The Supreme Court on March 4 set aside April 6, 2018, circular of the Reserve Bank of India (RBI) prohibiting banks and entities regulated by it from providing services in relation to virtual currencies (VCs) also known as Cryptocurrency and made it clear that Cryptocurrency is legal in India.

“ Until now RBI has not come out with a stand that any of the entities regulated by it namely, nationalized banks/scheduled commercial banks/cooperative banks/NBFCs, have suffered any loss or adverse effect directly or indirectly, on account of VC exchanges,” a Bench comprising Justices Rohinton Nariman, Aniruddha Bose, and V. Ramasubramanian observed in a 180-page judgment.

Even after the judgment, many find it difficult to know Is cryptocurrency legal in India?

Justice Ramasubramanian, who authored the ruling, found the RBI circular “disproportionate” with an otherwise consistent stand taken by the central bank that cryptocurrency is legal in India. Besides, the court found that the RBI did not consider the availability of alternatives before issuing the circular.



READ RBI’s official notification

Again, the April circular was issued despite the fact that the central bank could not quote a single instance when VC exchanges “actually impacted entities regulated by RBI”. VCs are digital currencies in which encryption techniques are used to regulate the generation of the currency units and verify the transfer of funds, operating independently of a central bank.


Besides, the apex court referred to the Centre’s failure to introduce an official digital Rupee despite two draft bills and several committees. “When the Government of India is unable to take a call and answer Is cryptocurrency legal in India despite several committees coming up with several proposals including two draft Bills, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure (April 6, 2018 circular) is proportionate,” Justice Ramasubramanian wrote.

The court expanded on how the Centre had been toying with plans for an official digital currency.

On November 2, 2017, the Centre constituted an Inter-Ministerial Committee, which initially recommended the ‘Crypto-token Regulation Bill of 2018’. This Bill found a complete ban on VCs an “extreme tool” and suggested regulatory measures and answered the question IS CRYPTOCURRENCY LEGAL IN INDIA? And the answer was a big no at that time.  At that point, the committee was even fine with the idea of allowing the sale and purchase of digital crypto assets at recognized exchanges.

The Supreme Court noted how the same committee did a “volte-face” in just two years.

From a permissive draft bill, the Inter-Ministerial Committee went on to recommend a “total ban” on private cryptocurrencies through proposed legislation called ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Act’ in February 2019 and came with the decision to the question IS CRYPTOCURRENCY VALID IN INDIA. This proposed law contemplated the creation of a digital rupee as an official currency and a legal tender by the central government in consultation with RBI.

The court said that had this law come through, there would be an official digital currency. The Centre and the RBI would have had a monopoly over its creation and circulation.

“But that situation had not arisen. The position as on date to the question Is cryptocurrency valid in India is YES but the trading in VCs and the functioning of VC exchanges are sent to comatose by the April 6 circular by disconnecting their lifeline namely, the interface with the regular banking sector,” Justice Ramasubramanian explained.


The verdict came on a petition filed by the Internet and Mobile Association of India, which had contended that the RBI circular was “arbitrary, unfair and unconstitutional”

India’s virtual currency industry had come to a standstill following the April 2018 notification that prohibited the use of banking channels for transactions of cryptocurrencies such as Bitcoin. Several exchanges shifted overseas or closed their business altogether in the last two years. “When a regulator like RBI bans, the market closes down. Six months back, we pivoted from crypto to blockchain, as we had to sustain. No investor was ready to back us amid the uncertainty of regulations,” said Wilson Bright, CEO of BlockSurVey.

RBI to seek review of Supreme Court order on cryptocurrency

Investors say peer to peer (P2P) companies will see an inflow of capital, similar to what has been happening globally. Crypto founders, investors, and industry bodies told ET that the order would open up more avenues for a cryptocurrency ecosystem to be built. “From my perspective, hopefully the funding environment for startups gets better as funds no longer have to worry as much about regulatory clarity,” said Nitin Sharma, founder of Encrypt Blockchain. The Internet and Mobile Association of India (IAMAI), an industry body representing cryptocurrency startups, had challenged the RBI circular, arguing that it was a disproportionate response by the regulator. The three-judge SC bench comprising Justices RF Nariman, Aniruddha Bose, and V Ramasubramanian ruled in favor of IAMAI.

According to the copy of the 180-page judgment, accessed by ET, “the petitioners are entitled to succeed and the impugned Circular dated 06-04-2018 is liable to be set aside on the ground of proportionality.”

IAMAI is looking forward to working jointly with the RBI and the government on a constructive policy framework for cryptocurrencies in India, it said in a statement.


Know your Crypto

Bankers said the regulator would now have a nuanced understanding of crypto technology and regulate it in a way that will encourage innovations. “They (RBI) obviously issued an advisory earlier to make sure it doesn’t become the Wild Wild West of crypto and gets too systemic. Now, RBI is better prepared to address the nuances of crypto,” said Akhil Handa, head — fintech and new business initiative, Bank of Baroda.

RBI did not respond to an emailed query till press time Wednesday. Legal experts said the case throws up questions on the fairness of regulatory bodies. “The fact that the apex court outrightly shot down a strong policy step by the RBI against a whole industry has consequences on the fairness of our regulators, given their quasi-judicial status,” said Salman Waris, partner at TechLegis Advocates and Solicitors.


Cryptocurrency companies are expected to revive plans to invest and expand their business in India following a Supreme Court verdict overturning a Reserve Bank of India notification that had restricted banking access for virtual currency trading. ZPX will consider ramping up operations in India, said Ramani Ramachandran, CEO of the Singapore-based crypto firm. WazirX will start investing in the Indian market this year, said Nischal Shetty, cofounder of the crypto-exchange firm.




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