In the second day of hearing, for Crypto Vs RBI’s Banking Ban, IAMAI’s counsels continued to argue on why RBI’s diktat is not legal or constitutional. The case was adjourned for the day, and will be heard next on August 20, 2019.
From deeming the RBI bill unconstitutional to explaining the judges how Bitcoin and Distributed Ledger Technology works, Ashim Sood, the counsel representing IAMAI in court seemed to be on fire as live updates poured in from Crypto Kanoon’s Twitter handle.
Today is the second formal hearing of the matter where IAMAI counsels are arguing against the legality of RBI’s Banking Ban from April 2018 when the central bank releases a diktat banning all its regulated entities like banks and NBFCs to curb ties with individuals and businesses dealing in Crypto assets. The first hearing was adjourned after a long argument session on August 08.
Here are the updates from the Supreme Court room.
Court Says Article 19(1)(g) Not applicable.
Last week, the Supreme Court adjourned the matter after few hours of arguments on the legality of RBI’s banking ban in India. The arguments were picked up from where it was left off as Ashim Sood representing IAMAI, started explaining why Banking support is necessary for Cryptocurrency businesses.
The court then asked if there is any way they can use banks that are not governed by the RBI, to which the counsel replies there are foreign banks but using them will violate the FEMA Act.
The court discarded the appeal to be affected by Article 19(1)(g), which gives a right to every citizen to pursue any business they want, as there are alternatives to banks, for running Crypto businesses. The counsel said they will argue on it later. It is likely, this is where the Argument will be picked up from on August 20, 2019.
A Chartered Account and Financial Planning Officer at WazirX Crypto Exchange Tushar Patel says, Article 19(1)(g) is applicable as outward remittance are controlled by RBI.
RBI Acted Under Error of Law: Argues Counsel
As Ashim Sood continued says, the Banking regulation Act gives power to RBI over inner workings on regulated entities and interest of depositors only concerning those depositors. RBI taking actions for general consumer interest is beyond legality. A couple of prior judgments were read in court to support the argument.
Furthermore, Sood delivers an argument that if RBI itself says it has no power over legality of Cryptocurrencies and yet they took action over exchanges, which means they used colourable exercise of power. In this argument Sood is referring to an affidavit posted by RBI in court last year.
Sood also said anything that isn’t prohibited by law is in essence legal.
Not All Crypto assets are the same
Sood’s arguments then turn towards RBI’s decision to place all Crypto assets into one bucket, Virtual Currencies. The court was presented a report from FCA, the UK’s regulatory authority that categorises Cryptocurrencies into three different kinds.
However RBI says it has no need to define virtual currencies, Sood concludes by showing various documents including the Securities Contract Regulations Act 1956.
Says that the Govt. has to apply its mind in order to deal with a modern technology. it cant just put out the entire thing in one box just because they dont want to think over it.— Crypto Kanoon (@cryptokanoon) August 14, 2019
The Judges Argue
After the submission, the judges began questioning the counsel. The judge pointed out that RBI has powers under the wide number of acts, but the question is whether or not they are acting as per the preamble of the acts.
Counsel makes an argument that RBI has general powers, not legislative powers. The judge asks “cant RBI ban an activity in order to maintain financial stability or not as provided under the Act?”
Sood counters by saying RBI can use its powers only guided by a legislative act, otherwise RBI may decide to ban Burgers, hence there need to certain limits to the powers of RBI.
Counsel answers that any power to be exercised by RBI has to be guided by some legislative Act. Otherwise tomorrow RBI can say that we are banning Cheez burgers. So there has to be a specific limit of delegation. In absence thereof, it will be absurd.— Crypto Kanoon (@cryptokanoon) August 14, 2019
The court further adds that RBI can act under Section 45 J, to which the counsel says it is limited NBFCs. Here the judge says both Section 35 and 45 J are cognate and implies that RBI may have acted well within its powers.
Court Asks to Explain Bitcoin
Continuing with the hearing, the judges ask if they (counsel) are concerned with Bitcoin only or all crypto, Sood answers all crypto in general.
The judges then said they want to understand all of them, asked for it in writing.
While we are unaware of the full details, the updates from CryptoKanoon paint a picture that Bitcoin, Crypto and DLT was explained in court to the judges.
The judges then argues that the price of the currency is speculative in nature and counsel agreed saying it is just like any other commodity or share market.
The State of Crypto in other Countries
The counsel Ashim Sood then shared details of multiple countries and their stance on Crypto assets. It was shown in a chart.
At first treatment of Cryptocurrencies in Europe and China was discussed followed by Japan. It was pointed out that Japan regulates Exchanges under Payments services act.
Mexico, G20 countries, Singapore, Saudi Arabia, Australia, Malaysia, South Africa and UK were discussed.
A detailed focus was placed on USA, specifically the New York Law (bitlicense) and judges wanted to learn more about virtual currencies in New York Law.
The Argument ended with Counsel saying he acknowledges that there are detrimental effects of Crypto assets, but it is a new technology which should be regulated like other countries.
Next Hearing: August 20
The next hearing is scheduled on August 20, 2019. It is likely that there will be arguments on how RBI’s banking ban is a violation of Article 19(1)(g) as per the reply from Crypto Kanoon on twitter today.
Yes argument is not finished. This is just one line of argument that RBI's action is error of law and ultra vires. RBI action is violative of 19(1)g is another set of arguments.— Crypto Kanoon (@cryptokanoon) August 14, 2019
What do you think will happen on August 20? Let us know your thoughts in the comments below.