Internet and Mobile Association of India Case (2020)
– Cryptocurrency Trading and Article 19(1)(g)
Background of the Case
In April 2018, the Reserve Bank of India (RBI) issued a circular directing → Banks and regulated financial institutions → Not to deal in virtual currencies (VCs) → And not to provide services to individuals or businesses dealing in VCs
Although:
- Cryptocurrency trading was not declared illegal by Parliament,
the RBI circular effectively:- Choked the crypto ecosystem
- Forced exchanges to shut down due to lack of banking access
The circular was challenged by the Internet and Mobile Association of India (IMAI) and several crypto exchanges.
Core Constitutional and Legal Questions
- Does the RBI have the power to regulate or prohibit virtual currencies?
- Does the RBI circular violate Article 19(1)(g) (freedom of trade)?
- Does the circular satisfy the test of proportionality?
Supreme Court’s Judgement
The Supreme Court delivered a measured but rights-protective verdict.
(a) RBI’s Regulatory Power Recognised, But Not Unlimited
The Court held that:
- The RBI does have the power to regulate matters affecting:
- Monetary stability
- Financial systems
- Virtual currencies, though not legal tender, fall within RBI’s regulatory concern
However, Regulatory power does not imply unfettered power to prohibit.
(b) Circular Struck Down on Grounds of Proportionality
The Court applied the doctrine of proportionality and held that:
- The RBI:
- Failed to show actual harm suffered by banks
- Did not demonstrate adverse impact of crypto exchanges on the financial system
Thus, the measure adopted (total banking exclusion) was:
→Disproportionate
→ Excessive in relation to the perceived risk
(c) Violation of Article 19(1)(g)
The Court held that:
- Crypto exchanges were engaged in a legitimate business activity
- Denial of banking access → Virtually extinguished their trade
Hence, the circular violated the freedom to carry on trade or business under Article 19(1)(g).
(d) Lack of Legislative Backing
The Court noted that:
- Parliament had not enacted any law banning cryptocurrency
- In such a situation → A regulatory authority cannot impose a de facto ban
Constitutional Significance
This judgment:
- Strengthened judicial scrutiny of economic regulation
- Reaffirmed → Proportionality as a constitutional standard (post Puttaswamy)
- Protected → Innovation, Digital entrepreneurship
- Clarified the limits of delegated legislation
Impact of the Judgement
- The RBI circular became → Illegal and unenforceable
- Banks and financial institutions → Resumed services to crypto exchanges
- Cryptocurrency trading → Became operational again in India
Policy Implications
The Court explicitly observed that:
- Regulation of cryptocurrencies:
- Is a policy decision
- Must be taken by the legislature
- The judgment highlighted the urgent need for:
- A comprehensive legal framework
- Addressing risks like:
- Money laundering
- Consumer protection
- Financial stability
Place in Article 19(1)(g) Jurisprudence
| Case | Contribution |
|---|---|
| Chintaman Rao (1951) | Reasonable restriction |
| Modern Dental College (2016) | Proportionality |
| IMAI (2020) | Digital trade protected |
Summary
The Internet and Mobile Association of India Case (2020) struck down the RBI’s cryptocurrency banking ban as disproportionate, held it violative of Article 19(1)(g), and underscored that emerging technologies must be regulated by law, not prohibited by executive overreach.