The Reserve Bank of India (RBI) today told the Supreme Court that allowing dealings in cryptocurrencies like Bitcoins would encourage illegal transactions and it has already issued a circular prohibiting use of these virtual currencies.
Cryptocurrencies are "a stateless digital currency" in which encryption techniques are used for trading and these 'currencies' operate independently of a central bank like the RBI, "rendering it immune from government interference".
A bench headed by Chief Justice Dipak Misra was informed by senior advocate Shyam Divan, appearing for the RBI, that a committee has been set up by the Centre to deal with the issues relating to cryptocurrencies and the matters required a final and early decision from the top court.
The federal bank and the central government sought three weeks time from the bench, which also comprised justices A M Khanwilkar and D Y Chandrachud, for filing their responses to a clutch of petitions on the issue.
The bench granted time to the Centre and the RBI for filing responses and fixed the petitions for final hearing on September 11.
Some petitions challenged the use of virtual currencies and alleged that they posed grave dangers to the traditional economy. and they also sought framing of guidelines to regulate them.
They also sought a direction to the Centre to take emergent steps to restrain the sale and purchase of illegal crypto currencies.
While few other petitions have challenged the RBI notification issued on April 6 on "Prohibition on dealing in Virtual Currencies".
Earlier, the apex court, on May 17, had transferred to itself the petitions pending in various high courts on virtual currencies and barred them from entertaining any plea in future relating to an RBI circular prohibiting dealings in such currencies.
"There shall be a stay of further proceedings in the cases sought to be transferred. It is further directed that no High Court shall entertain any petition relating to the circular No.... dated April 6, 2018 issued by the Reserve Bank of India on 'Prohibition on dealing in Virtual Currencies'," the bench had ordered.
The apex court had also sought the assistance of Attorney General K K Venugopal in the matter.
One of the petitions was filed by Siddharth Dalmia and Vijay Pal Dalmia and they had said that the RBI, through its circular, had directed the banks and financial institutions to freeze the bank accounts of those individuals and companies dealing in the illegal trade of virtual currencies.
Dalmia, in his plea, has sought a direction to the Centre to take steps to restrain sale and purchase of illegal cryptocurrencies like Bitcoins, which were being traded openly for "illegal activities" like funding terrorism and insurgency.
The petitioners said the RBI had in 2013 issued a cautionary advisory to the users, holders and traders of virtual currency about the "potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to".
Again on February 1 last year, the RBI, through a press release, had advised that it had not given any licence or authorisation to any entity or company to operate such schemes or deal with Bitcoins or any other virtual currency.
The plea said the Ministry of Finance has constituted an inter-disciplinary committee under the chairmanship of Special Secretary (Economic Affairs) to examine the regulatory framework with regard to virtual currency.
It alleged that the RBI "has shrugged aside its duty to conclusively take a stand either in favour or against the illegal virtual currencies like Bitcoins in the interest of people of India".
"A virtual currency like Bitcoin is a stateless digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank like the RBI, rendering it immune from government interference," it said.
The plea has sought direction to the Centre to declare as illegal and ban all illegal virtual currencies, cryptocurrencies or decentralised digital such as Bitcoins, litecoins, bbqcoins, dogecoins etc. and investigate and fix accountability on the sale and purchase of virtual currencies till date and prosecute the offenders.
It has also sought to declare as illegal and ban all web sites, web links and mobile applications which were being used to buy, sell or deal in any manner with illegal virtual currencies.It also sought a direction to the government to give advertisements and wide publicity through media informing and educating the public in India about the illegalities involved in sale, purchase and dealing of illegal virtual currencies.