Namaste Tribe! What an interesting hearing it was! Our lawyer, Mr. Ashim Sood was on fire with his phenomenal arguments, and as usual, Crypto Kanoon had us glued to Twitter with live updates.

Click here to share today’s consolidated hearing updates

Today at 10:58 AM

👉 Mr. Sood is arguing. Refering to a judgement and says that a legal activity can be shut down only by a specific policy. If there is a risk then Parliament must be first to identify that risk and not the administrative authority like RBI.

👉 1985 (2) SCC 116 — Another judgement is being referred to on the point that power to regulate may not always include power to absolutely prohibit.

👉 And for exchanges, absolute prohibition is when their bank accounts are taken away.

👉 Judge asks why not you can use foreign banks working in India like CITI. Mr. Sood answers My Lord they are also covered under RBI domain. There is just one bank of sikkim which is outside the purview but it uses some kind of payment system wch we dont have access to.

👉 Mr. Sood is explaining Crypto-Crypto and P2P models on judge’s request.

👉 Judge specifically asked how trading happens. Mr. Sood is explaining.

👉 1955 (1) SCR 130 — A judgement is being read.

👉 Judge indicates that when the reasonable under Article 19(6) is imposed on one’s Right to freedom of trade guaranteed under 19(1) g, then this reasonable restriction has to be statutory/ legislative and not executive.

👉 Mr. Sood mentions the power to stop Crypto does not find in any statute and power to regulate monetary policy does not empower RBI to stop or exclude Crypto.

👉 Mr. Sood is reading out Securities Contract Regulation Act and takes example from it to show how Parliament can give power to delegatee to prohibit a specific activity. There has to be a specific power.

👉 Now Mr. Sood comes to the arguments that the RBI measure does not confirm to the Constitutional principles in Article 14 and Article 19.

👉 Mr. Sood says that no country has ever reached a conclusion that it is impossible to regulate Crypto. Rather they preferred to regulate. However RBI says the contrary that it is impossible to regulate that is why ban.

👉 Now Mr. Sood takes the judges through the detailed comparative table about different countries, their regime nature and how they reacted to Crypto in their territories.

👉 Mr. Sood is explaining Crypto treatment by Australia, Germany, Indonesia, European Union.

👉 Italy, Malta and Japan Crypto treatment are being discussed.

👉 Mr. Sood takes example of Mt. Gox Crypto exchange in Japan and that how this hack led to formulation of regulation by Japan instead of banning it.

👉 Nepal has completely banned. Pakistan central bank issued an identical circular imposing banking restrictions immediately after India.

👉 South Africa and South Korea laws are being discussed. South Korea permits trading and tax laws are applied on Crypto transactions.

👉 UK also permits trading subject to certain laws. Both direct and indirect taxes are applicable on Crypto.

👉 Many states in US have formulated laws around VCs. New York State’s Law is being discussed.

👉 Judge mentions that when we read the definition then apart from being a commodity, Crypto also has features of Medium of exchange and then it comes under purview of RBI powers.

👉 Further says that it has no utility as a commodity.

👉 Mr. Sood answers that no one is obligated to pay in this. It is not a currency. Some people would find value in it and some people would exchange it. It is a technology which should be given a free play. Casino chips are useful to the people who are inside the casino….

👉 When I come out of casino, its use ceases to exist but then some people may exchange it and it hold a value for the interested people. So likewise there is no obligation to use VCs as medium of exchange.

👉 Explaining how SEC is attempting to regulate VCs as securities.

👉 Judges question that Bitcoin has no utility. Mr. Sood answers I would furnish some literature to show that it has a utility but this question is not before my Lords today. Assuming if something does not have a utility then my Right under 19 (1) g is not dependant on yhe utility.

👉 After some question answers on Silk Route, Dark Web, TOR and Onion Router, Mr. Sood started reading EU Directive around Crypto.

👉 Directive is to combat money laundering and terrorist financing.

👉 A judgement of European court of justice is being read.

👉 In this Judgement ECJ held that VAT is not applicable on Crypto.

👉 Now Malta Virtual Financial Asset Act is being discussed.

👉 Says that Countries are regulating on diff. aspects like Cyber security requirements, licensing, regulator, capital requirement etc. the same way we can also regulate or under the existing laws as that is for the Govt. to decide but not ban.

👉 Meanwhile Court mentioned that Crypto like any other technology is not bad but it can be used for bad purposes. Mr. Sood says like any other technology and State must regulate it the same way it regulates other risky techs.

👉 EU report is being discussed.

👉 Last part of EU report mentions about anonymous and Pseudonymous cryptos. Cryptos like ZCash and Monero are discouraged as they are designed to escape the regulator’s eye. As for Pseudo ones, they can be made denonymous by making great efforts.

👉 Now Mr. Sood poses a question just because the Govt. does not want to make great efforts in formulating ways to regulate my activity, do they acquire the right to ban it? Absolutely not.

👉 Judges ask whether the ones u r dealing in are pseudo or anonymous. Mr. Sood answers we use mandatory KYC and this is how the process makes it deanonymous.

👉 World bank report is being read which analyses the aspect of electricity consumption by Crypto mining.

👉 Mr. Sood argued that doctrine of proportionality has to be applied. And one aspect of it is that whether RBI is clouded with the factors which are outside its domain. Whether it is invoking the risks with which it has no connection with being a sectoral regulator.

👉 There is a misprint on the file, on this a judge cracks a joke saying it is anonymous. Mr. Sood responds My Lord it is not deliberate.

👉 FATF Guidelines are being read.

👉 Advantages of Cryptocurrencies are being read from the report.

👉 It has a potential to serve under and unbanked. It can fill the payments deficiencies.

👉 Court rose for the lunch. Will reassemble at 2 PM.

Today at 2:04 PM

👉 Court has resumed.

👉 FATF 2014 report being read which only discusses features and potential risks of VCs.

👉 FATF report dated 2015 is being read out now.

👉 Recommendations of FATF to mitigate AML CTF risks, are being read.

👉 Mr. Sood now says that these FATF standards recommend countries to do assessment of the factors involved in those countries. It never says you take action relying upon our findings.

👉 Whereas FATF asks the member counties to apply risk based assessment. Identify, understand and assess their risks to effectively mitigate these risks.

👉 FATF asks countries take coordinated measures taking all your relevant authorities, view into consideration. These guidelines cannot be made a ground to put a ban. What is asks the Countries to do considered accounting.

👉 Prevention of money laundering (maintenance of record) Rules, 2005 are being discussed.

👉 All the documents referred before the Court indicate that there are risks. Most jurisdictions did not take extreme approach but they took caliberated view.

👉 All references indicate that the first step must be the least invasive measures. RBI should be proportionate.

👉 Now RBI reply dated September 2019 to the exchanges representation, is being referred to.

👉 It claims to state the some new facts which warrant action in public interest but I say there are no such new facts, says Mr. Sood.

👉 RBI clearly says in its reply why I restricted Crypto is because of the anonymity and due to which it is being used in nefarious activities.

👉 The burden is not on the exchanges to devise a regulatory measure for the regulators. It cannot justify the ban merely on the ground that I find the suggested measure as wanting. This burden shifting is unjust.

👉 RBI in its reply says that VCs are bought by those who want to mask their identity. Mr. Sood pleads that it is incorrect. People are just seeing VCs as an alternative investment option. Those who dont want to invest in stocks they invest here.

👉 Less invasive measure by the RBI could have been to ask banks to not prove me loans while taking VCs as collateral, to not take deposits in VCs. But you cant deny to give me bank accounts. You have a choice to not involve in my business activity by taking less invasive measure.

👉 Facebook Libra is being discussed. US Congress’s backlash in the form of moratorium is not to shut down Libra but to study it

👉 Judge asks is facebook a member of IAMAI. Counsel answers Yes. Further asked who all are going to benefit from this relief sought by you, counsel answers there are several verticals in IAMAI, those who deal in VCs will only benefit.

👉 Financial Stability Board recommendation 2018 is being referred to. It also recommends independent assesment to which we agree. It also does not recommend a ban.

👉 RBI says that we only ring fenced our regulated entities but not prohibited VCs.

👉 RBI justifies the ban by saying that cryptos can be sent cross border and convertible to fiat in foreign jurisdictions. RBI doesnt say that they will send it to some user on my exchange but to someone on a world wide web. Therefore KYC done by way is insufficient.. Cont.

👉 My Lord if my KYV is not sufficient to curb cross border transactions then their circular is insufficient either. It also doesnt stop these transactions. Therefore the mischief remains back despite measures.

👉 My all users are Indian as I take KYC. I ensure that users involve in transactions with Indians only. After buying Cryptos from me what they do with it, it is not my concern.

👉 If RBI is concerned about Cross border transac. then the Govt. must put a restriction and impose penalty as a consequence if someone does that. But ban does not deter such transactions at all. Rather it eases such transactions by making regulators losing sight of violations.

👉 RBI counter Affidavit is being read in detail.

👉 At one place RBI says that VCs are not under our regulatory purview but then also it is bent to ban it.

👉 Another place RBI says that we are not privy with different kinds of VCs. Despite not being privy they decided to ban, says Mr. Sood.

👉 RBI also mentions about hack of Binance to justify its measures as it thinks there is a cyber security threat.

👉 Mr. concludes by saying that RBI has adopted the kitchen sink approach when the earlier grounds invoked by them like monetary stability etc. have completely disappeared now and new grounds have popped up.Since it cannot control Cryptos directly, it is trying to stop it indirectly

👉 RBI annual report of 2017 is being referred to now.

👉 As for the purpose of Article 19, this Court never considers the nature of measure whether it is ring fencing of banks or a ban, but the court considers the IMPACT of the measure which has caused me to shut down.

👉 A judgment is being read in support of the above point.

👉 Another judgment — 1972 (2) SCC 788

👉 Direct or indirect effect of the law is irrelevant while deciding the infringement of fundamental right. The object of the law becomes irrelevant if it in violation of fundamental right.

👉 Another judgment — 1969 (1) SCC 853

👉 When the purpose of the law in not to prohibit but in effect if causes prohibition of right guaranteed under Article 19(1) then the burden is heavily in on the State to satisfy the Court it is necessary in the interest of general public. This General public interest is diff….

👉 ‘Public interest’ used by RBI.

👉 RBI seeks to base its measure say on 6 factors and shows a necessity. But all these 6 factors are outside its purview then this is bad in law.

👉 Assuming that RBI has a power but then in the interministerial Committee they should have had energy ministry which would say that Crypto are not a good idea due to electricity issue and law enforcement agency would say thar it is impossible to regulate Crypto.

👉 But no such study and finding has taken place.

👉 Judgment is being referred to regarding the issue of satisfaction. What does Satisfaction mean when it comes to a study by Govt. authorities. Whether relevant considerations have taken into consideration or not.

👉 There is no defence in law when the act is arbitrary.

👉 Mr. Ashim Sood concludes his arguments.

Today at 4:04 PM

👉 Court will resume the hearing on Tuesday with arguments of Mr. Nakul Divan, Counsel for other petitioner exchanges.

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