrupulous and anti-national elements are using the route as a conduit for Hawala money, drugs and weapons, under the garb of this trade.

During the ongoing investigations of certain cases by NIA, it has been brought out that a significant number of trading concerns engaged in LoC trade are being operated by persons closely associated with banned terrorist organizations involved in fuelling terrorism/separatism. Investigations have further revealed that some individuals, who have crossed over to Pakistan and joined militant organizations have opened trading firms in Pakistan. These trading firms are under the control of militant organizations and are engaged in LoC trade.

After the Pulwama incident, the Government of India has withdrawn the MFN status to Pakistan. Inputs have also been received that in order to evade the consequent higher duty, LoC trade is likely to be misused to a much larger extent.

It has, therefore, been decided by the Government of India to suspend the LoC trade at Salamabad and Chakkan-da-Bagh in Jammu and Kashmir with immediate effect. Meanwhile, a stricter regulatory & enforcement mechanism is being worked out and will be put in place in consultation with various agencies. The issue of reopening of LoC trade will be revisited thereafter.


[Dated: 18-04-2019]

Ministry of Home Affairs

NewsTreaties/Conventions/International Agreements

The Union Cabinet has approved the signing of a Memorandum of Understanding (MoU) between India and Turkey on trade in poppy seeds to ensure quick and transparent processing for import of poppy seeds from Turkey.

Details:

The MoU provides that

  1. Turkish Grain Board (TMO) shall maintain an online system to enable regulation of export of poppy seeds from Turkey to India. Exporting companies shall submit application through the Agean Exporters Association (EIB) (responsibility given by law) to TMO for obtaining membership of the online System.
  2. Each year, the quantity of poppy seeds which shall be imported by India from Turkey shall be decided by Government of India in consultation with Government of Turkey taking into account the production of poppy seeds in Turkey in a crop year, balance from previous crop years and domestic or other export requirement of Republic of Turkey.
  3. The exporting companies shall get registered with the TMO. Each sales contract entered into by the exporting company with Indian importer shall be registered with TMO through the online system referred. It shall be the responsibility of TMO not to register sales contract in excess of the quantity referred to in Para 2 above.
  4. Taking into account the quantity as referred to in Para 2 above, every year both parties may consider to set a quantity to be imported by any Indian importer in a crop year.
  5. The Central Bureau of Narcotics (CBN) will register the sales contract registered by TMO as per details accessed on the online system maintained by TMO in accordance with guidelines for registration laid down by Ministry of Finance, Government of India. The CBN shall upload the details of sales contract so registered by it on the online system. TMO shall allow the export in respect of only those contracts so registered by CBN.
  6. The TMO shall provide a legal production certificate for the poppy seeds to exporters following the submission of sales contract and the completion of other necessary procedures.

The MoU will promote quick and transparent processing of quota allocation and prior authorization for poppy seeds import from Turkey. In this way genuiness of import contract can be easily ensured as well as many litigation matter resulting in delay in the import can be avoided. The MoU will ensure continuous availability of poppy seeds in domestic market of India and ultimately Indian consumers of poppy seeds will be benefited.

Background:

Import of poppy seeds from Turkey got withheld due to litigation resulting in great hike of price of poppy seeds in domestic market of India and hoarding of the same by some importers. Various stays given by the Court and repeated adjournment of hearing graves the situation and resulted in less availability of poppy seeds in the country leading to a great problems to the consumers. To avoid such legal complication, price rise and hoarding, an alternative mechanism needs to be evolved by way of an MoU between Government of India and Government of Turkey in which real time data can be exchanged to ensure the quantity of poppy seeds imported from Turkey is genuine and legally produced in Turkey.

Cabinet