The Supreme Court on Wednesday, 4 March, set aside the Reserve Bank of India circular which had barred banks from engaging in cryptocurrency trading. It allowed a batch of please challenging the central bank’s 2018 circular which prohibited banks and financial institutions from providing services with relation to cryptocurrencies.
The apex court held that the ban was "disproportionate." The case of ‘Internet and Mobile Association of India vs Reserve Bank of India’ was heard by a three-judge bench comprising Justices RF Nariman, Ravindra Bhat and V Ramasubramanian.
Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of currency units and verify the transfer of funds, operating independently of a central bank.
"We have allowed the writ petitions," a bench headed by Justice RF Nariman said while pronouncing the verdict.
According to the 6 April, 2018 circular, the entities regulated by the RBI are prohibited from "providing any service in relation to virtual currencies including those of transfer or receipt of money in accounts relating to the purchase or sale of virtual currencies".
What Does The SC Verdict Say?
Here are some excerpts from the judgement by the Supreme Court published on 4 March.
The court states that there are three important aspects to the case:
- That the RBI has not so far found, in the past five years or more, the activities of virtual currency (VC) exchanges to have actually impacted adversely, the way the entities regulated by RBI function.
- The stand taken by RBI is that the central bank has NOT prohibited VCs in the country.
- The Inter-Ministerial Committee constituted in November 2017 initially recommended a specific legal framework including the introduction of a new law namely, Crypto-token Regulation Bill 2018. The panel was of the opinion that a ban might be an extreme tool and that the same objectives can be achieved through regulatory measures.
The court says that as on date VCs are not banned, but the trading in VCs and the functioning of VC exchanges have been 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 despite RBI not finding anything wrong about the way in which these exchanges function and despite the fact that virtual currencies are not banned.
The court says 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 banking entities regulated by it have suffered any loss directly or indirectly, on account of the interface that virtual currency exchanges had with any of them.
The court goes on to say that when the consistent stand of the RBI is that it has not banned VCs and when the Government of India is unable to take a call despite several committees coming up with several proposals including two draft bills, it is not possible for the court to uphold RBI’s circular.
Is Trading in Cryptocurrency Legal?
A draft bill for banning cryptocurrency was proposed in July 2019 with Economic Affairs Secretary Subhash Chandra Garg leading the exercise.
According to the draft "Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019", holding, selling or dealing in cryptocurrencies such as Bitcoin could soon land you in jail for 10 years.
The draft has proposed a 10-year prison sentence for persons who "mine, generate, hold, sell, transfer, dispose, issue or deal in cryptocurrencies. Besides making it completely illegal, the bill makes holding of cryptos a non-bailable offence.
This Bill hasn’t been passed yet.
In January 2020, the RBI said it had not banned cryptocurrencies such as Bitcoin in India, but that it had only protected regulated entities like banks from the risks associated with trading in virtual instruments. The RBI was responding to a petition filed by the Internet and Mobile Association of India (IAMAI), wanting it to reconsider its 2018 circular directing banks not to deal in cryptocurrencies.
(With inputs from PTI. This is a developing copy. More updates will be added).
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