The Supreme Court’s judgment in IAMAI vs RBI striking down Reserve Bank of India’s (“RBI”) April 6, 2018, circular brought great cheer to Crypto enthusiasts. It may however be premature for celebrations. Both enthusiasts and detractors of the judgment ought to take a deeper look at the eloquently crafted script of the judgment before rejoicing or lamenting.
Not Legal Tender
Off the bat, it is clarified that the Supreme Court has unequivocally concluded that cryptocurrencies are NOT legal tender. The Court merely concludes that it is myopic for the Petitioners to claim that it is only goods or commodity as cryptocurrencies are capable of “faking or playing the role of a currency” and hence may be regulated by RBI.
This conclusion arises from the very first submission of the Petitioners, that RBI could not regulate virtual currencies (“VC”), as they were only goods or commodities, which in itself was misconceived. RBI’s circular clearly regulated banks and payment systems, which are within its ambit and not of VCs or VC exchanges. However, by raising this ground, the Petitioners brought upon themselves not just a rejection by the Supreme Court of their claim but also an emphatic directional finding that RBI is not only entitled to regulate VCs but to also prohibit.
The only ground that came to the rescue of the Petitioners was of the circular being disproportionate to the harm or damage it intends to protect against. The Supreme Court reaches this conclusion relying on various aspects including the inconsistency between two committee reports of the Government; the rendering comatose of VC and VC exchanges by severing the umbilical cord of banking and payment channels; absence of specific harm to the entities regulated by RBI for such drastic action without first evaluating alternatives.
The Supreme Court has also in effect lifted the corporate veil by accepting maintainability of the submission under Article 19(1)(g) that RBI’s actions amounted to unreasonable restriction of citizens’ right to pursue their trade, commerce or profession in connection with VCs.
Pointers for RBI
The Supreme Court’s judgment itself provides signposted pointers for RBI and for next steps. RBI, the Supreme Court has held, may regulate VCs, as ““other similar instruments” or even prohibit it.
Even if RBI were to evaluate fresh instructions to banks and payment systems, it may do so but keeping in mind the Supreme Court’s findings on proportionality.
RBI has expressed its intent to seek review of the judgment. The same may also be sustained on several grounds including the possible inconsistency in the judgment between the ground of RBI’s application of mind being upheld, whilst striking down of the circular on similar grounds in deciding proportionality. That RBI is within its right to regulate not just entities within its ambit but also to decide India’s monetary policy, which is discussed in the earlier portion in negating the Petitioners’ contentions appears to have been lost sight of in deciding harm only from the perspective of VCs or VC exchanges.
Pointers for Government
VCs remain neither “fish nor fowl” even after this judgment, as that is for Government to decide and legislate on. In doing this, the Government may keep in mind the many avatars of VC, including as a mode of effecting payments, of being goods or commodities or as property. They may be dealt with as security, such as shares or as digital assets, as the first committee categorized them.
The enormous possibilities need not deter Governments from resorting to regulation. The Supreme Court’s vedic construct of “neti neti” or “not this not that” again leads the way. Government would merely have to eliminate or restrict that role, which it wishes cryptocurrencies or crypto-assets from playing, such as that of a payment system and thereafter regulate that which it intends to permit. Such approach would ensure a mature ecosystem that would also protect public, which may have boldly ventured forward into the tenuous crpto-minefield.
It is also imperative that the Government does not decide on the broader genus of “Virtual Currencies” and evaluates cryptocurrencies and other forms of Virtual currencies separately. Trite to clarify that each category of virtual currency takes different forms and lends itself to different uses. One size therefore will not fit all and will only muddy waters further and cause harm to emerging technologies.
Inability of the Indian Government in taking a definitive stand has for instance stifled the exponential growth that blockchain industry promised in its early days. The report and draft bill of the second Government Committee clubbing tokens with cryptocurrency for instance would spell not just doom but the death knell for blockchain. On this aspect too, solutions are aplenty for delineating and ring fencing an inventive form or mode for blockchain and lending it the legitimacy needed to buttress growth of the technology. Simplicity of such solutions would be the most sustainable and this again is a pointer that Government ought to keep in mind.
Pointers for Crypto Enthusiasts
The main players, who appear to have played no role in the script so far, are the (mostly young millennial) brave hearts, who ventured to the unstable world of cryptos. The Government’s ambiguous stand on cryptocurrencies from 2013 till date merely lent further opacity to an already opaque digital evolution. It neither dissuaded the enthusiasts nor supported them with legal help, when they faced scams and ponzi schemes.
It is imperative that they get certainty now, not only on legality of dabbling in cryptocurrencies but also the mode and manner thereof. Apart from RBI, other regulators, who would have to be consulted include Securities Exchange Bureau of India (“SEBI”) and the Enforcement Directorate (“ED”), with the derivatives that cryptocurrencies resulted in, from Initial Coin Offerings to Crypto – funds and many more alternatives. Even some blockchain startups proved to be mere scams.
In conclusion, most Supreme Court judgments now easily cross the century mark. Whilst the language and content are a reader’s delight, it certainly does not lend clarity to the common man. That the Supreme Court neither validates cryptocurrencies nor confirms them as legal tender is lost in the nuancing, which may defy even deft minds.
With these judgments being part of the law of the land, it is imperative that ratio laid down is explicit to every person. Courts may therefore be encouraged to craft executive summaries of their opinions, as do Courts in USA, setting out only the ratio. This will not only ensure clarity but also effective implementation of the orders of Courts.
NS Nappinai is an Advocate, Supreme Court of India, and founder of Cyber Saathi