RBI Vs Crypto - The battle continues

Well well well, sounds like that case today in Supreme Court was more entertaining than court cases in Bollywood movies.

Crypto Vs RBI
Image by mohamed_hassan | Pixabay

Once again all the credit for live reporting directly from the court goes to Cryptokanoon. I would recommend you go through this tweet thread to see all the arguments. Nevertheless, here is the crux of what transpired.

If you are unaware of the history of this case, just go through my previous post. In a nutshell, the case is about the reserve bank of India imposing a banking ban on Indian crypto exchanges. This has hurt the crypto exchanges badly, causing many of them to shut down. They have challenged the legality of RBI circular in court and today was the 4th hearing in this regard. Until now the lawyers representing the crypto exchanges have made good points questioning the legality of RBI circular and why they went for a ban instead of regulation.

The RBI's lawyers started making their arguments yesterday evening. They opened their points by calling cryptocurrency a Ponzi scheme (yeah, I know, how does that even make sense?). Then the went to saying how it mining bitcoin consumes a mammoth amount of energy (again, how is mining relevant to exchanges?). Then they made a point that their major concern is the ability of crypto to be used as a payment system and it's the ability for cross border transaction.

Today, the RBI's lawyers opened by telling the court all the disadvantages of crypto. It cited the report by a government committee of India that looked into crypto and called for criminalising it (IMC report). It also cited an example of China banning crypto and concerns of European union over crypto. Do note that European union did not ban crypto but rather came up with laws for regulating it. But the lawyer anyone cherry-picked the concerning part. They also said that RBI decision is based on a good amount of research done citing the infamous IMC report. Not to mention IMC report came after the RBI circular, so how is their decision based on research in that report?/Anyhow, when the court asked for the reports they turned out to be "confidential". The judge had to call the solicitor general and ask him to submit all the "confidential papers" in this regard.

Various portions of IMC report are being read to prove that RBI decision is based on well-substantiated research.
The judge asks for various reports mentioned in the IMC report which the Govt. claims as confidential.
Consequently, the Judge immediately calls the Solicitor General.

• See Cryptokanoon's tweet

Funny thing though, the RBI's lawyer cited Financial Action Task Force's (FATF) report, which gives guidelines for the regulation of crypto (basically, how to avoid vices of cryptocurrency). The counsel even acknowledged the benefits but got stuck at the part that it allows for easy cross border transactions. I don't know why is it considered so bad? And seriously of people want to bring foreign money in or send money out, it's people who are doing it not exchanges. They should have a system to track it instead.

The lawyer then cited the PSS act, 2007. Despite the judge saying that the PSS act os irrelevant to exchanges the lawyer continued making arguments in this direction. He implied that since crypto can be used as a method of payment, and since RBI has the authority to regulate the payment systems, they have the right to impose this ban. He then moved to the banking regulation act and cited section 35A. This section states that if RBI is satisfied that something is against the interests of depositors or against the banking system, they can issue directions to regulate it.

To counter this the crypto exchange's lawyer, Mr Sood made a very good point -

The point of satisfaction can be considered when there is a data to substantiate that.
Secondly, satisfaction of one authority cannot be allowed to be taken effect from the satisfaction of other authority.
Meaning thereby, RBI cannot take action based on the study held by others.

• See the tweet.

Me. Sood then beautifully pointed to the list of suggestions given by crypto exchanges to the RBI, regarding how to deal with their concerns regarding crypto. The exchanges have in past pleaded to the RBI to consider discussing solutions to the problems as an alternative to banking ban. But RBI never responded properly to this. The judge got angry on RBI asking them why have they not answered them properly. The judge also said that if RBI doesn't want to respond to this, then the court will pass the judgement right away.

Now justice Nariman questions RBI why you have not properly responded to the representation. You just said that we are forwarding to Govt. Angrily says this is not an answer.

• see tweet

Finally, the RBI has agreed to respond to all recommendations made by crypto exchanges and will discuss them in court 2 weeks from now.

In the end, let's just watch this video and wonder when the final judgement would come.

Anyhow, what do you think? What will happen 2 weeks later? Will RBI take the recommendation of exchanges seriously? Will they even consider an alternative to the banking ban? Or will they just shoot it all down? Who will win the case?

Once again thanks to cryptokanoon, for their efficient live reporting. Even though I have summarised it here and expressed my views on it, I would suggest that you go and read the whole drama on Twitter by yourself.