Thread by @getkoinx

#Crypto v.#RBI

Matter is listed in Court no. 5 as item 1 today. Court has resumed.

Crypto case hearing has started.

Mr. Ashim Sood started his arguments.

Mr. Sood is arguing that the action of RBI is against the doctrine of proportionality beside being based on no study whatsoever.

Mr. Sood now explaining the law formulated by Wyoming (USA) to regulate Crypto assets and custodial services (Exchanges).

Discussing the disclosure policy, anti-money laundering policy and KYC policy which is applicable to the industry in Wyoming.

Licensing requirement in NY statute is being explained.

SEC guidelines on Howey's test is being explained now on what is security token and what not.

Directive of European parliament is being discussed.

Favourable regulatory guidelines of G20 countries explained and pointed out that most of the countries in g20 nations are inclined to regulate Crypto and are not treating industry players as bunch of criminals.

That does not mean that Crypto cannot be used for Criminal activities. In fact most of the nations have included the preventive provisions to deal with that.

FAFT guidelines are being discussed and how it guides to suppress the illicit side of Crypto assets.

Pursuant to FAFT guidelines, Financial conduct authority has issued a regulation for crypto assets.

UK is one example which had the same risks as recognized by India.

Regulators there exercised their powers intelligently and they studied the technology.

UK realized that you cant prevent anybody to manage their affairs dealing with Crypto.

Whereas RBI has not applied mind.

Documents of G20 meeting 2019 is being read.

**FATF

Argues that My Lord, on one side we have UK USA etc. and on other we have China Saudi and Indonesia. It may not matter which side we fall. But there is no sense that something should be banned because it involves risks.

RBI circular does not reveal any purpose. Various docs of RBI shows no study is conducted.

Various reports of RBI being read which discussed Crypto.

RBI mentions in one of its doc that effect of the Crypto on economy is negligible.

RBI showed concern about market integrity in April 5 Circular. However which failed to explained which market and how its integrity is at risk.

Argues that since there has been no application of mind by RBI, the decision fails in the test of proportionality.

RBI purportedly took action in consumer protection, anti money laundering, terrorists financing etc. However in one of its doc (post circular), RBI realized that it pushed the transparent exchanges to dark port, people are resorting to peer to peer using cash.

It later realized that it has not achieved anything by cutting off banking channel.

Major concerns of are consumer protection, volatility, exposure of traders to financial and legal risks and usage of bitcoin and Crypto in illicit activities.

Mr. Sood argues that India has Consumer protection laws in existence which can be specifically made applicable to Crypto and special provisions can be formulated to deal with peculiar situations

Anti Money laundering law of India is a comprehensive law which provides for disclosures, maintenance of records etc. It can be made applicable on Crypto as well.

Video on Money Laundering:

RBI circular is void on the ground of vagueness. It gives no definition of Crypto and seeks to crack down on all indiscriminately.

A judgement is being read which holds that vagueness of rule is detrimental to its validity.

1970 1 SCC 248

Judgement on Article 19 1g is being read.

If restriction on business is so stringent that it cannot be carried out then it is an unreasonable restriction.

Another judgment is being read.

If restricted is such that it though does not prohibit the business but has the effect of doing so, it is an unreasonable restriction.

1969 1 SCC 853

1950 SCR 759

When a statute under the guise of protecting public interest, put restrictions on individual business, it is arbitrary and unreasonable.

Parliamentary debate is being referred to where minister has answered the questions on crypto after banking ban.

points out that only IMC report is there which has not yet reached the parliament. So getting influence by that it not warranted.

Judgment - 2004 10 SCC 1

Conclusively argues that RBI has acted under 35A and 36 in the manner which was not contemplated under law.

Mr. Ashim Sood completes his arguments.

Mr. Nakul Dewan, Ld. Senior Advocate has started his arguments now. He is representing the Exchanges' Petition i.e., Rajdeep Singh & Ors. v. RBI

Mr. Dewan arguing on interaction between Virtual currencies and Fiat currency. what is legal characteristics of Virtual currencies.

He is briefing the court on how the use of money evolved in the worlds from barter to gold to fiat.

The period which gave rise to VC's is 2008 financial crises.

When US objected India Iran deal of fuel. India had the option to take fuel in exchange of fuel. which is purely a peer to peer transaction.

6 concerns of RBI:

1. No authorization to Crypto business (No law prescribes authorization),

2. Hacking (So is with the Digital banking)

3. consumer protection issues (Consumer protection laws can deal with it)

4. No inherent value (Even fiat is not backed by anything as a matter of fact)

5. Volatility (Stocks also have that)

6. use in Illicit activities (Laws like KYC AML etc. can be made applicable)

Different types of Crypto currencies are being explained. Utility token (Unidirectional) has been explained with an example of shopping points and Airlines miles.

Advantages of blockchain technology is being explained in the banking and financial sectors.

Inter Ministerial Committee's report is being read out.

The judge says that this report seems to guide only on the aspect how the technology can be used by Intra/ inter bank transfers. And not Crypto.

Counsel says not just that My Lords, it also provides for Official digital currency.

The court will reassemble post lunch.

Stay tuned.

The court resumed.

If Crypto is not socially prevalent currency, then certainly it is not money. it is just medium of exchange for consenting individuals.

Now if Crypto is not money. Then it should be considered as a monetary asset which the people may choose to convert to fiat currency. People must have right to use it in barter.

The money deposited in the bank is not RBI's money or bank's own money. in fact it is my money.

A US judgment is being referred to on the explanation of money. What is money and what is not.

Crypto is not money but it is an intangible property.
If crypto had impact on monetary stability of the country, Govt. could have proceeded but in their November 2017 they have accepted by it has little popularity among general public.

Since it is not money, it is outside the purview of the monetary policy.

the counsel has submitted a detailed chart across the board which mentions all notifications of RBI. What is notable is that there is no change of circumstance from 2013 to 2019. Then what made the RBI to change its stance on crypto. change of stance is unsubstanciated.

Representation was made to RBI by industry players in pursuance of this Hon'ble Court's order. However RBI did not respond to that except saying that we have forwarded the representation to the IMC.

Counsel apprises the court that exchanges had even offered to provide dash board to all the relevant authorities citing real time data so that they can understand the technology and business.

Counsel is citing self regulatory measures already implemented by the crypto business in India.

investors know about the volatility in Crypto prices and they choose to invest in that. They must be allowed to do that in their right.

Judge replies positively that what you are saying is when you can make a regulatory framework to regulate it then why to ban. Similar to regulatory framework for stocks which is not banned.

Counsel refers to Annexure R2 filed by RBI - 2018 annual report.

RBI recognized that development in crypto industry need to be monitored as after banking ban there is risk of shift to dark web, tax evasion, aml, cft violations. So when the RBI has knowledge about its effect then why not to put it under the framework so as to make it compliant.

Bank is only a custodian of the deposited money and not the owner. A bank acc holder cannot be restricted to have access his own money unless the restriction is sanctioned by a legislation.

Judgment - Bhavesh Parekh read out.

RBI has resorted to unreasonable classification when it considered that only bidirectional Crypto (Convertible to fiat in which people trade) crypto have interaction with banking channel and not unidirectional (Non convertible) like frequent flyers points

Cont..

which in fact can be converted into fiat as people can offer to buy that with fiat and avail that from the airlines. So it is violative of Right to equality Article 14.

Discussion of Singapore Parliament is being referred to in which deputy PM of Singapore had responded certain questions.

Counsel says Mr. Lords Singapore is a developed economy which has taken into consideration all pros and cons and applying measures to regulate it instead of banning.

Counsel conclusively says that there is no prohibition on Crypto except RBI banking ban and the same must be struck down.

Counsel closes his argument by arguing one application for release of money of exchanges lying in bank and banks frozen that even within the 3 months exit period.

Mr. Shyam Diwan, Ld. Sr. Advocate started his arguments in favour of RBI.

Crypto is a privately issued digital means of payments. It has direct impact on monetary and payment system. And RBI has issued notifications to discourage this but when it did not work, RBI took this action.

Crypto has some monetary characteristics and its value is driven by people's consensus.

If more and more people continue to adopt them as means of payment then it might compromise our monetary system badly. It also has an ability of cross border transactions. That is where the problem lies.

Counsel is reading out a list of events which transpired over a period of time including actions taken by RBI and policy evolvement by Ministry of Finance.

The biggest concern for RBI has been using Crypto as means of payment besides its use in illicit activities.

Counsel says that the first committee appointed by the Govt i.e., Inter disciplinary Committee has studied the subject and applied its mind.

Budget speech of Mr. Jaitley is being read.

Yes for Blockchain but Cryptos must not be a part of the payment system. - Mr. Jaitley

It is evident from the language of the RBI circular 6 April, which seeks to address associated risks of Crypto currencies, so by that time the evaluation and assessment of pros and cons were done by the Govt.

various incidents of hacking of exchanges worldwide are being cited to the Court including the infamous hack of @Coinsecure exchange.

Bitcoin and Crypto is a ponzi schemes, price bubble and huge environmental disaster - for example consumption of electricity in mining is even more than the total electricity consumed in Switzerland per year.

Hearing ends here.

Arguments will resume tomorrow by RBI and the same will be followed by Rejoinder by the Petitioners.

Thank you!