The Supreme Court on Wednesday lifted the ban that was imposed by the Reserve Bank of India on all the entities governed by it, refraining them from dealing in virtual currencies. The Supreme Court bench of Justice R. F. Nariman, Justice Aniruddha Bose Bose and Justice V. Ramasubramanian analysed the powers of the Reserve Bank of India regarding the Virtual Currencies and what are Virtual Currencies.
It was argued before the court by Ashim Sood, counsel for the petitioners that RBI had no power to prohibit the trading activity in Virtual Currencies as they are not legal tender but tradable commodities and do not fall within the regulatory framework of the RBI.
The Supreme Court after going through various explanations and definitions from different sources, observed that “there is unanimity of opinion among all the regulators and the governments of various countries that though virtual currencies have not acquired the status of legal tender, they nevertheless constitute digital representations of value and that they are capable of functioning as (i) a medium of exchange and/or (ii) a unit of account and/or (iii) a store of value”.
The apex court delved deeper looking into the definition of Currency as given under various Indian Acts and took into consideration various judgments from Courts to get clarity on the question that whether Virtual Currencies are just commodities. The judgment then went on to clarify that and said that the contention of petitioners that Virtual Currencies are commodities cannot be accepted.
Once the court had concluded that Virtual Currencies are not commodities and are accepted by some institutions as valid payment for goods and services, it squarely comes under the purview of the Reserve Bank of India. The Court said, “The statutory obligation that RBI has, as a central bank, (i) to operate the currency and credit system, (ii) to regulate the financial system and (iii) to ensure the payment system of the country to be on track, would compel them naturally to address all issues that are perceived as potential risks to the monetary, currency, payment, credit and financial 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.”
While acknowledging the power of RBI to regulate the Virtual Currencies countermanded the Circular based on proportionality. The court said, “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”