Counsels of IAMAI, Crypto Exchanges and the RBI presented their arguments in Supreme Court today regarding the central bank’s circular to ban banks from supporting business and individuals dealing in Crypto. The court was adjourned for the day, to be heard on Wednesday August 21.
Update: Earlier this article carried updates from the pre-lunch session. Now it has been updated with the full hearing details.
The session started around 11 AM in the morning with Mr. Ashim Sood, the counsel for IAMAI continuing his arguments from the last session.
Indian Cryptocurrency News and Analysis platform CryptoKanoon has been live tweeting the updates from the Supreme Court.
During the 2 hour session before the court adjourned for lunch, Counsel Sood for IAMAI concluded his arguments, and Mr. Nakul Dewan took, the counsel for other exchanges that have petitioned in court as well, began his arguments.
Against the Doctrine of Proportionality.
Sood began his argument by stating RBI’s decree is against the doctrine of Proportionality. It means that the Reserve bank’s diktat is against the idea that the punishment of an offence should depend on the action of offence, in this case RBI has not done any studies to validate its decision.
The doctrine of proportionality entails that an administrative decision, which is taken through the exercise of discretionary powers, must be in the extent to the consequences that follow from implementing such decisions.
Laws in the Rest of the World
Furthermore, Sood discussed the Wyoming Law for Cryptocurrencies, The New York State Law, the European Parliament decisions and the discussions held at the latest G20 Summit around regulation of Crypto currencies.
Sood also acknowledged that there could be criminal activities taking place using crypto but all these nations have included a preventive policy for the same.
The FATF guidelines on Cryptoassets and the UK law were discussed in the SC. Sood ended this part of his argument by saying India has to decide whether they want to lean towards countries like USA, UK, etc or towards countries like China, Indonesia and Saudi Arabia
Argues that My Lord, on one side we have UK USA etc. and on other we have China Saudi and Indonesia. It may not matter which side we fall. But there is no sense that something should be banned because it involves risks.— Crypto Kanoon (@cryptokanoon) August 20, 2019
Against the RBI’s Own Documents
Sood then picked up Circulars and other documents published by the RBI to argue that they are incomplete and does not share any info on how any said effects will take place. Sood said that RBI in its circular says market integrity would be affected, but not stating how. Several reports were read in court.
Sood argues RBI’s decision fails the test of proportionality. A test of Proportionality means to see whether or not a said objective behind an administrative decision is achieved or not. Sood goes on to cite RBI’s annual report, where the bank acknowledges that the RBI’s diktat has sent crypto markets underground in peer to peer transactions, essentially proving that RBI’s circular did not work.
Sood argues that RBI’s concerns of consumer protection, Money laundering, illicit activities can actually be handled by existing laws.
Against Article 19(1)(g)
Article 19(1)(g) gives the right to pursue any form of business or profession. In the last session, the court said that as Crypto businesses have an alternative to banks, it cannot be applied.
Sood, shared several judgments in court today to prove If restriction on business is so stringent that it cannot be carried out then it is an unreasonable restriction.
In this case, several businesses shut down due to the RBI restrictions, making this a strong objection to Article 19 (1) (g).
With this, Ashim Sood concluded his arguments for the IAMAI – Internet and Mobile Association of India.
It was then taken over my the counsel for other Crypto exchanges.
Virtual Currencies and Fiat Currencies
Senior Advocate Nakul Dewan is representing the exchanges and other individuals who petitioned in court under the case “Rajdeep Singh vs RBI”.
He begins by talking about the characteristics of virtual currencies, fiat currencies and the evolution of Money from barter to gold to fiat.
Addressing the concerns of RBI
Dewan then moves on to address the concerns raised by the RBI. There are six concerns in total:
Crypto Exchanges have no authorisation. Dewan argues that there is no authorisation required according to the law.
Crypto is Prone to Hacking. Dewan argues, so is digital banking.
RBI’s concern over consumer protection. Dewan argues, the current law for consumer protection can handle it.
No Inherent Value. Dewan explains how fiat has no inherent value as well.
Price Volatility. Dewan argues even Stocks are volatile.
Use of Crypto for Illicit Activities. Dewan argues that the KYC and AML policies can prevent such activities.
Different Kinds of Crypto assets
Counsel Dewan then explained the different kinds of Crypto assets, such as utility tokens and its use like airline miles or shopping points.
Dewan also explained the advantages of Blockchain technology in Financial and Banking Sector.
The IMC report on Virtual Currencies was read in court. Dewan also argued the very report talks about Crypto as an official Digital currency when asked about no mention of Crypto in use of Blockchain.
The court was then adjourned for Lunch.
Bitcoin is Medium of Exchange for Consenting parties, not Prevalent Money.
Dewan began his arguments post lunch stating that Crypto cannot be money, as it is not a socially prevalent currency. So Crypto is only being used as a medium of exchange, if at all between two individuals who are okay with it.
He said Crypto should be treated as a monetary asset that can be converted to fiat when anyone wants to. It can also be used in Barter.
People’s Money not RBI’s
Dewan argued that the bank holding the money for people, is not bank’s money, it is still people’s money.
The money deposited in the bank is not RBI’s money or bank’s own money. in fact it is my money.— Crypto Kanoon (@cryptokanoon) August 20, 2019
Dewan shares a US judgment for the definition of Money. Argues that Crypto is an intangible asset, and since it is not money, it is outside the purview of Monetary policy.
The counsel also questioned the argument of large impact on monetary policy, as the government in its own report from November 2017, accepted that crypto has little popularity among general public.
Later on Dewan will go on to argue that Banks cannot restrict account holders from spending their money without an imposed legislative restriction.
Bank is only a custodian of the deposited money and not the owner. A bank acc holder cannot be restricted to have access his own money unless the restriction is sanctioned by a legislation.— Crypto Kanoon (@cryptokanoon) August 20, 2019
Judgment – Bhavesh Parekh read out.
Counsel Dewan then apprises the court of how the exchanges are self regulating themselves with proper KYC mandates. Furthermore, Dewan tells court that exchanges had sent proposal for a dashboard to all relevant authorities that will provide real time data of crypto transactions on these exchanges.
Dewan also shares that RBI never responded to a representation made by the exchanges and industry bodies, instead simply stated that it was forwarded to the IMC.
Dewan says if the investors are okay with the volatility, they must be allowed to invest, it is their right.
Judge Responds Positively
To all these arguments, the judge replied that if there is provision for regulations, it should not be banned. (This is not a judgment, a simple remark from the judge).
More Arguments against RBI
Counsel Dewan then goes on to cite the 2018 annual report of the RBI. The Central bank report states that the crypto industry should be monitored as the banking ban may send the exchanges into dark web, risking tax evasion, AML violations, etc. So Dewan says, despite knowing the repercussions, RBI took this step.
Dewan argues that while RBI thinks all crypto is bidirectional, which means it can be converted to fiat and vica versa, while even unidirectional assets like airline miles and reward points can be purchased for fiat.
So this is a violation of Article 14, the right to equality.
Discussions from Singapore parliament was read in court and the counsel argued that a developed economy such as Singapore has weighted in pros and cons of the technology to regulate it not ban it.
Finally, Dewan ends his argument by stating that there are no restrictions on Crypto currencies except for the RBI’s banking ban, so that must be quashed.
Crypto Can Impact Monetary Policy – Says RBI Counsel.
RBI’s representative Senior Advocate Shyam Diwan takes over at 3:20 PM. He will argue for about 40 min, before the court is adjourned for the day.
Counsel Diwan begins the argument by sharing that Cryptocurrencies are privately issued digital means of payment and hence they can affect the monetary and payment system. Crypto has monetary attributes and the price of which is driven by public consensus.
He says, if more and more people begin to use it, it will drastically impact the monetary policy.
Diwan also said RBI took the action after noticing that their repeated cautionary notifications were not working.
List of Events that Lead to the Banking Ban
Diwan read out a list of events that lead the central bank to make a decision to stop banks from processing payments for businesses and individuals dealing in Cryptocurrencies.
One of them being then Minister Arun Jaitley’s speech during the Budget 2018 session. The other was a report submitted by an inter ministerial committee in 2017.
Diwan further argues that the circular from April 2018 was based on the Government’s evaluation of Crypto.
Prone to Hacking
Diwan then presents several exchange hacks in the court including the big one in India with CoinSecure Exchange.
Crypto is Ponzi, Environmental Disaster
The last argument for the day by RBI’s counsel Shyam Diwan was that Crypto is a bubble and an environmental disaster with the use of electricity for mining.