RBI’s Power Over Crypto Challenged at Length in Indian Supreme Court Today
The Indian supreme court resumed hearing the writ petitions against the banking restriction by the central bank, the Reserve Bank of India (RBI), on Wednesday. Many issues were discussed, ranging from the legality of the RBI action to the classification of crypto assets and how each country regulates them.
Also read: India to Introduce Crypto Bill Next Parliament Session – A Look at Community Responses
Supreme Court Resumes Hearing RBI Case
The Indian supreme court resumed hearing arguments on Wednesday against the banking restriction by the central bank, which it began hearing in-depth last week.
The hearing started with Ashim Sood, counsel for the Internet and Mobile Association of India (IAMAI), explaining to the court why banking support is necessary for businesses that deal in cryptocurrencies, Indian crypto news analysis platform Crypto Kanoon reported from the courtroom. Sood then argued against the legality of the RBI ban, citing the Banking Regulation Act and the RBI Act, emphasizing that the central bank did no research before issuing the ban. He further claimed that the RBI taking action for the sake of general consumer interest is beyond legality. According to Crypto Kanoon, the counsel asserted:
Banning or regulating something must be a legislative act, it is a power which cannot be exercised by way of delegation. A decision to ban or regulate should have come from the legislature instead of RBI.
Sood informed the court that, while the RBI does not see the need to define crypto assets, other countries’ regulators recognize three different kinds, citing a report by the UK’s Financial Conduct Authority, Crypto Kanoon continued to report. The counsel further explained that the RBI itself admitted that it does not have jurisdiction over the legality of cryptocurrency as it is neither a coin nor currency, adding that both the RBI Act and Payment Settlements Act do not apply to crypto assets.
During the hearing, the court asked whether the counsel is concerned solely with bitcoin or with all cryptocurrencies. When the counsel replied all cryptocurrencies in general, the judge said, “we want to understand all, give us in writing about all and how they are different,” Crypto Kanoon conveyed.
Armed with charts and extensive research, the counsel immediately explained the basics of cryptocurrency and distributed ledger technology to the judge, as well as the regulatory frameworks adopted by other countries including all of the G20 nations. New York’s crypto regulation was discussed in depth. The hearing ended with the court scheduling further arguments for Aug. 20.
The Hearing Began Last Week
The crypto case was originally scheduled to be heard by the supreme court on July 23 but was postponed. The court finally heard the case against the RBI ban in depth on Aug. 8, but the hearing of petitions relating to crypto regulation in India has been moved to January next year.
Jaideep Reddy, a lawyer at Nishith Desai Associates representing the IAMAI in its writ petition against the RBI ban, shared what happened in court last week with news.Bitcoin.com. “The counsel Mr. Ashim Sood, briefed by Nishith Desai Associates, started arguments on Thursday with an introduction of the issues and why the circular may not be valid under its parent statutes, including the RBI Act and the Banking Regulation Act,” he detailed, adding:
The judges showed an inclination to hear the issues in detail.
The RBI issued a circular in April last year banning financial institutions from providing services to crypto businesses. The ban went into effect three months later and banks subsequently closed accounts of crypto exchanges, forcing some of them to shut down, including Zebpay, Coindelta, Coinome, Koinex, and Cryptokart.
Crypto Regulation-Related Hearing Moved to Next Year
The supreme court was informed last week that the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019 may be introduced when parliament is reconvened, a court document shows. The bill was drafted by an interministerial committee (IMC) tasked with studying all aspects of cryptocurrencies and providing recommendations. The committee submitted its report along with the draft bill on Feb. 28. Both were made public on July 22.
Upon learning of the government’s intention to introduce the bill, the court decided to postpone hearing the petitions concerning crypto regulation in India until the last week of January 2020.
The IMC report is currently being examined by relevant regulators, according to the Ministry of Finance. However, Finance Minister Nirmala Sitharaman recently said she has yet to spend time on the report but thought that, based on the presentation she saw, the report is “very futuristic and well-thought-out.” News.Bitcoin.com previously reported on the content of this bill.
The IMC was constituted on Nov. 2, 2017, under the chairmanship of former Secretary of the Department of Economic Affairs Subhash Chandra Garg. It has representation from the Ministry of Electronics and Information Technology, the RBI, the Securities and Exchange Board of India, and Central Board of Direct Taxes.
Flawed Report, Banning Not a Solution
The Indian crypto community strongly believes that the IMC report is flawed in many ways, including how cryptocurrency is defined. Since the report was made public, the community has been ramping up efforts to convince lawmakers of how flawed the recommendations are in hopes that they will introduce positive regulation instead of proceeding with the draft bill to ban cryptocurrencies. Stakeholders in the industry are reportedly meeting government officials nationwide for this purpose.
Many people in the Indian crypto community and industry associations say banning is not a solution. The Indian National Association of Software and Services Companies (Nasscom) recently stated that “A ban is more likely to deter only the legitimate operators as they have no intent to be non-compliant.” Nasscom President Debjani Ghosh emphasized: “We cannot close the door on new technologies. We need to learn, experiment and create the right regulatory frameworks to get the best out of these technologies. Banning is not the answer.”
RBI Finalizes Regulatory Sandbox
While skeptical of cryptocurrency, the central bank is open to blockchain technology, as seen in its final fintech regulatory sandbox framework published on Aug. 13. The draft of this framework was made public on April 18 and stakeholders were invited to offer their comments and feedback.
“A total of 381 para-wise comments/feedback from 69 stakeholders, including fintech entities, banks, multilateral agencies, industry associations, payment aggregators, audit & legal firms, government departments, individuals etc. on the various aspects of the framework, were received. The suggestions appearing in 17 newspaper reports were also considered,” the RBI revealed. “The comments/feedback were mainly on the sandbox objectives, eligibility criteria, fit and proper criteria for participants, list of exclusions, legal and regulatory waiver, consumer protection and transparency & disclosure.” The central bank claims that “The suggestions received have been examined and suitably incorporated in the framework.”
The framework lists various types of businesses, projects, and services that may not be accepted for testing. They include cryptocurrency; crypto asset services; trading, investing, and settling in crypto assets; initial coin offerings (ICOs); and any products or services which have been banned by the government of India. However, smart contracts and “applications under blockchain technologies” are among the products, services or technology which the RBI would consider for testing in its regulatory sandbox.
What do you think of the supreme court hearing today? Do you think the court will lift the RBI ban? Let us know in the comments section below.
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