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Internet and Mobile Association of India v. Reserve Bank of India

Writ Petition (Civil) · 2020 INSC 264Decided 4 Mar 2020
Writ Petition (Civil) No. 528 of 2018
Justice Rohinton Fali Nariman · Justice Aniruddha Bose · Justice V. Ramasubramanian

Background

In April 2018, the Reserve Bank of India (RBI) issued a circular directing all banks and financial institutions it regulates to stop providing banking services to any person or business dealing in virtual currencies (cryptocurrencies) such as Bitcoin, and to exit existing relationships with such customers. Industry bodies representing online businesses, along with cryptocurrency exchanges and individual traders, many of them young tech entrepreneurs, challenged the circular, arguing it effectively shut down a lawful business (since virtual currencies were not banned by any Indian law) by cutting off its access to banking.

Decision Breakdown

The Supreme Court set aside RBI's circular, holding that while RBI undoubtedly has wide power to take preventive and precautionary regulatory measures to protect the banking system, any such restriction must be proportionate to an actual, demonstrated risk. The Court found that RBI could not point to a single instance where any bank or entity it regulates had suffered real loss or harm on account of providing services to virtual currency exchanges, and separately noted that the Government of India itself, despite multiple expert committees and draft bills over several years, had never actually banned virtual currencies. Since the trading activity was lawful and RBI had not shown that a less drastic measure was inadequate, cutting off the entire sector's banking lifeline was found disproportionate and in violation of Article 19(1)(g). The Court also separately directed RBI to have a specific petitioner company's frozen bank account released with interest, since RBI admitted it had never actually ordered that account frozen.

Lesson Learnt

A regulator with wide statutory powers cannot impose a blanket restriction on a lawful business merely as a precaution: it must show concrete evidence of harm, and any restriction must be proportionate to that harm, or courts can strike it down as unconstitutional.

Official source (sci.gov.in)View Judgment (PDF)

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