The Supreme Court (SC) of India on March 4, 2020, struck down the restrictions imposed on Indian banks by the Reserve Bank of India (RBI) that said that the banks should not facilitate or engage in any transactions in Bitcoin or in any other type of cryptocurrency. The RBI had brought in a circular on April 6, 2018, that virtually made the entire range of cryptocurrency related activities illegal.
The three-judge SC bench offered the much-needed respite to the fledgling cryptocurrency business in the country. The judgment that runs into 180 pages has cited references from over 50 cases worldwide.
The RBI had directed all financial institutions under it including the banks not to provide services or deal with any business or individual trying to bring or settle cryptocurrency transactions. Taking up the cause of Indian cryptocurrency companies, the Internet & Mobile Association of India (IAMAI) had moved a writ petition in the SC against the RBI order in May 2018. There were similar cases filed elsewhere in the country, especially by companies who were affected by the central bank’s directives. While hearing the IAMAI petition in August 2018, the SC clubbed all cryptocurrency related cases pending in different courts in the country.
The petitioners main argument was that the RBI directive will lead to the closure of their businesses while the Constitution guarantees the people the freedom of practicing and engaging in any profession, occupation, trade or business as long as they are not termed illegal by a law passed by the parliament. The petitioners had argued that the RBI directive had denied the companies and individuals engaged in cryptocurrency business their right to equality before the law.
They also argued that the RBI does not have the power to create policies that prohibit any economic activity. Further, if at all an economic activity has to be banned the state should reflect that intention through legislation. The petitioners further argued that cryptocurrencies are neither fiat currencies nor they intend to be. These are only technological commodities that do not fall under the purview of the RBI.
“The SC ruling is an important milestone for both India and global cryptocurrency trading activities. It brings a positive perspective to the industry which had got some negative impressions after the RBI issued directives asking banks not to deal with crypto traders,” said a senior official of Unocoin, a cryptocurrency exchange.
Advocate Jaideep Reddy, who represented the IAMAI on behalf of his law firm Nishith Desai Associates, said, “The ground for setting aside the circular is the doctrine of proportionality which states that the measure should be rationally connected to the objective and that it cannot be excessive, more than what is required.”
However, the SC ruling is only a limited relief as an inter-ministerial panel has already drafted and published a proposed bill - Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019. The SC bench said the rules that should govern the cryptocurrency trade in India will depend on the course of this draft bill. The SC has also said that the central bank would have an exclusive right to creation and circulation of any digital currency that it may decide to launch.
The RBI crackdown on the cryptocurrency and the SC relief follow the worldwide trend. Recently, the US government has set up a new regulator for digital and cryptocurrencies. The most defining aspect of cryptocurrencies is that it successfully bypasses the jurisdiction of the central bank and government policies. Cryptocurrencies act as an international payment system that does not have to follow any central bank. This peer-to-peer blockchain-based digital cash is believed to be the currency of the future.
There are more than 2,000 cryptocurrencies in the market and together, the cryptocurrency market is pegged at $450 billion. And, there are many cryptocurrencies in the pipeline. With millions of traders and tens of thousands of brokers and crypto exchanges worldwide, the cryptocurrency ecosystem is robust and expanding very fast.