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2.18. Around the same time, namely, November 2017, the Inter- Regulatory Working Group on Fintech and Digital Banking, set up by RBI, pursuant to a decision taken by the Financial Stability and Development Council Sub-Committee way back in April 2016, submitted a report. This report, in paragraph 2.1.3.2, dealt with Digital Currencies. It defined ‘digital currencies’ to mean digital representations of value, issued by private developers and denominated in their own unit of account. The Report also stated that “digital currencies are not necessarily attached to a fiat currency, but are accepted by natural or legal persons as a means of exchange.” 2.19. Thereafter, RBI issued another Press Release dated 05- 12-2017 reiterating the concerns expressed in earlier press releases. The Government of India, Ministry of Finance also issued a statement on 29-12-2017 cautioning the users, holders and traders of VCs that they are not recognized as legal tender and that the investors should avoid participating in them.

6.63. The word “currency” is defined in Section 2(h) of the Foreign Exchange Management Act, 1999 (hereinafter, “FEMA”) to include “all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers’ cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments as may be notified by the Reserve Bank.” The expression “currency notes” is also defined in Section 2(i) of FEMA to mean and include cash in the form of coins and bank notes. Again, FEMA defines “Indian currency” under Section 2(q) to mean currency which is expressed or drawn in Indian rupees, but which would not include special bank notes and special one rupee notes issued under Section 28A of the RBI Act. But RBI has taken a stand in paragraph 24 of its counter-affidavit that VCs do not fit into the definition of the expression “currency” under Section 2(h) of FEMA, despite the fact that FATF, in its report on June 2014 on “Virtual Currencies: Key Definitions and Potential AML/CFT Risks” defined virtual currency to mean “digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status.” According to the report, legal tender status is acquired only when it is accepted as a valid and legal offer of payment when tendered to a creditor.

6.67. Neither the RBI Act, 1934 nor the Banking Regulation Act, 1949 nor the Payment and Settlement Systems Act, 2007 nor the Coinage Act, 2011 define the words ‘currency’ or ‘money’. But FEMA defines the words ‘currency’, ‘currency notes’, ‘Indian currency’ and ‘Foreign currency’. We have taken note of these definitions. Interestingly, Section 2(b) of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 defines money to include a cheque, postal order, demand draft, telegraphic transfer or money order. Clause (33) of Section 65B of the Finance Act, 1994, inserted by way of Finance Act, 2012 defines ‘money’ to mean “legal tender, cheque, promissory note, bill of exchange, letter of credit, draft, pay order, traveler cheque, money order, postal or electronic remittance or any other similar instrument, but shall not include any currency that is held for its numismatic value”. This definition is important, for it identifies many instruments other than legal tender, which could come within the definition of money.

6.86. RBI was also caught in this dilemma. Nothing prevented RBI from adopting a short circuit by notifying VCs under the category of “other similar instruments” indicated in Section 2(h) of FEMA, 1999 which defines ‘currency’ to mean “all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers’ cheque, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments as may be notified by the Reserve Bank.” After all, promissory notes, cheques, bills of exchange etc. are also not exactly currencies but operate as valid discharge (or the creation) of a debt only between 2 persons or peer-to-peer. Therefore, it is not possible to accept the contention of the petitioners that VCs are just goods/commodities and can never be regarded as real money.