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A Tale of Survival in the Indian Money Market: IMAI Vs RBI

After 2 years, on 4th March, 2020 the Three-Judge Bench of Supreme Court of India comprising of J. Rohinton Fali Nariman, J. Aniruddha Bose and J. V. Ramasubramanian made clear that use of crypto currency and trading via the same is legitimate. This meant the letter issued by the RBI and Finance Ministry of India, which seized the rights of crypto currency companies and users held no value.

What is Crypto Currency?
Crypto currency is decentralized digital asset, which is based on a Block chain (a system of recording information which makes it difficult to change or cheat a system) mechanism. People use crypto currency for quick payments and some also invest in digital money which can be done through a credit card in hope of higher returns in future, this is also called as “mining”.

How does it work?
It can be thought of as any digital payment method like PayTm and PayPal wallets, where a user can use the coins with the credit or debit cards. They can also use the same for trading and investments. The crypto currencies can be accessed using wallets. Crypto credit can be bought either by a broker or can be obtained by trading on online crypto currency exchanges. Major difference between the money in the banks(cash, credit in accounts) and crypto currency is that they are controlled by a regulatory body eg. RBI and the latter is managed by computer algorithms.

Crypto currency first announced itself in the Indian market back in 2009 and for the first time used the same way as “cash” in 2010 when a pizza shop in Mumbai started to accept BitCoin as a mode of payment. However it was the year 2013, when things really started to change for good in the Digital Trading world with new developments in technological sector announced and with people from all sections of the society started to invest and trade, at this point the government only issued a notice siting the risks and snags of Digital Trading.

The number of users skyrocketed between 2015 and 2017 when demonetization was announced by the NDA government. People and business’s with huge capital looked for alternatives to invest their money, in order to save tax and keep their money safe. This resulted in Crypto currency investments gaining pace like never before in the Indian sub-continent.

After a few months, there were a significant number of people and corporations who were using crypto currency as a means for trading and it became an alternative of money during the tough times of demonetization. The Indian government was not against the crypto currency and its system until several cases of fraud started to emerge and number of people getting drastically low or sometimes high returns was also reported.

In response to this the government set up a committee which under the chairmanship of Shri Subhash Chandra Garg, Director, Department of Economic Affairs, Ministry of Finance and composed of Shri Ajay Prakash Sawhney (Director, Ministry of Electronics and Information Technology), Shri Ajay Tyagi (Chairman, Securities and Exchange Board of India) and Shri B.P, the Government of India formed a high-level Inter-Ministerial committee to look into the loop holes of the Digital Trading World [1].

After the submission of the report from the committee, the RBI along with Finance Ministry issued a notice stating, the use of any form of crypto currency as illegal and it also instructed the banks to stop facilitating services involved with crypto currency immediately. This sent shockwaves to the people and corporations associated with the use of digital trading. The main impact of this was a significant number of fall in trade, share prices and with the banks gone as an intermediary for money exchange, the companies feared their existence. After which a written petition was filed in the Supreme Court by the members of IMAI on 15th May,2018.

The decision of the bench meant a huge relief for all the players of crypto currency. The 180- page decision given by the 3-judge bench was well framed, with over fifty references of other country laws and it cleared all the doubts related to crypto currencies. This decision also had an effect on the market as several trading companies like Zebpay, ThroughBit etc. which had shut down their services, announced their return in the Indian market and the judgement also meant that all the bank accounts frozen which had crypto exchanges should make the same accessible to the customers with immediate effect.

The decision brought elation to the CEO’s of trading units and they heaped praise on the judgement and stated 4th March as a historic and revolutionary day for the Indian digital market and its players. On the other side several experts and personalities from the Indian fiscal background had opposite views as they said that still crypto currency is never safe from scams, it can be used as a channel for money laundering. They argued that RBI worked in best interest of the citizens of the country by protecting them from a system with significant flaws.

Other’s added that RBI should respect the judgement passed by the honourable court and should make separate guidelines for the use of crypto currencies in order to protect the market and the rights of people. The RBI released a statement saying it will file a review petition in response to the given judgement, which said that RBI failed to prove how the use of crypto currency will jeopardize the banking system.

Arguments that made an impact and the courts judgement:
IMAI which was represented by Advocate Ashim Sood, argued that crypto currency should be looked as 'commodities rather than currency', he also stated that 'Since the beginning crypto entities have argued that the circular issued by the RBI violates Articles 19 (1) (g) and 14 of the Indian Constitution and at the same time, this will lead to the closure of such firm.

The Article 14 ‘Equality Before Law’ states that the state shall not deny any person equality before the law or the equal protection of the laws within the territory of India, prohibition of discrimination on grounds of religion, race, caste, sex or place of birth. As per Article 19 (1) (g), all citizens shall have the right to practice any profession or to carry on any occupation, trade or business'. In his 104 page written submission he said that RBI (represented by Advocate Shyam Divan) has no capacity to issue such circular which violates the fundamental rights of citizen and is also outside the RBI’s regulatory authorities. [2]

The three judge bench stated 'The impugned rule cannot be considered to be proportionate.' Their rationale was based on the fact that the RBI did not notice that virtual currency trading practices did adversely affect the institutions it controlled. This was not banned in the region, even as virtual currencies were not. 'But the trade-in VCs and the working of VC exchanges are sent by the impugned circular to comatose by disconnecting their lifeline namely, the link with the normal banking system', the order said. [3]

Future of Crypto Currency:
India has been making rapid strides in the field of technology and banking systems and with the government trying to push for a digitized payment system all over the country, Crypto currency brings in employment, provides an alternative of cash as a payment method, and also promotes India at a global level in terms of economy.

Today the total cap value of crypto currency exceeds over $237.11 Billion. Still, India isn’t aloof from frauds. Reports suggest that numerous scams take place every day and the government and RBI need to work towards creating a much safer digital ecosystem and make people aware about such frauds in order to prevent any future mishap.

The guidelines and laws related to digital trades and money transfer should be made furthermore rigid and proper checks are required to be done at each step in order to prevent cases of tax evasion and money laundering, making it properly regulated and controlled. With the highest population in the world still crypto currency users of India contribute only 2% in the BitCoin world. The government should study the laws of countries like Australia, Switzerland, New Zealand etc. where crypto currency has been in use for a long time, in order to protect the rights of consumers and create a secure environment in the trading market.

References:
  1. https://blog.ipleaders.in/rbi-and-cryptocurrency-the-story-so-far/
  2. https://blog.ipleaders.in/rbi-and-cryptocurrency-the-story-so-far/
  3. https://main.sci.gov.in/
  4. https://www.investopedia.com/terms/c/cryptocurrency.asp

    Award Winning Article Is Written By: Mr.Harsh Shekhar
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