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A struck between the importance of the objective pursued and the value of the right intruded upon. The principle does not however entitle the courts simply to substitute their own assessment for that of the decision-maker. As I have noted, the intensity of review under EU law and the Convention varies according to the nature of the right at stake and the context in which the interference occurs. Those are not however the only relevant factors. One important factor in relation to the Convention is that the Strasbourg court recognises that it may be less well placed than a national court to decide whether an appropriate balance has been struck in the particular national context. For that reason, in the Convention case law the principle of proportionality is indissolubly linked to the concept of the margin of appreciation. That concept does not apply in the same way at the national level, where the degree of restraint practised by courts in applying the principle of proportionality, and the extent to which they will respect the judgment of the primary decision maker, will depend upon the context, and will in part reflect national traditions and institutional culture. For these reasons, the approach adopted to proportionality at the national level cannot simply mirror that of the Strasbourg court.

E 72. The approach to proportionality adopted in our domestic case law under the Human Rights Act has not generally mirrored that of the Strasbourg court. In accordance with the analytical approach to legal reasoning characteristic of the common law, a more clearly structured approach has generally been adopted, derived from case law under Commonwealth F constitutions and Bills of Rights, including in particular the Canadian Charter of Fundamental Rights and Freedoms of

1982. The three-limb test set out by Lord Clyde in De Freitas v Permanent Secretary of Ministry of Agriculture, Fisheries, Lands and Housing [1999] 1 AC 69, 80 has been influential: G “whether: (i) the legislative objective is sufficiently important to justify limiting a fundamental right; (ii) the measures designed to meet the legislative objective are rationally connected to it; and (iii) the means used to impair the right or freedom are no more than is necessary to accomplish the objective.”

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De Freitas was a Privy Council case concerned with fundamental rights under the constitution of Antigua and Barbuda, and the dictum drew on South African, Canadian and Zimbabwean authority. The three criteria have however an affinity to those formulated by the Strasbourg court in cases concerned with the requirement under articles 8 to 11 B that an interference with the protected right should be necessary in a democratic society (eg Jersild v Denmark (1994) Publications of the ECtHR Series A No 298, para 31), provided the third limb of the test is understood as permitting the primary decision-maker an area within which its judgment will be respected. C

73. The De Freitas formulation has been applied by the House of Lords and the Supreme Court as a test of proportionality in a number of cases under the Human Rights Act. It was however observed in Huang v Secretary of State for the Home Department [2007] UKHL 11; [2007] 2 AC 167, para 19 D that the formulation was derived from the judgment of Dickson CJ in R v Oakes [1986] 1 SCR 103, and that a further element mentioned in that judgment was the need to balance the interests of society with those of individuals and groups. That, it was said, was an aspect which should never be overlooked or discounted. That this aspect constituted a fourth criterion was noted by Lord Wilson, with whom Lord Phillips and Lord Clarke agreed, in R (Aguilar Quila) v Secretary of State for the Home Department [2011] UKSC 45; [2012] 1 AC 621, para 45.

74. The judgment of Dickson CJ in Oakes provides the clearest and most influential judicial analysis of proportionality within the common law tradition of legal reasoning. Its attraction as a heuristic tool is that, by breaking down an assessment of proportionality into distinct elements, it can clarify different aspects of such an assessment, and make value judgments more explicit. The approach adopted in Oakes can be summarised by saying that it is necessary to determine (1) whether the objective of the measure is sufficiently important to justify the limitation of a protected right, (2) whether the measure is rationally connected to the objective, (3) whether H

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A a less intrusive measure could have been used without unacceptably compromising the achievement of the objective, and (4) whether, balancing the severity of the measure’s effects on the rights of the persons to whom it applies against the importance of the objective, to the extent that the measure will contribute to its achievement, the former outweighs the latter. The first three of these are the criteria listed by Lord Clyde in De Freitas, and the fourth reflects the additional observation made in Huang. I have formulated the fourth criterion in greater detail than Lord Sumption, but there is no difference of substance. In essence, the question at step four is whether the impact of the rights infringement is disproportionate to the likely benefit of the impugned measure.

75. In relation to the third of these criteria, Dickson CJ made clear in R v Edwards Books and Art Ltd [1986] 2 SCR 713, 781-782 that the limitation of the protected right must be “one that it was reasonable for the legislature to impose”, and that the courts were “not called upon to substitute judicial opinions for legislative ones as to the place at which to draw a precise line”. This approach is unavoidable, if there is to be any real prospect of a limitation on rights being justified: as Blackmun J once observed, a judge would be unimaginative indeed if he could not come up with something a little less drastic or a little less restrictive in almost any situation, and thereby enable himself to vote to strike legislation down (Illinois Elections Bd v Socialist Workers Party (1979) 440 US 173, 188- 189); especially, one might add, if he is unaware of the relevant practicalities and indifferent to considerations of cost. To allow the legislature a margin of appreciation is also essential if a federal system such as that of Canada, or a devolved system such as that of the United Kingdom, is to work, since a strict application of a “least restrictive means” test would allow only one legislative response to an objective that involved limiting a protected right.

76. In relation to the fourth criterion, there is a meaningful distinction to be drawn (as was explained by McLachlin CJ in Alberta v Hutterian Brethren of Wilson Colony [2009] 2 SCR 567, para 76) between the question whether a particular objective is in principle sufficiently important to justify limiting H

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a particular right (step one), and the question whether, having determined that no less drastic means of achieving the objective are available, the impact of the rights infringement is disproportionate to the likely benefits of the impugned measure (step four). 6.161. Despite the fact that the Iranian bank succeeded by a greater majority on procedural grounds and by a thin majority on the substantive grounds, a common thread is seen, both, in the opinion of the majority and in the opinion of the minority. Firstly, it was agreed even by the majority that cases which lay in the areas of foreign policy and national security were once regarded as unsuitable for judicial scrutiny, but they have been opened up by the express terms of the 2008 Act, because they may engage the rights of designated persons or others under the European Convention on Human Rights. Therefore, there was unanimity of opinion that any assessment of rationality and proportionality must recognize that the nature of the issue required the Treasury to be allowed a large margin of judgment. Even Lord Sumption who wrote the lead judgment for the majority agreed that “the making of Government and legislative policy cannot be turned into a judicial process”. An interesting statement made by Blackmun J in Illinois Elections Bd v. Socialist Workers Party113 was quoted by Lord Reed in his dissent which reads “a judge would be unimaginative indeed if he could come up with something a little less drastic or a little less restrictive in almost any situation and thereby enable himself to vote to strike legislation down”. In essence, there was unanimity of opinion on the fact that a margin of appreciation should certainly be allowed to the decision-maker. But on the ground of proportionality, the majority struck down the ban imposed by the UK Treasury. The highlights of the decision, as formulated by the court itself, read as follows: (i) The essential question before the court was whether the interruption of Bank Mellat’s commercial dealings in the UK bore some rational and proportionate relationship to the statutory purpose of hindering the pursuit by Iran of its nuclear weapons programmes. G (ii) For the majority, there were two particular difficulties with the direction, namely (a) it did not explain or justify the singling out Bank Mellat; and (b) the justification was not one which Ministers advanced before Parliament, and was in some respects inconsistent with it. 113 (1979) 440 US 173 H

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A (iii) The risk, according to the majority, was not specific to Bank Mellat but an inherent risk of banking, and the risk posed by Bank Mellat’s access to those markets was no different from that posed by other comparable banks. (iv) Singling out Bank Mellat, according to the court, was arbitrary B and irrational, and disproportionate to any contribution which it could rationally be expected to make to the direction’s objective. (v) By contrast, the minority were satisfied that, in view of the wide margin of appreciation given to the Treasury in these matters, the direction was rationally connected to the objective and was proportionate. C 6.162. We cannot and need not go as far as the majority had gone in Bank Mellat. U.K. has a statute where standards of procedure for judicial review are set out and the majority decision was on the application of those standards. But even by our own standards, we are obliged to see if there were less intrusive measures available and whether RBI D has at least considered these alternatives. On the question of availability of alternatives, the July 2018 report of the European Union Parliament (titled ‘Cryptocurrencies and Blockchain’) is relied upon by Shri Ashim Sood. The relevant portion (in paragraph 5.4) reads as follows: “In this respect we also note that some cryptocurrencies that are now on the market, such as Dash and Monero, are fully anonymous, whereas others, such as Bitcoin and the like are pseudo-anonymous, basically meaning that if great effort is made and complex techniques are deployed, it is possible for authorities to find out users’ identities. These fully anonymous cryptocurrencies are designed to stay in the dark and outside of the scope of authorities. After AMLD5 (Fifth Anti-Money Laundering Directive of the European union) this will no longer be possible to the fullest extent: the cryptocurrency users that want to convert their cryptocurrency into fiat currency via a virtual currency exchange or hold their portfolio via a custodian wallet provider, will be subject to customer due diligence. But, as aforementioned, there is still a whole world outside of these new obliged entities under AMLD5. It goes without saying that this may sound particularly interesting for criminals seeking for new ways to launder money, finance terrorists or evade taxes. If a H

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legislator does not want to outright ban these cryptocurrencies A - and for not imposing such a ban a good argument is that cash is also fully anonymous and lawful - the only way to find out who uses them is to require users to register mandatorily. For reasons of proportionality it could then be considered to make the registration subject to a materiality B threshold.” (emphasis supplied) 6.163. The discussion in paragraph 5.7 of the July 2018 Report of the European Union Parliament also addresses the issue as to whether it is best to introduce an outright ban for some aspects linked to some crypto currencies. This paragraph reads as follows: C 5.7. “Is it not best to introduce an outright ban for some aspects linked to some cryptocurrencies? The question arises whether some aspects relating to some cryptocurrencies should not just be banned and criminally sanctioned. To mind come the mixing process attached to D Dash’s feature PrivateSend and Monero’s RingCT, stealth addresses and Kovri-project. In essence, these features are designed to make cryptocurrency users untraceable. But why is such degree of anonymity truly necessary? Would allowing this not veer too far towards criminals? Imposing a ban for such aspects surrounding cryptocurrencies that are aimed at making it impossible to verify their users and criminally sanctioning these aspects seems to be in line with the Council’s conclusions of April 2018 on how to respond to malicious cyber activities, under which that the use of ICT for malicious purposes is unacceptable. Whatever the answer may be, we must again avoid being naive: even if a ban would be imposed, how do we detect a breach, given that the purpose of the object of the ban just is to obscure identities? Nevertheless, it would be worthwhile to consider introducing a ban. If authorities then bump into the prohibited activities, they have G a legal basis for prosecution, insofar not yet available. Possibly, imposing a ban could also have a deterrent effect. Of course, again there is the tension with data protection, but arguably in the balance of things the interest of authorities and society to more effectively combat money laundering, H

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A terrorist financing and tax evasion via well-defined specific bans outweighs the interest of persons desiring to hide their identities completely. In any event, imposing a ban should always be focused on specific aspects facilitating the illicit use of cryptocurrency too much. We are not in favour of general bans on cryptocurrencies or barring the interaction between cryptocurrency business and the formal financial sector as a whole, such as is the case in China for example. That would go too far in our opinion. As long as good safeguards are in place protecting the formal financial sector and more in general society as a whole, such as rules combating money laundering, terrorist financing, tax evasion and maybe a more comprehensive set of rules aiming at protecting legitimate users (such as ordinary consumers and investors), that should be sufficient.” (emphasis supplied) 6.164. Thus, the ultimate recommendation made by the D European Union Parliament in the paragraph extracted above, is not to go for a total ban of the interaction between crypto currency business and the formal financial sector as a whole. Obviously, RBI did not consider the availability of alternatives before issuing the impugned circular. But by an interim direction, issued on 21-08-2019 this court E directed RBI to give a detailed point-wise reply to the representations of the petitioners. Pursuant to the said order, RBI gave a reply dated 04- 09-2019. In the reply, RBI has dealt with every one of the contentions of the petitioners. The relevant portion reads as follows: “Firstly, the RBI has not prohibited VCs in the country. The F RBI has directed the entities regulated by it to not provide services to those persons or entities dealing in or settling VCs. The risks associated with VCs that are highlighted by the RBI stands mitigated so far as the entities regulated by it are concerned. Thus, the RBI been able to ring fence the entities regulated by it from being involved in activities that pose reputational and financial G risks along with other legal and operational risks. For example, VCs have been used to defraud consumers in a Rs. 2000 crore scam in India whereby users were assured returns upon their investment in GainBitcoin and were paid their return in another form of VC, whose value was much lower than that of GainBitcoin. H

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We do not agree that the Circular has the effect of forcing members to do deal in cash. The Circular neither directs nor encourages any dealing with respect to VCs at all. After the issuance of the Circular, some of the IAMAI member VC exchanges have been operating peer to peer VC exchanges. In P2P transfers, while the exchange provides a portal to match the orders of a seller and buyer, the consideration would flow directly from the buyer to the seller without the exchanges being an intermediary for this leg of the trade. The exchanges would only act as the intermediary for the storing the VCs till the time the transfer of the consideration from the buyer to the seller is complete. In other words, the exchanges act as an escrow agent for the transaction between the buyer and the seller. The buyers in the P2P transaction transfer the consideration directly to the seller’s bank account. In any case, the capital flight problem mentioned by the petitioner is not new and existed even before the issuance of the Circular. As mentioned earlier, the IAMAI D VC exchanges allowed their customers to transfer VCs to foreign wallet addresses, even before the issuance of the Circular, exposing the customers to the risks of violating FEMA, AML/ CFT guidelines. The issues highlighted by IAMAI have been considered by the RBI. The RBI, as the banking and financial regulator of Indian E markets, assessed the risks and benefits arising from the exponential and increasing use of VCs. The potential adverse impact of VCs on the banking sector and the digitization of the Indian payments industry, on account of the inherent nature of VCs, is lowered as a result of the Circular. The RBI stepped in as part of its duty to carryout preventive oversight to ensure that the banking system was not a casualty on account of the growth in VC trading. The Circular became all the more necessary as the use and trade through VCs continued to grow despite multiple cautions issued by the RBI. Further, the public should not lose faith in the Indian digital payments ecosystem as a consequence of any impact of VCs given its intrinsic nature. The focus of the digital payments in India will be defeated should the usage of VCs result in implications. Any unpleasant experience in using VCs can affect the public’s trust in electronic payment systems in general. H

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A It is in this context that the RBI had highlighted some of the possible ways to enforce the prohibition on VCs in the RBI Representation, which are as follows: (i) Initial Coin Offerings (“ICOs”) ought to be prohibited and VC asset funds may to be allowed to be set-up and/ B or operated within the legal jurisdiction of India as also perform such transactions in India. ICOs that were in the nature of multi -level marketing or pyramid schemes can be banned; (ii) The FEMA and its regulations can be enhanced to prevent and track remittances for the purpose of investing in VCs which are flowing out of the country under the LRS; (iii) Enforcement agencies can take punitive action against entities/establishments that accept VCs as a medium of payment, as and when these agencies are faced with such instances; and (iv) Regulators can issue warnings to the public and educated the public to the extent possible. One must also be alive to the issue faced by the country. India E is not a safe haven free from any external intrusions and terror attacks. India is plagued by the menace of cross border terror financing and money laundering. While laws have been enacted to counter terror financing and money laundering activities, the Government cannot permit anything which would facilitate or have F the potential to facilitate such nefarious and illegal acts to incubate in the country. Any possible avenues which facilitate anonymous cross border fund transfer have to be acted upon swiftly and stringently dealt with. It is an admitted fact that VCs have been used to purchase illegal and illicit goods ranging from guns and ammunition to drugs. Therefore, the RBI’s measures under the G Circular become all the more necessary. With the Circular coming into effect, the banking system and the RBI’s regulated entities would not be facilitating persons looking to obtain VCs for illegal trades. Th additional measures taken by the RBI by way of the Circular were necessary as, despite multiple cautions, 5 million Indian users engaged in VC trades of INR 1 billion daily.” (emphasis supplied) H

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6.165. In Annexure B to their second response dated 18-09-2019, A RBI has also dealt with every one of the additional safeguards proposed by one of the writ petitioners, by name, Discidium Internet Labs Pvt, Ltd. and demonstrated as to how these safeguards may not be sufficient to ring fence the regulated entities: B Safeguards proposed by Response of RBI petititoners

Development of a dashboard The technology and concept of a dashboard that is and central repository accessible by all the relevant government authorities is yet to be tested in India and cannot guarantee that the same will enable authorities to mitigate risks in relation to VCs, particularly the ones arising out of cross border transactions or illegal and nefarious activities. Such a development would require the association of various government authorities at different levels with implications on the roles and responsibilities of other regulatory/enforcement agencies and cannot be implemented by the RBI alone. Therefore, even assuming that the proposed structure is adequate enough, its implementation will entail other authorities to formulate the appropriate rules or directions in their jurisdictions, which is beyond the RBI's control. In any case, for such a development to come into existence, the Government will need to formulate and establish appropriate rules governing the nitty gritty of the same. In addition, VCs are difficult to monitor as their opaque nature makes it difficult to gather information and monitor their operations. Moreover, asserting jurisdiction over a particular VC transaction or market participant may prove challenging for national regulators in the light of the cross-border reach of the technology.

Formation of a self- Issuance and management have been a function solely regulatory organization and of the sovereign/central bank and a collection of Restricting trade of crypto- private entitites cannot be trusted to perform this assets to white listed role. Moreover, when such VCs become widely used, addresses the central bank's ability to control the money supply in the economy could get adversely impacted. In fact, implications of VCs vis-a-vis consumer protection, data privacy and security were also highlighted. It was also acknowledged that there are several

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A uncertainties around the VC, particularly with respect to how the VC is secured, the extent to which there are measures to prevent and respond to the dramatic shifts of value; and the characterization of the sellers of such a VC. Additionally, it was recognized that there can be implications on the US monetary policy as another ‘currency’ not under the government control can adversely impact the Federal Reserve's monetary policy as the Federal Reserve would lose its monopoly on controlling inflation and inflation targeting though manipulating cash in the system.

Adoption of Aadhar based Electronic KYC is currently permitted only for banks electronic KYC for individuals desirous of receiving any benefit or subsidy under any scheme notified under Section 7 of the Aadhaar (Targeted Delivery of Financial and Other Subsidies Benefits and Services) Act, 2016 or if an individual voluntarily uses his/her Aadhaar number for identification purpose.

Moreover, the adoption of Aadhaar based electronic D KYC may not be sufficient to address the risks stated by the RBI in the Press Releases. This is because for the RBI to issue norms/measures that sufficiently resolves and/or mitigated the stated risks of dealing in VCs, it has to be privy to the technicalities of the various types of VCs, their characteristics and difficulties and drawbacks. There is still a high level of uncertainty and ambiguity surrounding VCs. Regulators around the world are still in fact contemplating how to regulate initial coin offerings and how to tax them. The RBI is keeping a close tab on all such developments including the regulatory stand taken by each jurisdictions across the world and will consider implementing the same to the extent of its jurisdiction and in line with the policy framework that will be adopted by the Government of India in relation to VCs.

Mandatory DILPL has failed to set out the benefit or security capitalisation provided by the proposed mandatory capitalisation requirement requirements. In the absence of any benefits prescribed by DILPL, the RBI has to rely upon conjecture and surmises to assume the purported benefits of this suggestion. Notably, the fact that certain jurisdictions prescribe mandatory capitalisation requirements does not necessarily make the suggestion beneficial or implementable in India. H

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The only benefit which a reasonable person may assume is that the VC exchanges will have to be of a minimum prescribed size and value. However, the mandatory capitalisation requirement of VC exchanges would not reduce the inherent risks involved in VCs. VCs transactions would continue to be anonymous and untraceable. The mandatory capitalisation requirement does not reduce the use of VCs in nefarious activities and illegal cross- border transactions. Further, the mandatory capitalisation requirement does not provide any security or benefit to the monetary and banking system from the risks associated with VCs.

Pertinently, the suggestion includes prescribing a C mandatory capitalisation requirement in VCs itself. Given the instability and price fluctuations of VCs, the RBI rejects any suggestion of providing a security or capitalisation requirement in VC itself. Additionally, the suggested mandatory capitalisation requirement would also not reduce the risks to consumers arising not only from fraud D but also from the possible loss of value given the fluctuations and manipulation VCs' value.

Insurance of crypto-assets Firstly, Indian Insurance service providers are not governed by the RBI. Insurance providers come within the regulatory jurisdiction of the Insurance E Regulatory and Development Agency (“IRDA”). Therefore, the RBI cannot assume jurisdiction over insurance providers by directing them to formulate tailored insurance policies for VC exchanges. It is for the purpose of such regulatory aspects, that the Inter-Ministerial Committee was constitued to study VCs. Accordingly, the RBI had, at that time, forwarded a copy of the Representation to the Inter-Ministerial Committee for their due consideration.

Secondly, Indian insurance providers, as mandated by the IRDA, take a cautious approach to the insurance policies offered by them. Therefore, the insurance providers may not, either suo moto or on account of IRDA's directions, offer insurance policies to protect VCs. Further, this cautious approach includes various limitation or exclusion of liability clauses. Therefore, the insurance policies may not provide adequate cover in the event of H

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A any value degradation, loss or theft of VCs. Moreover, the highly speculative and fluctuating value of VCs is a risk which ought not to be borne by the insurance providers, who are already suffering from the various financial frauds in the Indian monetary and banking system.

B Formation of an investor DILPL suggests setting up an investor protection and protection and education education fund, for which the VC exchanges would fund transfer all proceeds earmarked towards their corporate social responsibility (“CSR”) obligations under the Companies Act, 2013. This suggestion, as per the RBI, would not protect the customers as claimed by Discidium as the steps would be C insufficient to provide adequate cover to customers. Notably, Discidium has not suggested that it create any additional buffer for the education and protection of its customers but instead, has merely suggested that VC exchanges transfer its existing legal obligations to create a fund which would purportedly benefit customers. D Despite best efforts made to educate customers, the inherent risks in VCs would still remain. It is reiterated that VCs transactions would remain anonymous and open to facilitating illegal activities. It is unlikely that the education of customers would change the intent of nefarious customers, who would continue to conduct illicit transactions through VCs. The anonymous nature of VCs cannot be disputed. The transactions in VCs are anonymous due to the pseudonymous address or user handle. For instance, the reportedly largest transfer of Bitcoins, worth nearly USD 1 billion,114 took place as recently as September 2019, was between anonymous accounts. Even if the exchanges try to mitigate the risks of cyber-attacks by subscribing to insurance products, the risks are likely to spread to sectors other than banking.

Further, the utilisation of CSR funds is not regulated or governed by the RBI. Therefore, implementation of this suggestion would require other authorities to formulate necessary rules or directions, which is beyond the RBI's control and would depend on the final law passed by the Parliament based on the currently pending draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.

114 https://www.vice.com/en_in/article/bjwjpd/someone-just-moved-a-billion-dollars-in-bitcoin-and-no- H one-knows-whywhich; last accessed on September 12, 2019.

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6.166. Though at the time when the impugned Circular was issued, A RBI has not obviously addressed many of the issues flagged by the writ petitioners, RBI did in fact consider the issues raised by the petitioners, pursuant to the order passed by this court on 21-08-2019. RBI has also analyzed in Annexure B to the reply dated 18-09-2019 extracted above, the additional safeguards suggested by the petitioners, to see if the purpose of the impugned measure can be achieved through less intrusive measures. While exercising the power of judicial review we may not scan the response of RBI in greater detail to find out if the response to the additional safeguards suggested by the petitioners was just imaginary. 6.167. But at the same time we cannot lose sight of three important aspects namely, (i) that RBI has not so far found, in the past 5 years or more, the activities of VC exchanges to have actually impacted adversely, the way the entities regulated by RBI function (ii) that the consistent stand taken by RBI up to and including in their reply dated 04-09-2019 is that RBI has not prohibited VCs in the country and (iii) that even the Inter-Ministerial Committee constituted on 02-11-2017, which initially recommended a specific legal framework including the introduction of a new law namely, Crypto-token Regulation Bill 2018, was of the opinion that a ban might be an extreme tool and that the same objectives can be achieved through regulatory measures. Paragraph 7 of the ‘Note- precursor to report’ throws light on the same and hence it is reproduced as follows: E

“Options

7. The Committee has considered various approaches to achieve the objectives and notes: Achieving the objectives by doing nothing F i. Issuing warnings may prevent unsophisticated consumers from dealing in VCs but it would not deter VC service providers or those raising funds through Initial Coin Offerings (ICOs), mis-sell or run Ponzi schemes. G ii. The recourse available to customers would be inadequate. iii. Persons who provide VC services without necessary fit and proper criteria including capital and technology would continue to pose a heightened risk. H

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A Achieving the objectives through banning i. Consumer protection is a key concern but a ban might be an extreme too to address this. There are many things/activities that may be harmful but they are not all banned. Problems related to information asymmetry, concerns around market B risks, law enforcement or threat to financial system cannot be adequately addressed through a ban. ii. A ban would make dealing in VCs illegal but simultaneously it might decrease the ability of the law enforcement agencies and regulators to track and stop illegal activities. C iii. Ver few countries have actually banned VCs. A ban might not be in-step with India’s position as an important centre of Information Technology services. Achieving the objectives by regulating

D i. Penalizing entities or persons who do not opt for regulation under this Act and may choose to operate illegally may continue to be difficult.” 6.168. The Crypto-token Regulation Bill, 2018 initially recommended by the Inter-Ministerial Committee contained a proposal (i) to prohibit persons dealing with activities related to crypto tokens E from falsely posing these products as not being securities or investment schemes or offering investment schemes due to gaps in the existing regulatory framework and (ii) to regulate VC exchanges and brokers where sale and purchase may be permitted. 6.169. The key aspects of the Crypto-token Regulation Bill, 2018, F found in paragraph 13 of the ‘Note-precursor to report’ shows that the Inter-Ministerial Committee was fine with the idea of allowing the sale and purchase of digital crypto asset at recognized exchanges. Paragraph 13 (iii) & (vii) of the ‘Note-precursor to the report’ reads as follows:

13. Key aspects are summarised below: G (i)… (ii)… (iii) The sale and purchase of digital crypto asset shall only be permitted at recognised exchanges. H

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(iv)… A (v)… (vi)… (vii) The registry of all holdings and transactions on the recognised exchanges shall be maintained at recognised B depositories. 6.170. But within a year, there was a volte-face and the final report of the very same Inter-Ministerial Committee, submitted in February 2019 recommended the imposition of a total ban on private crypto currencies through a legislation to be known as “Banning of C Cryptocurrency and Regulation of Official Digital Currency Act, 2019”. The draft of the bill contained a proposal to ban the mining, generation, holding, selling, dealing in, issuing, transferring, disposing of or using crypto currency in the territory of India. At the same time, the bill contemplated (i) the creation of a digital rupee as a legal tender, by the central government in consultation with RBI and (ii) the recognition of any official foreign digital currency, as foreign currency in India. 6.171. In case the said enactment (2019) had come through, there would have been an official digital currency, for the creation and circulation of which, RBI/central government would have had a monopoly. But that situation had not arisen. The position as on date is that VCs are not banned, but the trading in VCs and the functioning of VC exchanges are sent to comatose by the impugned Circular by disconnecting their lifeline namely, the interface with the regular banking sector. What is worse is that this has been done (i) despite RBI not finding anything wrong about the way in which these exchanges function and (ii) despite the fact that VCs are not banned. 6.172. As we have pointed out earlier, the concern of RBI is and it ought to be, about the entities regulated by it. Till date, RBI has not come out with a stand that any of the entities regulated by it namely, the nationalized banks/scheduled commercial banks/co-operative banks/ G NBFCs has suffered any loss or adverse effect directly or indirectly, on account of the interface that the VC exchanges had with any of them. As held by this court in State of Maharashtra v. Indian Hotel and Restaurants Association, 115 there must have been at least some

115 (2013) 8 SCC 519 H

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A empirical data about the degree of harm suffered by the regulated entities (after establishing that they were harmed). It is not the case of RBI that any of the entities regulated by it has suffered on account of the provision of banking services to the online platforms running VC exchanges. 6.173. It is no doubt true that RBI has very wide powers not only B in view of the statutory scheme of the 3 enactments indicated earlier, but also in view of the special place and role that it has in the economy of the country. These powers can be exercised both in the form of preventive as well as curative measures. But the availability of power is different from the manner and extent to which it can be exercised. While we have recognized elsewhere in this order, the power of RBI to take a C pre-emptive action, we are testing in this part of the order the proportionality of such measure, for the determination of which RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none. When the consistent stand of RBI is that they have not banned VCs and when the Government of India is D unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate.

7. CLIMAX E 7.1. Therefore, in the light of the above discussion, the petitioners are entitled to succeed and the impugned Circular dated 06-04-2018 is liable to be set aside on the ground of proportionality. Accordingly, the writ petitions are allowed and the Circular dated 06-04-2018 is set aside. The Statement dated 05-04-2018, though challenged in one writ petition, is not in the nature of a statutory direction and hence the question of setting aside the same does not arise. 7.2. There is still one more issue left. It is the freezing of the account of Discidium Internet Labs Pvt. Ltd., which is petitioner no. 6 in WP (C) No. 373 of 2018. This company seems to have had an amount of Rs. 12,05,36,667.83/- in current account no. 3677101984 with the Central Bank of India, Worli, Mumbai. When the petitioner made a request on 21-05-2018 to close the account and issue a demand draft, the Central Bank replied that they had referred the matter to their higher authorities/regulators. Therefore, petitioner no. 6 has come up with an application in I.A. No. 110424 of 2019 for appropriate directions. H

INTERNET AND MOBILE ASSOCIATION OF INDIA v. 443 RESERVE BANK OF INDIA [V. RAMASUBRAMANIAN, J.]

7.3. RBI has filed a reply to this application conceding that it had A not directed the bank to freeze the account. It is specifically stated in paragraph 12 of the affidavit-in-reply of RBI that they did not issue any direction to the Central Bank of India to freeze the account. However, RBI has taken a stand that the prayer for release of the amount does not arise out of or incidental to the main writ petition. B 7.4. But we think that the lukewarm response of RBI in this regard is wholly unjustified. Admittedly, the activities carried on by the petitioner no. 6 were not declared as unlawful. It is the positive case of RBI that they did not in fact freeze the accounts of petitioner no. 6. Therefore, RBI is obliged to direct the Central Bank of India to defreeze the account and release the funds. Hence, RBI is directed to issue instructions C forthwith to the Central Bank of India, Worli branch, to defreeze the current account no. 3677101984 of petitioner no. 6 in WP (C) No. 373 of 2018 and to release the funds lying in the account to the company together with interest at the rate applicable. There will be no order as to costs. D 7.5. Before drawing the curtains down, we are bound to record, as in every artistic display, our appreciation for the skillful manner in which Shri Ashim Sood, learned Counsel, led the attack on the impugned Circular, but for which, the climax could not have had a nail biting finish. E

Divya Pandey Petitions allowed.