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TMI Blog2020 (3) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... "RBI 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. 1.3. Challenging the said Statement and Circular and seeking a direction to the respondents not to restrict or restrain banks and financial institutions regulated by RBI, from providing access to the banking services, to those engaged in transactions in crypto assets, the petitioners have come up with these writ petitions. The petitioner in the first writ petition is a specialized industry body known as 'Internet and Mobile Association of India' which represents the interests of online and digital services industry. The petitioners in the second writ petition comprise of a few companies which run online crypto assets exchange platforms, the shareholders/founders of these companies and a few individual crypto assets traders. It must be stated here that the individuals who are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber 24, 2013, February 01, 2017 and December 05, 2017, cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies. 2. In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of VCs. 3. Regulated entities which already provide such services shall exit the relationship within three months from the date of this circular. 4. These instructions are issued in exercise of powers conferred by section 35A read with section 36(1)(a) of Banking Regulation Act, 1949, section 35A read with section 36(1)(a) and section 56 of the Banking Regulation Act, 1949, section 45JA and 45L of the Reserve Bank of India Act, 1934 and Section 10(2) read with Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roject was initiated by FATF for promoting fuller understanding of the parties involved in convertible virtual currency systems and for developing a risk matrix. 2.4. On 24-12-2013, a Press Release was issued by RBI cautioning the users, holders and traders of virtual currencies about the potential financial, operational, legal and customer protection and security related risks that they are exposing themselves to. The Press Release noted that the creation, trading or usage of VCs, as a medium of payment is not authorized by any central bank or monetary authority and hence may pose several risks narrated in the Press Release. 2.5. On 27-12-2013, newspapers reported the first ever raid in India by the Enforcement Directorate, of 2 Bitcoin trading firms in Ahmedabad, by name, rBitco.in and buysellbitco.in. This was stated to be India's first raid on a Bitcoin trading firm and the second globally, after Federal Bureau of Investigation of the United States of America conducted a raid in October of the same year. 2.6. Thereafter, a report titled "Virtual Currencies - Key Definitions and Potential AML/CFT Risks" was issued in June 2014 by FATF, highlighting, both le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of new payment products and services in part 4 of the report. The report took note of different methods of terrorist financing, such as self-funding, crowd funding, social network fund raising with prepaid cards etc. Coming to virtual currencies, the report noted the following: "Virtual currencies have emerged and attracted investment in payment infrastructure built on their software protocols. These payment mechanisms seek to provide a new method for transmitting value over the internet. At the same time, virtual currency payment products and services (VCPPS) present ML/TF risks. The FATF made a preliminary assessment of these ML/TF risks in the report Virtual Currencies Key Definitions and Potential AML/CFT Risks. As part of a staged approach, the FATF has also developed Guidance focusing on the points of intersection that provide gateways to the regulated financial system, in particular convertible virtual currency exchangers. Virtual currencies such as bitcoin, while representing a great opportunity for financial innovation, have attracted the attention of various criminal groups, and may pose a risk for TF (terrorist financing). This technology allows for anonymous tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subgroup, CPMI of BIS submitted a report in November 2015 on Digital currencies. The sub-group identified three key aspects relating to the development of digital currencies one of which was that the assets featured in digital currency schemes, typically have some monetary characteristics such as being used as a means of payment, but are not backed by any authority. In Note 1 under the Executive Summary of the said report, it was stated as follows: "although digital currencies typically do have some, but not all the characteristics of a currency, they may also have characteristics of a commodity or other asset. Their legal treatment can vary from jurisdiction to jurisdiction." (emphasis supplied) Paragraph 4 of the said report dealt with the "implications for central banks, of digital currencies and their underlying decentralized payment mechanisms". In the said paragraph, the report indicated that "digital currencies represent a technology for settling peer to peer payments without trusted third parties and may involve a non-sovereign currency". Though the report stated that the impact of digital currencies on the mainstream financial system is negligible as at that time, some of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... took note of the fact that many central banks around the world, had already started examining the feasibility of creating their own digital currencies, after fretting over them initially. 2.12. In January 2017, the Institute for Development and Research in Banking Technology (IDRBT) established by RBI in 1996 as an institution to work at the intersection of banking and technology submitted a Whitepaper on "Applications of blockchain technology to banking and financial sector in India". While dealing with the applications of blockchain technology in chapter 3, the whitepaper also enlisted the advantages and disadvantages of digital currency. While the advantages indicated were (i) control and security, (ii) transparency and (iii) very low transaction cost, the disadvantages indicated were risk and volatility. 2.13. On 01-02-2017, RBI again issued a Press Release cautioning users, holders and traders of virtual currencies. Closely on the heels of this Press Release, the Government of India, Ministry of Finance, constituted, in April 2017, an Inter-Disciplinary Committee comprising of the Special Secretary (Economic Affairs) and representatives of the Departments of Economic Affa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd report on opportunities for the Indian securities market. The goal of the new Committee on Financial and Regulatory Technologies was to help prepare India to adopt fintech solutions and foster innovations within the country. 2.16. On 02-11-2017, the Government of India constituted a committee chaired by the Secretary (Department of Economic Affairs) and comprising of Secretary, Ministry of Electronic and Information Technology, Chairman, SEBI and Deputy Governor, RBI (InterMinisterial Committee) to propose specific actions to be taken in relation to VCs. 2.17. At that stage, two persons, by name, Siddharth Dalmia and Vijay Pal Dalmia came up with a writ petition in WP (C) No.1071 of 2017 under Article 32 of the Constitution of India seeking the issue of a writ of mandamus directing the respondents to declare as illegal and ban all virtual currencies as well as ban all websites and mobile applications which facilitate the dealing in virtual currencies. Similarly, another person, by name, Dwaipayan Bhowmick came up with a writ petition in WP (C) No.1076 of 2017, seeking the issue of a writ of mandamus directing the respondents to regulate the flow of Bitcoin (crypto money) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obal financial stability, as their combined global market value even at their peak, was less than 1% of global GDP. But the report also noted that the initial assessment was likely to change and that crypto assets raised a host of issues around consumer and investor protection as well as their use to shield illicit activity and for money laundering and terrorist financing. 2.23. The communique issued by G-20, after the meeting of its Finance Ministers and Central Bank Governors on March 19-20, 2018 also acknowledged that technological innovation including that underlying crypto assets, has the potential to improve the efficiency and inclusiveness of the financial system and the economy more broadly. But it also noted that crypto assets do raise issues with respect to consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing. Though crypto assets lacked the key attributes of sovereign currencies, they could, at some point, have financial stability implications. Therefore, the communique resolved to implement FATF standards and to call on international standardsetting bodies to continue their monitoring of crypto assets and their risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 03-07-2018. While doing so, this Court issued a direction to RBI to dispose of the representation, if any, already submitted by the Association. Accordingly, RBI considered the representation and issued two communications dated 06-07-2018 and 09-07-2018. 2.30. On 23-07-2018, SEBI sent its comments on the 2018 Bill, to the Department of Economic Affairs. Their primary objection to the Bill was that they are not best suited to be the regulators of crypto assets and tokens. 2.31. Next came the Annual Report of RBI for the year 20172018. It contained a separate Box II.3.2 on "Cryptocurrency: Evolving challenges". The relevant portion of the same reads as follows: "Though cryptocurrency may not currently pose systemic risks, its increasing popularity leading to price bubbles raises serious concerns for consumer and investor protection, and market integrity. Notably, Bitcoins lost nearly US$200 billion in market capitalisation in about two months from the peak value in December 2017. As per the CoinMarketCap, the overall cryptocurrency market had nearly touched US$800 billion in January 2018. The cryptocurrency eco-system may affect the existing payment and settlement syste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich may also involve increased usage of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations, thus raising concerns on AML/CFT and taxation issues, require close watch." (emphasis supplied) 2.32. In this background, all the four writ petitions namely WP (C) Nos. 1071 and 1076 of 2017 (seeking a ban) and WP (C) Nos. 373 and 528 of 2018 (challenging the indirect ban) came up for hearing, along with the transfer petitions, on 25-10-2018, when this Court was informed that the Union of India had already constituted a committee and that this Inter-Ministerial Committee was deliberating on the issue. Therefore, the writ petitions were adjourned to enable the Committee to come up with their recommendations. 2.33. It appears that the Committee so constituted, submitted a report on 28-02-2019 indicating the action to be taken in relation to virtual currencies. A bill known as "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019" had also been prepared by then to be introduced in the Lok Sabha. To this report of the Committee, is appended, the minutes of the discussions of the Committee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... environmental disaster. v. They may also affect the ability of the Central Banks to carry out their mandates. vi. China has not only banned trading in cryptocurrencies but also used its firewall to ban crypto currency exchanges. China even blocked crypto currency focused accounts from WeChat and cryptocurrency related content from Baidu. However, Chinese traders use VPNs to circumvent these bans. The report dated 28-02-2019 of the Inter-Ministerial Committee finally made certain recommendations which included a complete ban on private cryptocurrencies. 2.34. It is important to note here that the report of the InterMinisterial Committee dated 28-02-2019 not only recommended a ban, but also specifically endorsed the stand taken by RBI to eliminate the interface of institutions regulated by RBI from crypto currencies. 2.35. As a matter of fact, the issue of the impugned Circular by RBI was even taken note of by the Financial Stability Board (of G-20), in a document titled 'Crypto Assets Regulators Directory', submitted to G-20 Finance Ministers and Central Bank Governors in April 2019. While acknowledging the fact that RBI does not have a legal mandate to directly regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after, the present writ petitions were taken up for hearing. 3. FLASHBACK 3.1. The archeological excavations carried out at the (world wide web) sites, reveal that this digital currency civilization is just 12 years old (at the most, 37 years). But these excavations became necessary since virtual currencies, known by different names such as crypto assets, crypto currencies, digital assets, electronic currency, digital currency etc., elude an exact and precise definition, making it impossible to identify them as belonging either to the category of legal tender solely or to the category of commodity/good or stock solely. 3.2. Any attempt to define what a virtual currency is, it appears, should follow the Vedic analysis of negation namely "neti, neti". Avadhuta Gita of Dattatreya says, "by such sentences as 'that thou are', our own self or that which is untrue and composed of the 5 elements, is affirmed, but the sruti says 'not this not that'."4 The concept of Neti Neti is an expression of something inexpressible, but which seeks to capture the essence of that to which no other definition applies. This conundrum will squarely apply to crypto currencies and hence this flash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, which would become known as the Bitcoin white paper. According to the paper, each user of the system could have one or more public Bitcoin addresses - sort of like bank account numbers - and a private key for each address. The coins attached to a given address could be spent only by a person with the private key corresponding to the address. The private key was slightly different from a traditional password, which has to be kept by some central authority to check that the user is entering the correct password. In Bitcoin, Satoshi harnessed the wonders of public-key cryptography to make it possible for a user - let's call her Alice again - to sign off on a transaction, and prove she has the private key, without anyone else ever needing to see or know her private key. Once Alice signed off on a transaction with her private key she would broadcast it out to all the other computers on the Bitcoin network. Those computers would check that Alice had the coins she was trying to spend. They could do this by consulting the public record of all Bitcoin transactions, which computers on the network kept a copy of. Once the computers confirmed that Alice's address did indeed have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banks and the other risks of centralized power over a money supply. The limited inflation of Bitcoin system's money supply is distributed evenly (by CPU power) throughout the network, not monopolized to a banking elite." 3.7. Therefore, it is beyond any pale of doubt that irrespective of the metamorphosis (or gene mutation) it has undergone over the years, bitcoin, the Adam or Manu of the race of cryptocurrencies, was developed as an alternative to fiat currency. Keeping this birth chart of virtual currencies in mind, let us now see how the petitioners are aggrieved by the impugned decisions of RBI, the grounds on which they challenge the same and the justification sought to be provided by RBI. 4. BACKGROUND SCORE (of the petitioners) 4.1. The theme of the song of the petitioners in one of the writ petitions, as fine-tuned by Shri Ashim Sood, learned Counsel, can be summarized as follows: I. RBI has no power to prohibit the activity of trading in virtual currencies through VC exchanges since: (i) Virtual currencies are not legal tender but tradable commodities/digital goods, not falling within the regulatory framework of the RBI Act, 1934 or the Banking Regulation Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India, Central Board of Direct Taxes, etc., have actually recognized the positive and beneficial aspects of cryptocurrencies as digital assets and the Distributed Ledger Technology from which crypto currencies emanate and hence have recommended only a regulatory regime, but RBI has taken a contra position without any rational basis. IV. Many of the developed and developing economies of the world, multinational and international bodies and the courts of various countries have scanned crypto currencies, but found nothing pernicious about them and even the attempt of the Government of India to bring a legislation banning crypto currencies, is yet to reach its logical end. V. RBI should have taken into account the fact that the members of Petitioner association have taken necessary precautions including avoiding cash transactions, ensuring compliance with KYC norms, of their own accord and allowing peer-to-peer transactions only within the country. VI. RBI has not applied its mind to the fact that not every crypto currency is anonymous. The report of the European Parliament also classified VCs into anonymous and pseudo-anonymous. Therefore, if the problem sought to be addres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , are different, the courts in different jurisdictions such as USA and Singapore have understood VCs to be akin to money or funds at times or as commodities/intangible properties at other times. V. The impugned Circular is manifestly arbitrary, based on nonreasonable classification and it imposes disproportionate restrictions. VI. A decision to prohibit an article as res extra commercium is a matter of legislative policy and must arise out of an Act of legislature and not by a notification issued by an executive authority. 4.3. In addition to the aforementioned legal contentions, Shri Nakul Dewan learned Senior Counsel also submitted that as a result of the impugned Circular, the virtual currency exchange (VCE) run by one of the petitioners in one writ petition was shut down on 3003-2019, the VCE run by another petitioner became non-operational, though their website still opens and the VCE run by yet another petitioner by name Discidium Internet Labs Pvt. Ltd., not only became non-operational, but an amount of Rs. 12 crores lying in their account also got frozen. However, one VCE by name CoinDCX alone survives, by operating on a peer-to-peer (P2P) basis. 4.4. In support of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... do not violate any of the rights guaranteed by Articles 14, 19 and 21 of the Constitution of India. (ix) The impugned decisions are not excessive, confiscatory or disproportionate in as much as RBI has given three months' time to the affected parties to sever their relationships with the banks. This is apart from the repeated cautions issued to the stakeholders by RBI through Press Releases from the year 2013. (x) The ambit of the 2013 press release was much wider than just consumer protection. RBI cautioned users, holders and traders of VCs about the potential financial, operational, legal, customer protection and security related risks they were exposing themselves to. (xi) The host of material taken note of by RBI in their reports, the reports of the committees to which RBI was a party and the cautions repeatedly issued by RBI over a period of 5 years, would demonstrate the application of mind on the part of RBI. They also demonstrate that RBI did not proceed in haste but proceeded with great care and caution. Therefore, the satisfaction arrived at by them was too loud and clear to be ignored. The standard for considering the impugned Circular, is the existence of mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular of RBI dated 0604-2018 was issued in exercise of the powers conferred upon RBI by all these three enactments. Therefore, if virtual currencies do not fall within subject matter covered by any or all of these three enactments and over which RBI has a statutory control, then the petitioners will be right in contending that the Circular is ultra vires. 6.3. Hence it is necessary (i) first to see the role historically assigned to a central bank such as RBI, the powers and functions conferred upon and entrusted to RBI and the statutory scheme of all the above three enactments and (ii) then to investigate what these virtual currencies really are. Therefore, we shall divide our discussion in this regard into two parts, the first concerning the role, powers and functions of RBI and the second concerning the identity of virtual currencies. Role assigned to, functions entrusted to and the powers conferred upon RBI as a Central Bank 6.4. The Reserve Bank of India was established under Act 2 of 1934 for the purpose of (i) regulating the issue of bank notes, (ii) keeping of reserves with a view to securing monetary stability in the country and (iii) operating the currency and cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d came into effect in January 1921. The trend of setting up central banks gained momentum internationally, after the International Financial Conferences held at Brussels in 1920 and at Genoa in 1922. 6.8. But the maintenance of an overvalued exchange rate to help British exporters, gave rise to a clash between the colonial administration and Indian business interests. The Congress sought devaluation and hence a Royal Commission was set up in 1925 to examine the matter. This Royal Commission on Indian Currency and Finance, also known as Hilton Young Commission (to which Dr. B. R. Ambedkar also contributed a statement), recommended the creation of a strong Central Bank for India in 1926. Though a bill known as the Gold Standard and Reserve Bank of India Bill, 1927 to give effect to the recommendations was introduced in the Legislative Assembly, it was withdrawn on 10-02-1928. From 1930 onwards, the question of establishing a Reserve Bank received fresh impetus, when Constitutional reforms for the country were undertaken. 6.9. The White Paper on Indian Constitutional Reforms, presented in March 1933, assumed that a Reserve Bank, free from political influence, would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WHEREAS the primary objective of the monetary policy is to maintain price stability while keeping in mind the objective of growth; AND WHEREAS the monetary policy framework in India shall be operated by the Reserve Bank of India; 6.15. It may be observed from the newly substituted paragraphs that RBI is now vested with the obligation to operate the monetary policy framework in India. An indication of the primary objective of the monetary policy is provided in paragraph 3 which says that the maintenance of price stability is the prime objective even while the objective of growth is to be kept in mind. Paragraph 2 recognizes the necessity to have a modern monetary policy framework to meet the challenge of an increasingly complex economy. 6.16. Therefore, it is clear that after the amendment under Act 28 of 2016, the very task of operating the monetary policy framework has been conferred exclusively upon RBI. 6.17. Though the expression "monetary policy" is not defined in the Act, an entire chapter under the title "Monetary Policy" containing Sections 45Z to 45ZO was inserted as Chapter IIIF. The provisions of this chapter are given overriding effect upon the other provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on the recommendation of the Central Board of Directors of RBI. 6.21. Under Section 38, the central government is prohibited from putting into circulation any rupees, except through RBI. Similarly, RBI is also prohibited from disposing of rupee coin otherwise than for the purpose of circulation. 6.22. Chapter IIIB which contains provisions relating to nonbanking institutions (NBFCs) receiving deposits and financial institutions, contains two important provisions, one in Section 45JA and another in Section 45L. Sub section (1) of Section 45JA reads as follows: 45JA. Power of Bank to determine policy and issue directions.- (1) If the Bank is satisfied that, in the public interest or to regulate the financial system of the country to its advantage or to prevent the affairs of any non-banking financial company being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the non-banking financial company, it is necessary or expedient so to do, it may determine the policy and give directions to all or any of the non-banking financial companies relating to income recognition, accounting standards, making of proper prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te to all or any of the following matters, namely, the paid-up capital, reserves or other liabilities, the investments whether in Government securities or otherwise, the persons to whom, and the purposes and periods for which, finance is provided and the terms and conditions, including the rates of interest, on which it is provided. (3) In issuing directions to any financial institution under clause (b) of sub-section (1), the Bank shall have due regard to the conditions in which, and the objects for which, the institution has been established, its statutory responsibilities, if any, and the effect the business of such financial institution is likely to have on trends in the money and capital markets. 6.26. It may be seen that the phrase "credit system of the country to its advantage", as found in paragraph 1 of the Preamble, is repeated in sub-section (1) of Section 45L. The only difference between the two is that paragraph 1 of the Preamble speaks about the operation of the credit system, while Section 45L (1) speaks about regulation of the credit system. While exercising the power to issue directions conferred by clause (b) of sub-section (1) of Section 45L, RBI is ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .31. RBI Act, 1934 is not the only Act from which RBI derives its powers. The Banking Regulation Act, 1949 is also a source of power for RBI to do certain things. This can be seen from the Statement of Objects and Reasons for the Banking Regulation Act, 1949. One of the main features of the Bill as indicated in the Statement of Objects and Reasons was "widening the powers of RBI so as to enable it to come to the aid of the banking companies in times of emergency". 6.32. Section 5 of the Banking Regulation Act, 1949 which contains the interpretation clause defines the expression "banking policy" under clause (ca) of Section 5. This definition reads as follows: 5(ca)" banking policy" means any policy which is specified from time to time by the Reserve Bank in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources; 6.33. Since Banking Regulation Act, 1949 was issued after the RBI Act, 1934 and the nationalization of RBI, Section 5(ca) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... power to conduct special audit of a banking company's accounts is also conferred upon RBI under Section 30(1B). 6.38. Section 35A of Banking Regulation Act, 1949 empowers RBI to issue directions to banking companies. Such directions are binding on the banking companies. The directions under Section 35A may be issued (i) in public interest (ii) in the interest of banking policy (iii) to prevent the affairs of the banking company from being conducted in a manner prejudicial to the interests of the depositors or of the banking company itself and (iv) to secure the proper management of the banking company. Section 35A(1) reads as follows: 35A. Power of the Reserve Bank to give directions.-(1) Where the Reserve Bank is satisfied that- (a) in the public interest; or (aa) in the interest of banking policy; or (b) to prevent the affairs of any banking company being conducted in a manner detrimental to the interests of the depositors or in a manner prejudicial to the interests of the banking company; or (c) to secure the proper management of any banking company generally, it is necessary to issue directions to banking companies generally or to any banking com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e RBI as the authority for that purpose. 6.42. It is seen from the Statement of Objects and Reasons of the Bill that RBI is empowered to regulate and supervise various payment and settlement systems in India including those operated by non-banks, card companies, other payment system providers and the proposed umbrella organization for retail payments. The Act further empowers RBI to (i) lay down the procedure for authorization of payment systems (ii) lay down the operation and technical standards for payment systems (iii) issue directions and guidelines to system providers (iv) call for information and furnish returns and documents from the service providers (v) audit and inspect the systems and premises of the system providers (vi) lay down the duties of the system providers and (vii) make regulations for carrying out the provisions of the Act. 6.43. Section 2(1)(i) defines a "payment system". The Section reads as follows: 2(1)(i) "payment system" means a system that enables payment to be effected between a payer and a beneficiary, involving clearing, payment or settlement service or all of them, but does not include a stock exchange; Explanation.- For the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent systems; (c) the manner of transfer of funds within the payment system, either through paper, electronic means or in any other manner, between banks or between banks and other system participants; (d) such other standards to be complied with the payment systems generally; (e) the criteria for membership of payment systems including continuation, termination and rejection of membership; (f) the conditions subject to which the system participants shall participate in such fund transfers and the rights and obligations of the system participants in such funds. (2) Without prejudice to the provisions of sub-section (1), the Reserve Bank may, from time to time, issue such guidelines, as it may consider necessary for the proper and efficient management of the payment systems generally or with reference to any particular payment system. 6.47. Section 11 of the Act provides that any change in the system which would affect the structure or the operation of the payment system would require prior approval from the Reserve Bank. Section 11 reads as follows: 11. Notice of change in the payment system.-(1) No system provider shall cause any change in the system which wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue directions to system providers or the system participants or any other person generally, to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest. The Section reads as follows: 18. Power of Reserve Bank to give directions generally.- Without prejudice to the provisions of the foregoing, the Reserve Bank may, if it is satisfied that for the purpose of enabling it to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest, it is necessary so to do, lay down policies relating to the regulation of payment systems including electronic, non-electronic, domestic and international payment systems affecting domestic transactions and give such directions in writing as it may consider necessary to system providers or the system participants or any other person either generally or to any such agency and in particular, pertaining to the conduct of business relating to payment systems. 6.50. Thus, the RBI Act, 1934, the Banking Regulation Act, 1949 and the Payment and Settlement Systems Act, 2007 cumulatively recognize and also confer v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... problem is not that it is not issued by the Government nor that it is unregulated. The problem is that it is hard to see what it is." 6.53. It is now universally accepted that Satoshi envisioned a digital analog to old-fashioned gold, a new kind of universal money that could be owned by everyone and spent anywhere. It was designed to live with a cleverly constructed decentralized network without central authority. Satoshi himself defined it as "a new electronic cash system that's fully peer-topeer, with no trusted third party." 6.54. It is true that though, at its birth, it was conceived of only as an alternative to money, crypto currencies assumed different shapes, different shades and different utility values over the past decade and more. Several international monetary agencies/watchdogs are dabbling to find out what these are and they are also divided in their opinion. For instance, in a report submitted on 22-01-2019 to the International Monetary Fund (IMF), by Jeffrey Franks, Director of its Europe Office, under the title 'Cryptocurrencies and Monetary Policy', it is pointed out as follows:- 1. Money has evolved over time, to meet customary demands, but its basic funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent jurisdictions and (ii) by the governments and other statutory authorities of various countries, through statutory instruments and non-statutory directives and (iii) by courts of different jurisdictions. DEFINITION OF VCs - BY REGULATORS S. No. Regulator Definition of Virtual Currency 1. International Monetary Fund7 VCs are digital representations of value, issued by private developers and denominated in their own unit of account.8 VCs can be obtained, stored, accessed, and transacted electronically, and can be used for a variety of purposes, as long as the transacting parties agree to use them. The concept of VCs covers a wider array of "currencies," ranging from simple IOUs (I owe you) of issuers (such as Internet or mobile coupons and airline miles), to VCs backed by assets such as gold,9 and "cryptocurrencies" such as Bitcoin. As digital representations of value, VCs fall within the broader category of digital currencies. However, they differ from other digital currencies, such as e-money, which is a digital payment mechanism for (and denominated in) fiat currency. VCs, on the other hand, are not denominated in fiat currency and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically, without a tangible, real-world representation. This definition of 'virtual currencies' captures decentralised, peer-to-peer VCs - as distinct from E-money or Internet (software)-based payment schemes, which merely facilitate transactions denominated in fiat money or in central bank-issued digital currencies - which, while devoid of legal tender status, fulfil, at least to some extent, all three traditional functions of money by way of agreement within their user community. This definition does not, however, extend to centrally-issued digital currencies, such as the central bank digital currencies under consideration, at the time of writing, in several jurisdictions. European Banking Authority in 2014:14 VCs are defined as a digital representation of value that is neither issued by a central bank or public authority nor necessarily attached to a FC, but is used by natural or legal persons as a means of exchange and can be transferred, stored or traded electronically. 4. European Securities and Markets Authority15 Crypto-asset: A type of private asset that depends primarily on cryptography and Distributed Ledger Technology (DLT) or si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, USA Section 1a(9) of the Act (US Commodity Exchange Act) defines "commodity" to include, among other things, "all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in." 7 U.S.C. § 1a(9). The definition of a "commodity" is broad. See, e.g., Board of Trade of City of Chicago v. SEC, 677 F. 2d 1137, 1142 (7th Cir. 1982). Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.21 9. Financial Crimes Enforcement Network, Department of Treasury, USA22 Virtual currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. This guidance addresses "convertible" virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency. 10. Canada Revenue Agency (CRA)23 Cryptocurrency is a digital representation of value that is not legal tender. It is a digital asset...that works as a medium of exchange for good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns under the FIEA will apply to crypto asset derivative transactions. These regulations include certain conduct regulations, such as the notice requirement prior to trading, and prohibitions on making false statements, providing conclusive judgements, and engaging in uninvited solicitation. 2. Malta Virtual Financial Asset Act, 2018 Article 2(2): "virtual financial asset" or "VFA" means any form of digital medium recordation that is used as a digital medium of exchange, unit of account, or store of value and that is not - (a)electronic money; (b)a financial instrument; or (c)a virtual token; "virtual token" means a form of digital medium recordation whose utility, value or application is restricted solely to the acquisition of goods or services, either solely within the DLT platform on or in relation to which it was issued or within a limited network of DLT platforms. 3. Canada Proceeds of Crime (Money Laundering) and Terrorist Financing Regulations, 2002 25 Section 1(2): virtual currency means (a) a digital representation of value that can be used for payment or investment purposes that is not a fiat currency and that can be readily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnised as a legal means of payment, cannot be recognised as a banknote and coin, non-cash money and electronic money, and is not a monetary value accrued in the payment instrument which is used in the cases referred to in Section 3, Clauses 10 and 11 of the Law on the Payment Services and Electronic Money; 7. Liechtenstein Due Diligence Act, 2009 Article 2(1)(l): Virtual currencies shall be understood to be digital monetary units, which can be exchanged for legal tender, used to purchase goods or services or to preserve value and thus assume the function of legal tender. 8. Israel Supervision of Financial Services Law, 5776-2016 Section 11A (7) defines financial asset. Financial asset includes virtual currency. 26 9. Jersey (Crown dependency) Proceeds of Crime (Miscellaneous Amendments) (Jersey) Regulations 2016 Article 4(4): 'Virtual currency' means any currency which (whilst not itself being issued by, or legal tender in, any jurisdiction) - (a) digitally represents value; (b) is a unit of account; (c) functions as a medium of exchange; and (d) is capable of being digitally exchanged for money in any form. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of investment activity or payment mechanism.35 The first part of the word 'crypto', means 'hidden' or 'secret' reflecting the secure technology used to record who owns what, and for making payments between users. The second part of the word, 'currency,' tells us the reason cryptocurrencies were designed in the first place: a type of electronic cash. But cryptocurrencies aren't like the cash we carry. They exist electronically and use a peer-to-peer system. There is no central bank or government to manage the system or step in if something goes wrong. 18. United States of America New York [BitLicense Regulation (23 CRR-NY 200)] North Carolina [Money Transmitters Act (§ 53-208.42)] Section 2(p): virtual currency means any type of digital unit that is used as a medium of exchange or a form of digitally stored value. Virtual currency shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n outside such gaming platforms, or (ii) exclusively as part of a consumer affinity or rewards program, and can be applied solely as payment for purchases with the issuer or other designated merchants, but cannot be converted into or redeemed for fiat currency. (2) (j) "Virtual currency" means a medium of exchange in electronic or digital format that is not a coin or currency of the United States or any other country. Illinois [Digital Currency Regulatory Guidance (2017)]37 Louisiana [Consumer and Investor Advisory on Virtual Currency by Office of Financial Institute (2014)]38 Michigan [Michigan Department of Treasury Guidance (January 2015)]39 Washington Uniform Money Services Act (RCW 19.230.010) Wyoming Wyoming Money Transmitter Act [W.S. 40-22102(a)] A digital currency is an electronic medium of exchange used to purchase goods and services. A digital currency may also be exchanged for money. A digital currency, by nature of its properties detailed below, is distinct from money. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as (i) a medium of exchange and/or (ii) a unit of account and/or (iii) a store of value. The IMF, the FATF, the European Central Bank, the Financial Conduct Authority of the United Kingdom, the Internal Revenue Service of the United States, Department of Treasury and the Canadian Revenue Authority treat virtual currencies as digital representations of value. The European Central Bank went a step further by describing a virtual currency as a type of unregulated digital money. The Internal Revenue Service of the United States, Department of Treasury has recognized that a virtual currency can function in the same manner as a country's traditional currency. The Securities and Exchange Commission, USA also recognizes that virtual currencies are intended to perform many of the same functions as long-established currencies such as US dollar, Euro or Japanese Yen. Yet another wing of the United States Department of Treasury namely Financial Crimes Enforcement Network calls virtual currency as a medium of exchange that operates like a currency in some environments, though it may not have all the attributes of a real currency. 6.60. The Bank of International Settlements, as pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the form of coins and bank notes. Again, FEMA defines "Indian currency" under Section 2(q) to mean currency which is expressed or drawn in Indian rupees, but which would not include special bank notes and special one rupee notes issued under Section 28A of the RBI Act. But RBI has taken a stand in paragraph 24 of its counter-affidavit that VCs do not fit into the definition of the expression "currency" under Section 2(h) of FEMA, despite the fact that FATF, in its report on June 2014 on "Virtual Currencies: Key Definitions and Potential AML/CFT Risks" defined virtual currency to mean "digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status." According to the report, legal tender status is acquired only when it is accepted as a valid and legal offer of payment when tendered to a creditor. 6.64. Traditionally 'money' has always been defined in terms of the 3 functions or services that it provides namely (1) a medium of exchange (2) a unit of account and (3) a store of value. But in course of time, a fourth function namely that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he says "...what we view as money has changed over time. Cowrie shells once were such a medium but no longer are... our currency originally included gold, coins and bullion, but after 1934, gold could not be used as a medium of exchange... perhaps one day employees will be paid in Bitcoin or some other type of currency". In the linguistic sense, Oxford English Dictionary has already included "property or possessions of any kind viewed as convertible into money" within the definition of money. Therefore, Breyer, J., points out in his dissent "So, where does this duel of definitions lead us? Some seem too narrow; some seem too broad; some seem indeterminate. The result is ambiguity". He therefore concluded that stock options given to employees constitute money remuneration for the services rendered. But the majority proceeded on the basis that when the law was enacted, the term 'money' was not used in an expansive sense. 6.67. Neither the RBI Act, 1934 nor the Banking Regulation Act, 1949 nor the Payment and Settlement Systems Act, 2007 nor the Coinage Act, 2011 define the words 'currency' or 'money'. But FEMA defines the words 'currency', 'currency notes', 'Indian currency' and 'F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that "money is a legal tender, but cash is narrower than money." This is for the reason that in contradistinction to cash, deferred payment or other valuable consideration would also come within the meaning of money, for the purpose of the Act. 6.71. Just as the very concept of 'money' or 'currency' has changed over the years, and different jurisdictions and different statutes have adopted different definitions of 'money' and 'currency', depending upon the issue sought to be addressed, the concept of VCs have also undergone a sea of change, with different regulators and statutory authorities adopting different definitions, leading to diametrically opposite views emerging from courts across the spectrum. Let us now see how courts in other jurisdictions have grappled with the definition of the word 'virtual currency'. 6.72. The Securities and Exchange Commission (SEC) of the United States of America prosecuted a person by name Trendon Shavers, who was the founder and operator of Bitcoin Savings and Trust (BTCST), for soliciting illicit investments in Bitcoin related opportunities from a number of lenders, defrauding them to the tune of 700,000 BTC in funds. While SEC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olation of a particular statute. The contention of the defendant was (i) that Bitcoin does not qualify as money (ii) that operating a Bitcoin exchange does not constitute "transmitting" of money and (iii) that he is not a money transmitter. While rejecting the motion, the court held "bitcoin clearly qualifies as money or funds under the plain meaning definitions. Bitcoin can be easily purchased in exchange for ordinary currency, acts as a denominator of value and is used to conduct financial transactions." The decision in Trendon Shavers (supra) was relied upon. 6.75. While the district courts of USA took the view that virtual currency can be used as money, the Commodity Futures Trading Commission (CFTC) took a view in In re Coinflip, Inc, CFTC Docket No. 15-29 dated 17-09-2015 that virtual currencies are "commodities". This was in relation to the initiation of public administrative proceedings to determine whether the defendant was engaged in violation of the provisions of Commodity Exchange Act and the Commission's Regulations by operating an online facility named Derivabit offering to connect buyers and sellers of Bitcoin option contracts. Interestingly, the defendant admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is seen from the order that there was no 'currency versus commodity' debate in the entire order. 6.79. A similar view was taken by United States District Court, District of Massachusetts in Commodity Futures Trading Commission v. My Big Coin Pay, Inc. et al., 18-Cv-10077-RWZ dated 26-09-2018 holding that since there is futures trading in virtual currencies, they constitute 'commodity' within the meaning of the Statute. 6.80. State of Florida v. Michell Abner Espinoza F 14-2923 decided on 22-07-2016, is an interesting case which came up before the Eleventh Judicial Circuit in and for Miami-Dade County, Florida. In that case, a Detective of the Miami Police department teamed up with a Special Agent of the Miami Electronic Crimes Task Force of the United States Secret Service to initiate an investigation into virtual currencies. After getting in touch with a person who advertised the sale of Bitcoins in an online platform run by a peer-to-peer Bitcoin exchange by name Localbitcoins.com, the team organized an undercover operation in December 2013/January 2014. The Detective offered to pay for the Bitcoins through stolen credit cards and when the transaction was about to take pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of money or monetary value, whether or not negotiable". The phrase "money services business" was defined in the statute to include any person who acts as a payment instrument seller. Since the expression monetary value means a medium of exchange, whether or not redeemable in currency, the court concluded that VCs are payment instruments and hence a person dealing with the same is in money services business. Though Bitcoin does not expressly fall within the definition of "currency" found in the statute, the court concluded that Bitcoin would certainly fall under the definition of a payment instrument. The Court of Appeal took note of the fact that several restaurants in the Miami area accepted Bitcoins as a form of payment and hence Bitcoin functions as a medium of exchange. (What is important to note about this decision is that it dealt with a penal statute. This is why the Circuit court followed the cautionary approach, not to allow a citizen to be prosecuted on the basis of conjectures about what is a money services business. But the Court of Appeal found on fundamentals that the business concerned a payment instrument and that therefore, there was no ambiguity.) 6.82. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. After negotiations through a specialist intermediary by name Incident Response Company, the insurance company paid the ransom into a wallet and retrieved the data with the decryption tools provided by the hackers. Thereafter the insurance company engaged the services of a blockchain investigation outfit known as Chainalysis Inc., which found that of the total of 109.25 Bitcoins transferred as ransom, 13.25 Bitcoins (worth approximately US $ 120,000 at the time) had been converted into an untraceable fiat currency. The remaining 96 Bitcoins had been transferred to a "wallet" linked to a Virtual Currency exchange known as Bitfinex (registered in the British Virgin Islands). The insurance company then sued the VC Exchange before the High Court and sought ancillary disclosure orders to know the identity of persons who held the Bitcoins in the wallet of the exchange. The company also sought a proprietary injunction. Interestingly, the Court agreed to hear the application in private and protect the identity of the insurer which got hacked, for they feared retaliatory copycat attacks. The core issue before the court was whether crypto currencies constituted a form of property capabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices. (iii) Bitcoin virtual currency being a contractual means of payment could not be regarded as a current account or a deposit account, a payment or a transfer, and unlike debt, cheques and other negotiable instruments (referred to in Article 135(1)(d) of the EU VAT Directive), Bitcoin is a direct means of payment between the operators that accept. (iv) Bitcoin virtual currency is neither a security conferring a property right nor a security of a comparable nature. (v) The transactions in issue were entitled to exemption from payment of VAT as they fell under the category of transactions involving 'currency [and] bank notes and coins used as legal tender'. (vi) Article 135(1)(e) EU Council VAT Directive 2006/112/EC is applicable to non-traditional currencies i.e., to currencies other than those that are legal tender in one or more countries in so far as those currencies have been accepted by the parties to a transaction as an alternative to legal tender and have no purpose other than to be a means of payment. The court accordingly concluded that virtual currencies would fall under this definition of non-traditional currencies. 6.85. Thus (i) depending upon the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... systems of the country. If an intangible property can act under certain circumstances as money (even without faking a currency) then RBI can definitely take note of it and deal with it. Hence it is not possible to accept the contention of the petitioners that they are carrying on an activity over which RBI has no power statutorily. 6.88. In Keshavlal Khemchand & Sons Pvt. Ltd. v. Union of India (2015) 4 SCC 770), this court pointed out that "Reserve Bank of India is an expert body to which the responsibility of monitoring the economic system of the country is entrusted, under various enactments like the RBI Act, 1934, the Banking Regulation Act, 1949." Therefore, (i) in the teeth of the statutory scheme of these enactments (ii) from the way different courts and regulators of different jurisdictions have treated VCs and (iii) from the very characteristics of VCs, it is clear that they have the potential to interfere with the matters that RBI has the power to restrict or regulate. Hence, we have no hesitation in rejecting the first contention of the petitioners that the impugned decision is ultra vires. 6.89. It was argued that the Preamble of the RBI Act speaks only about the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RBI Act, does not appeal to us. In Star India Pvt. ltd. v. Dept. of Industrial Policy and Promotion and Ors. (2019) 2 SCC 104, this court opined that the word "regulate" has a very broad meaning including the power to prohibit. The following passage from K. Ramanathan v. State of Tamil Nadu (1985 (2) SCC 116) was quoted in Star India (supra): 19. It has often been said that the power to regulate does not necessarily include the power to prohibit, and ordinarily the word "regulate" is not synonymous with the word "prohibit". This is true in a general sense and in the sense that mere regulation is not the same as absolute prohibition. At the same time, the power to regulate carries with it full power over the thing subject to regulation and in absence of restrictive words, the power must be regarded as plenary over the entire subject. It implies the power to rule, direct and control, and involves the adoption of a rule or guiding principle to be followed, or the making of a rule with respect to the subject to be regulated. The power to regulate implies the power to check and may imply the power to prohibit under certain circumstances, as where the best or only efficacious regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circular. Admittedly, peer-to-peer transactions are still taking place, without the involvement of the banking channel. In fact, those actually buying and selling VCs without seeking to convert fiat currency into VCs or vice-versa, are not affected by this Circular. It is only the online platforms which provide a space or medium for the traders to buy and sell VCs, that are seriously affected by the Circular, since the commission that they earn by facilitating the trade is required to be converted into fiat currency. Interestingly, the petitioners argue on the one hand that there is total prohibition and argue on the other hand that the Circular does not achieve its original object of curtailing the actual trading, though it cripples the exchanges. If the first part of this submission is right, the latter cannot be and if the latter part is right, the former cannot be. 6.95. The reliance placed in this regard by the petitioners on the decision of this court in State of Rajasthan v. Basant Nahata (2005) 12 SCC 77) may not be appropriate. The said decision arose out of a challenge to the constitutional validity of Section 22A of the Registration Act, 1908 inserted by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omulgation of a general rule of conduct without reference to particular cases; an administrative act is the making and issue of a specific direction or the application of a general rule to a particular case in accordance with the requirements of policy'. 'Legislation is the process of formulating a general rule of conduct without reference to particular cases and usually operating in future; administration is the process of performing particular acts, of issuing particular orders or of making decisions which apply general rules to particular cases'." (emphasis supplied) 6.98. On the effect and force of delegated legislation, this court held in St. Johns Teachers Training Institute v. Regional Director, NCTE (2003) 3 SCC 321): "The regulations made under power conferred by the statute are supporting legislation and have the force and effect, if validly made, as an Act passed by the competent legislature.". Similar views were expressed in Udai Singh Dagar v. Union of India, when the court held (2007) 10 SCC 306): "...a legislative Act must be read with the regulations framed. A subordinate legislation, as is well known, when validly framed, becomes a part of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions between the three agencies of the state and that at times the exercise of legislative or judicial functions are entrusted to the executive. A very important observation made by the Constitution Bench in Jayantilal (supra) was as follows: ".....in addition to these quasi-judicial and quasi-legislative functions, the executive has also been empowered by statute to exercise functions which are legislative and judicial in character and in certain instances, powers are exercised which appear to partake at the same moment of legislative, executive and judicial characteristics." 6.102. In Shri Sitaram Sugar Co. Ltd. & Anr v. Union of India & Ors (1990) 3 SCC 223), the Constitution bench of this court held that whether an order is characterized as legislative or administrative or quasi-judicial or whether it is a determination of law or fact, the judgment of the expert body entrusted with power is generally treated as final and the judicial function is exhausted when it is found to have "warrant in the record" and a rational basis in law. 6.103. It must be pointed out that the power of RBI is not merely curative but also preventive. This is acknowledged by this cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of payment systems including electronic, non-electronic, domestic and international payment systems affecting domestic transactions and (ii) to give such directions as it may consider necessary. These are what RBI can do under Section 18. Coming to the second aspect, the persons qua whom the powers under Section 18 can be exercised are (i) system providers (ii) system participants and (iii) any other person generally or any such agency. The expression "system provider" is defined under Section 2(1)(q) to mean a person who operates an authorized payment system. The expression "system participant" is defined in Section 2(1)(p) to mean a bank or any other person participating in a payment system, including the system provider. Other than the expressions 'system provider' and 'system participant', Section 18 also uses the expressions 'any other person' and 'any such agency'. 6.108. It is true that the purposes for which the power under Section 18 can be exercised, are also indicated in Section 18. They are (i) regulation of the payment systems (ii) the interest of the management and operation of any payment system and (iii) public interest. 6.109. As we have pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In respect of each of these requirements, the learned Counsel relied upon certain judicial precedents. 6.113. But we do not think that in the facts of the present case, we could hold RBI guilty of non-application of mind. As a matter of fact, the issue as to how to deal with virtual currencies has been lingering with RBI from June 2013 onwards, when the Financial Stability Report took note of the challenges posed by virtual currencies in the form of regulatory, legal and operational risks. The Financial Stability Report of June 2013 led to a press release dated 24-12-2013 cautioning the users, holders and traders of virtual currencies about the potential financial, operational, legal and consumer protection and security related risks associated with virtual currencies. Then came the Financial Stability Report of December 2015 which raised concerns about excessive volatility in the value of VCs and their anonymous nature which went against global money laundering rules rendering their very existence questionable. The Financial Stability Report of December 2016 also took note of the risks associated with virtual currencies qua data security and consumer protection. The repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Risks The Reserve Bank of India has today cautioned the users, holders and traders of Virtual currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to. The Reserve Bank has mentioned that it has been looking at the developments relating to certain electronic records claimed to be "Decentralised Digital Currency" or "Virtual Currency" (VCs), such as, Bitcoins, litecoins, bbqcoins, dogecoins etc., their usage or trading in the country and the various media reports in this regard. The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities. As such, they may pose several risks to their users, including the following: * VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oses its vigour in view of the subsequent developments. Malice in law/colorable exercise 6.119. Drawing our attention to a reply given by RBI dated 2604-2017 to a query under the Right to Information Act, and the reply given by Minister of State for Finance in response to a question raised in the Lok Sabha (Unstarred Question No. 2113) on 28-072017, wherein RBI took a position that they had no power to freeze the accounts either of defaulting companies or of shell companies, it was contended by Shri Ashim Sood, that the impugned Circular goes contrary to the position so taken officially, as the Circular has the effect of closing the accounts of VCEs and that therefore it was hit by arbitrariness and caprice. 6.120. But the above argument arises out of a misconception about the purport of the impugned Circular. The impugned Circular does not order either the freezing or the closing of any particular account of a particular customer. All that the impugned Circular says is that RBI regulated entities shall exit the relationship that they have with any person or entity dealing with or settling VCs, within three months of the date of the Circular. The regulated entitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entities or the public in general, but with the object of hitting those who form the target. To constitute malice in law, the act must have been done wrongfully and willfully without reasonable or probable cause. The impugned Circular does not fall under the category of either of them. 6.123. The argument that the invocation by RBI, of 'public interest' as a weapon, purportedly for the benefit of users, consumers or traders of virtual currencies is a colourable exercise of power also does not hold water. Once it is conceded that RBI has powers to issue directions in public interest, it is impossible to exclude users, consumers or traders of virtual currencies from the coverage. In fact, the repeated press releases issued by RBI from 2013 onwards indicate that RBI did not want the members of the public, which include users, consumers and traders of VCs, even to remotely think that virtual currencies have a legal tender status or are backed by a central authority. 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 hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be assailed on the basis of M. S. Gill (M S Gill v. The Chief Election Commissioner, (1978) 1 SCC 405) test, for two reasons. First is that in Chairman, All India Railway Recruitment Board v. K. Shyam Kumar & Ors (2010) 6 SCC 614), this court held that MS Gill test may not always be applicable where larger public interest is involved and that in such situations, additional grounds can be looked into for examining the validity of an order. This was followed in PRP Exports & Ors v. Chief Secretary, Government of Tamil Nadu & Ors. (2014) 13 SCC 692). In 63 Moons Technologies ltd. & Ors v. Union of India & Ors (2019) SCC Online SC 624), this court clarified that though there is no broad proposition that MS Gill test will not apply where larger public interest is involved, subsequent materials in the form of facts that have taken place after the order in question is passed, can always be looked at in the larger public interest, in order to support an administrative order. The second reason why the weapon of MS Gill will get blunted in this case, is that during the pendency of this case, this court passed an interim order on 21-082019 directing RBI to give a point-wise reply to the det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... helps only in relation to principles of judicial decision making and not for testing the validity of an action taken based on the existing statutory scheme. 6.130. There can also be no comparison with the approach adopted by countries such as UK, US, Japan, Singapore, Australia, New Zealand, Canada etc., as they have developed economies capable of absorbing greater shocks. Indian economic conditions cannot be placed on par. Therefore, we will not test the correctness of the measure taken by RBI on the basis of the approach adopted by other countries, though we have, for better understanding of the complexities of the issues involved, undertaken a survey of how the regulators and courts of other countries have treated VCs. V. Precautionary steps taken by petitioners 6.131. The next contention of the petitioners is that the VC exchanges run by them have already put in place certain best practices such as (i) avoidance of cash transactions (ii) enhanced KYC norms and (iii) confining their services only to persons within India. Therefore, it is contended that all the issues flagged by RBI have already been addressed and that therefore, there was no necessity to disconnect the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Let us first deal with Shri Nakul Dewan's submission. In the very same October 2012 Report of the European Central Bank, it is accepted that virtual currencies (i) resemble money and (ii) necessarily come with their own dedicated retail payment systems. These two aspects are indicated in the Report to be covered by the term "Virtual Currency Scheme". 6.134. But the entire premise on which the petitioners have developed their case is that they are neither money nor constitute a payment system. Therefore, if the Report of the European Central Bank is to be accepted, it should be accepted in total and cannot be selectively taken. 6.135. The examples provided in the October 2012 Report of the European Central Bank show that there are VC Schemes set up by entities such as Nintendo, in which consumers can purchase points online by using a credit card or in retail stores by purchasing a Nintendo points card which cannot be converted back to real money. The Report also shows that one VC by name Linden Dollars is issued in a virtual world called "Second life", where users create avatars (digital characters), which can be customized. Second life has its own economy where users can buy an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above argument appears only to belittle the role of RBI. RBI is not just like any other statutory body created by an Act of legislature. It is a creature, created with a mandate to get liberated even from its creator. This is why it is given a mandate - (i) under the Preamble of the RBI Act 1934, to operate the currency and credit system of the country to its advantage and to operate the monetary policy framework in the country (ii) under Section 3(1), to take over the management of the currency from the central government (iii) under Section 20, to undertake to accept monies for account of the central government, to make payments up to the amount standing to the credit of its account and to carry out its exchange, remittance and other banking operations, including the management of the public debt of the Union (iv) under Section 21(1), to have all the money, remittance, exchange and banking transactions in India of the central government entrusted with it (v) under Section 22(1), to have the sole right to issue bank notes in India and (vi) under Section 38, to get rupees into circulation only through it, to the exclusion of the central government. Therefore, RBI cannot be equate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry creatures and RBI is that what the statutory creatures can do, could as well be done by the executive. The power conferred upon the delegate in other statutes can be tinkered with, amended or even withdrawn. But the power conferred upon RBI under Section 3(1) of the RBI Act, 1934 to take over the management of the currency from the central government, cannot be taken away. The sole right to issue bank notes in India, conferred by Section 22(1) cannot also be taken away and conferred upon any other bank or authority. RBI by virtue of its authority, is a member of the Bank of International Settlements, which position cannot be taken over by the central government and conferred upon any other authority. Therefore, to say that it is just like any other statutory authority whose decisions cannot invite due deference, is to do violence to the scheme of the Act. In fact, all countries have central banks/authorities, which, technically have independence from the government of the country. To ensure such independence, a fixed tenure is granted to the Board of Governors, so that they are not bogged down by political expediencies. In the United States of America, the Chairman of the Federa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measures brought about a total stoppage of business, both, in a commercial sense and from a practical point of view, even though there was no prohibition in form and (ii) Bennett Coleman & Co. v. Union of India (1972) 2 SCC 788), where this court held that the impact and not the object of the measure will determine whether or not, a fundamental right is violated. It is further contended, on the strength of the decision in Md. Faruk v. State of Madhya Pradesh & Ors (1969) 1 SCC 853), that the imposition of restriction on the exercise of a fundamental right may be in the form of control or prohibition and that when the exercise of a fundamental right is prohibited, the burden of proving that a total ban on the exercise of the right alone may ensure the maintenance of the general public interest, lies heavily upon the state. It was held in the said decision that a law which directly infringes the right guaranteed under Article 19(1)(g) may be upheld only if it is established that it seeks to impose reasonable restrictions in the interest of the general public and a less drastic restriction will not ensure the interest of the general public. 6.143. The parameters laid down in Md. Fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that there is no fundamental right to purchase, sell, transact and/or invest in VCs and that therefore, the petitioners cannot invoke Article 19(1)(g). But this contention is liable to be rejected outright for two reasons namely, (i) that at least some of the petitioners are not claiming any right to purchase, sell or transact in VCs, but claiming a right to provide a platform for facilitating an activity (of trading in VCs between individuals/entities who want to buy and sell VCs) which is not yet prohibited by law and (ii) that in any case the impugned Circular does not per se prohibit the purchase or sale of VCs. This is why it is contended by the learned Counsel for the petitioners, that what is hit by the impugned Circular is not the actual target. The actual target of the impugned Circular, as seen from various communications and committee reports that preceded the same, is the trade in VCs. The object of hitting at trading in VCs, is to ensure (i) consumer protection (ii) prevention of violation of money laundering laws (iii) curbing the menace of financing of terrorism and (iv) safeguarding of the existing monetary/payment/credit system from being polluted. But hitting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in crypto-to-crypto pairs (ii) or in using the currencies stored in their wallets, to make payments for purchase of goods and services to those who are prepared to accept them, within India or abroad. As a matter of fact, reports/articles in online journals suggest (i) that a few eateries such as Kolonial, a vintage themed pizzeria in Mumbai's Worli area, Suryawanshi restaurant in Indiranagar, Bengaluru and Suri Andhra Mess in Taramani, Chennai were accepting payments in virtual currencies (Mumbai and Chennai eateries are now closed and the one in Bangalore has stopped accepting) and (ii) that there are few intermediaries which accept payments in Bitcoins for gift cards which in turn facilitate online shopping from popular sites. 6.150. An important aspect to be taken note of is that virtual currencies cannot be stored anywhere, in the real sense of the term, as they do not exist in any physical shape or form. What is actually stored is the private keys, which can be used to access the public address and transaction signatures. 6.151. The software program in which the private and public keys of those who own virtual currencies is stored, is called a digital wallet. There are di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught by this court, this court was concerned with a ban/prohibition of an activity. The question of the prohibited/banned activities having the potential to destabilize an existing system, did not arise in those cases. The pleadings contained in the first writ petition filed by the Association, would show that three companies who are members of the Internet and Mobile Association of India, had a combined total of approximately 17 lakhs verified users throughout India. These companies held a combined total of approximately Rs. 1365 crores of user funds in trust. The approximate monthly transaction volume of just these three companies was around Rs. 5000 crores. Even according to the petitioner, the crypto asset industry is estimated to have a market capitalization of approximately 430 billion US dollars globally. India is estimated to contribute between 2 and 10% based on varied estimates. It is admitted in WP (C) No. 373 of 2018 that the total number of investors in Indian crypto market was approximately 20 lakhs and the average daily trade volume was at least Rs. 150 crores, at the time when the writ petition was filed. Therefore, if a central authority like RBI, on a conspectus o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasury restricted access to the UK's financial markets by a major Iranian commercial bank on account of its alleged connection with Iran's nuclear program. This was done by the Treasury by way of a direction under Schedule 7 of the Counter Terrorism Act, 2008, requiring all persons operating in the financial sector not to have any commercial dealings with Bank Mellat. Schedule 7 of the Act dealt with "terrorist financing and money laundering". This Schedule 7 has several parts, Part 1 providing "conditions for giving a direction", Part 2 indicating the "persons to whom a direction may be given", Part 3 laying down the requirements that may be imposed by a direction, Part 4 containing "procedural provisions and licensing", Part 5 dealing with enforcement and information powers, Part 6 dealing with civil penalties, Part 7 listing out the offences and Part 8 containing supplemental provisions. Paragraph 14 of Schedule 7 of the said Act enables the Treasury to issue general directions, to all persons or a description of persons operating in the financial sector. But certain procedural safeguards are provided in paragraph 14(2) as well as paragraph 9(6). Under paragraph 14(2), a genera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The idea that the state should limit natural rights only to the minimum extent necessary developed in Germany into a public law standard known as Verhältnismäßigkeit, or proportionality. From its origins in German administrative law, where it forms the basis of a rigorously structured analysis of the validity of legislative and administrative acts, the concept of proportionality came to be adopted in the case law of the European Court of Justice and the European Court of Human Rights. From the latter, it migrated to Canada, where it has received a particularly careful and influential analysis, and from Canada it spread to a number of other common law jurisdictions. 69. Proportionality has become one of the general principles of EU law, and appears in article 5(4) of the Treaty on European Union ("TEU"). The test is expressed in more compressed and general terms than in German or Canadian law, and the relevant jurisprudence is not always clear, at least to a reader from a common law tradition. In R v Ministry of Agriculture, Fisheries and Food, ex p Fedesa and others (Case C-331/88) [1990] ECR I-4023, the European Court of Justice stated (para 13): "The Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant factors. One important factor in relation to the Convention is that the Strasbourg court recognises that it may be less well placed than a national court to decide whether an appropriate balance has been struck in the particular national context. For that reason, in the Convention case law the principle of proportionality is indissolubly linked to the concept of the margin of appreciation. That concept does not apply in the same way at the national level, where the degree of restraint practised by courts in applying the principle of proportionality, and the extent to which they will respect the judgment of the primary decision maker, will depend upon the context, and will in part reflect national traditions and institutional culture. For these reasons, the approach adopted to proportionality at the national level cannot simply mirror that of the Strasbourg court. 72. The approach to proportionality adopted in our domestic case law under the Human Rights Act has not generally mirrored that of the Strasbourg court. In accordance with the analytical approach to legal reasoning characteristic of the common law, a more clearly structured approach has generally been adopted, deriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assessment of proportionality into distinct elements, it can clarify different aspects of such an assessment, and make value judgments more explicit. The approach adopted in Oakes can be summarised by saying that it is necessary to determine (1) whether the objective of the measure is sufficiently important to justify the limitation of a protected right, (2) whether the measure is rationally connected to the objective, (3) whether a less intrusive measure could have been used without unacceptably compromising the achievement of the objective, and (4) whether, balancing the severity of the measure's effects on the rights of the persons to whom it applies against the importance of the objective, to the extent that the measure will contribute to its achievement, the former outweighs the latter. The first three of these are the criteria listed by Lord Clyde in De Freitas, and the fourth reflects the additional observation made in Huang. I have formulated the fourth criterion in greater detail than Lord Sumption, but there is no difference of substance. In essence, the question at step four is whether the impact of the rights infringement is disproportionate to the likely benefit of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of designated persons or others under the European Convention on Human Rights. Therefore, there was unanimity of opinion that any assessment of rationality and proportionality must recognize that the nature of the issue required the Treasury to be allowed a large margin of judgment. Even Lord Sumption who wrote the lead judgment for the majority agreed that "the making of Government and legislative policy cannot be turned into a judicial process". An interesting statement made by Blackmun J in Illinois Elections Bd v. Socialist Workers Party (1979) 440 US 173 was quoted by Lord Reed in his dissent which reads "a judge would be unimaginative indeed if he could come up with something a little less drastic or a little less restrictive in almost any situation and thereby enable himself to vote to strike legislation down". In essence, there was unanimity of opinion on the fact that a margin of appreciation should certainly be allowed to the decisionmaker. But on the ground of proportionality, the majority struck down the ban imposed by the UK Treasury. The highlights of the decision, as formulated by the court itself, read as follows: (i) The essential question before the court was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... users that want to convert their cryptocurrency into fiat currency via a virtual currency exchange or hold their portfolio via a custodian wallet provider, will be subject to customer due diligence. But, as aforementioned, there is still a whole world outside of these new obliged entities under AMLD5. It goes without saying that this may sound particularly interesting for criminals seeking for new ways to launder money, finance terrorists or evade taxes. If a legislator does not want to outright ban these cryptocurrencies - and for not imposing such a ban a good argument is that cash is also fully anonymous and lawful - the only way to find out who uses them is to require users to register mandatorily. For reasons of proportionality it could then be considered to make the registration subject to a materiality threshold." (emphasis supplied) 6.163. The discussion in paragraph 5.7 of the July 2018 Report of the European Union Parliament also addresses the issue as to whether it is best to introduce an outright ban for some aspects linked to some crypto currencies. This paragraph reads as follows: 5.7. "Is it not best to introduce an outright ban for some aspects linked to some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the European Union Parliament in the paragraph extracted above, is not to go for a total ban of the interaction between crypto currency business and the formal financial sector as a whole. Obviously, RBI did not consider the availability of alternatives before issuing the impugned circular. But by an interim direction, issued on 21-08-2019 this court directed RBI to give a detailed point-wise reply to the representations of the petitioners. Pursuant to the said order, RBI gave a reply dated 04-09-2019. In the reply, RBI has dealt with every one of the contentions of the petitioners. The relevant portion reads as follows: "Firstly, the RBI has not prohibited VCs in the country. The RBI has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs. The risks associated with VCs that are highlighted by the RBI stands mitigated so far as the entities regulated by it are concerned. Thus, the RBI been able to ring fence the entities regulated by it from being involved in activities that pose reputational and financial risks along with other legal and operational risks. For example, VCs have been used to defraud consumer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be defeated should the usage of VCs result in implications. Any unpleasant experience in using VCs can affect the public's trust in electronic payment systems in general. It is in this context that the RBI had highlighted some of the possible ways to enforce the prohibition on VCs in the RBI Representation, which are as follows: (i) Initial Coin Offerings ("ICOs") ought to be prohibited and VC asset funds may to be allowed to be set-up and/or operated within the legal jurisdiction of India as also perform such transactions in India. ICOs that were in the nature of multi -level marketing or pyramid schemes can be banned; (ii) The FEMA and its regulations can be enhanced to prevent and track remittances for the purpose of investing in VCs which are flowing out of the country under the LRS; (iii) Enforcement agencies can take punitive action against entities/establishments that accept VCs as a medium of payment, as and when these agencies are faced with such instances; and (iv) Regulators can issue warnings to the public and educated the public to the extent possible. One must also be alive to the issue faced by the country. India is not a safe haven free from any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o formulate and establish appropriate rules governing the nitty gritty of the same. In addition, VCs are difficult to monitor as their opaque nature makes it difficult to gather information and monitor their operations. Moreover, asserting jurisdiction over a particular VC transaction or market participant may prove challenging for national regulators in the light of the cross- border reach of the technology. Formation of a self-regulatory organization and Restricting trade of crypto-assets to white listed addresses Issuance and management have been a function solely of the sovereign / central bank and a collection of private entities cannot be trusted to perform this role. Moreover, when such VCs become widely used, the central bank's ability to control the money supply in the economy could get adversely impacted. In fact, implications of VCs vis-a-vis consumer protection, data privacy and security were also highlighted. It was also acknowledged that there are several uncertainties around the VC, particularly with respect to how the VC is secured, the extent to which there are measures to prevent and respond to the dramatic shifts of value; and the characterization of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in VCs. VCs transactions would continue to be anonymous and untraceable. The mandatory capitalisation requirement does not reduce the use of VCs in nefarious activities and illegal cross-border transactions. Further, the mandatory capitalisation requirement does not provide any security or benefit to the monetary and banking system from the risks associated with VCs. Pertinently, the suggestion includes prescribing a mandatory capitalisation requirement in VCs itself. Given the instability and price fluctuations of VCs, the RBI rejects any suggestion of providing a security or capitalisation requirement in VC itself. Additionally, the suggested mandatory capitalisation requirement would also not reduce the risks to consumers arising not only from fraud but also from the possible loss of value given the fluctuations and manipulation VCs' value. Insurance of crypto-assets Firstly, Indian Insurance service providers are not governed by the RBI. Insurance providers come within the regulatory jurisdiction of the Insurance Regulatory and Development Agency ("IRDA"). Therefore, the RBI cannot assume jurisdiction over insurance providers by directing them to formulate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was between anonymous accounts. Even if the exchanges try to mitigate the risks of cyber-attacks by subscribing to insurance products, the risks are likely to spread to sectors other than banking. Further, the utilisation of CSR funds is not regulated or governed by the RBI. Therefore, implementation of this suggestion would require other authorities to formulate necessary rules or directions, which is beyond the RBI's control and would depend on the final law passed by the Parliament based on the currently pending draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019. 6.166. Though at the time when the impugned Circular was issued, RBI has not obviously addressed many of the issues flagged by the writ petitioners, RBI did in fact consider the issues raised by the petitioners, pursuant to the order passed by this court on 21-08-2019. RBI has also analyzed in Annexure B to the reply dated 18-092019 extracted above, the additional safeguards suggested by the petitioners, to see if the purpose of the impugned measure can be achieved through less intrusive measures. While exercising the power of judicial review we may not scan the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons who do not opt for regulation under this Act and may choose to operate illegally may continue to be difficult." 6.168. The Crypto-token Regulation Bill, 2018 initially recommended by the Inter-Ministerial Committee contained a proposal (i) to prohibit persons dealing with activities related to crypto tokens from falsely posing these products as not being securities or investment schemes or offering investment schemes due to gaps in the existing regulatory framework and (ii) to regulate VC exchanges and brokers where sale and purchase may be permitted. 6.169. The key aspects of the Crypto-token Regulation Bill, 2018, found in paragraph 13 of the 'Note-precursor to report' shows that the Inter-Ministerial Committee was fine with the idea of allowing the sale and purchase of digital crypto asset at recognized exchanges. Paragraph 13 (iii) & (vii) of the 'Note-precursor to the report' reads as follows: 13. Key aspects are summarised below: (i)... (ii)... (iii) The sale and purchase of digital crypto asset shall only be permitted at recognised exchanges. (iv)... (v)... (vi)... (vii) The registry of all holdings and transactions on the recognised exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e powers not only in view of the statutory scheme of the 3 enactments indicated earlier, but also in view of the special place and role that it has in the economy of the country. These powers can be exercised both in the form of preventive as well as curative measures. But the availability of power is different from the manner and extent to which it can be exercised. While we have recognized elsewhere in this order, the power of RBI to take a pre-emptive action, we are testing in this part of the order the proportionality of such measure, for the determination of which RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none. When the consistent stand of RBI is that they have not banned 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. 7. CLIMAX 7.1. Therefore, in the light of the above discussion, the petitioners are entitled to succeed and the impugned Circular dated 06-04-2018 is liable to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 1. Regulatory sandbox refers to live testing of new products/services in a controlled/test regulatory environment. 2 FSB was established by G-20 in April 2009, as a successor to the Financial Stability Forum founded in 1999 by G-7 Finance Ministers and Central Bank Governors. 3 The fate of the 2018 Bill is not known but a fresh bill called 'Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019' has been submitted. 4 tattvamasyādivākyena svātmā hi pratipāditaḥ neti neti śrutirbrūyād anṛtaṁ pāñcabhautikam5 From his book "Digital Gold: Bitcoin and the inside story of the Misfits and Millionaires Trying to Reinvent Money". 6 Cypherpunk is an activist advocating widespread use of strong cryptography and privacy enhancing technologies, as a route to social and political change. This word was added to the Oxford English Dictionary in November 2006. 7 Virtual Currencies and Beyond: Initial Considerations, IMF Staff Discussion Note, Dong He et al., page 7, 16, 17 (January 2016) (available at https://www.imf.org/external/pubs/ft/sdn/2016/sdn1603.pdf, last accessed on 27-02-2020 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty for U.S. Federal Tax Purposes; General Rules for Property Transactions Apply (March 2014) available at https://www.irs.gov/newsroom/irs-virtual-currency-guidance (Last accessed on 27-02-2020) and https://www.irs.gov/pub/irs-drop/n-14-21.pdf (Last accessed on 27-02-2020). 18 IRS reminds taxpayers to report virtual currency transactions (March 2018) available at https://www.irs.gov/newsroom/irs-reminds-taxpayers-to-report-virtual-currencytransactions (Last accessed on 27-02-2020). 19 Investor Alert: Bitcoin and Other Virtual Currency-Related Investments (May 2014) available at https://www.sec.gov/oiea/investor-alertsbulletins/investoralertsia_bitcoin.html (Last accessed on 27-02-2020). 20 Chairman Jay Clayton, Statement on Cryptocurrencies and Initial Coin Offerings (December 2017) available at https://www.sec.gov/news/public-statement/statementclayton-2017-12-11 (Last accessed on 27-02-2020). 21 In the Matter of: Coinflip, Inc., d/b/a Derivabit, and Francisco Riordan, CFTC Docket No. 15-29. 2015 WL 5535736 (September 17, 2015) available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrenforcementactions/documents/legalpleading/enfcoinfliprorder09172015.pdf (L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orld - Slovakia, Report of The Law Library of Congress, Global Legal Research Center (June 2018) available at https://www.loc.gov/law/help/cryptocurrency/world-survey.php#slovakia (Last accessed on 27-02-2020). 33 European Union's Directive 2018/843 available at https://eur-lex.europa.eu/legalcontent/EN/TXT/PDF/?uri=CELEX:32018L0843&from=EN (Last accessed on 27-02-2020). 34 Policy paper, Cryptoassets: Tax for Individuals (December 2019) available at https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-forindividuals (Last accessed on 27-02-2020). 35 Policy paper on Revenue and Customs Brief 9 (2014): Bitcoin and other cryptocurrencies, HM Revenue & Customs (March 3, 2014) available athttps://www.gov.uk/government/publications/revenue-and-customs-brief-9-2014-bitcoin-and-other-cryptocurrencies/revenue-and-customs-brief-9-2014-bitcoin-and-thercryptocurrencies (Last accessed on 27-02-2020). 36 What are cryptoassets (cryptocurrencies)? Available at https://www.bankofengland.co.uk/knowledgebank/what-are-cryptocurrencies (Last accessed on 27-02-2020). 37 Digital Currency Regulatory Guidance, Illinois Department of Financial and Professional Regulation (June 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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