Banks to give cryptocurrency service, SC sets aside RBI ban

Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds, operating independently of a central bank.

A three-judge bench, headed by Justice R F Nariman, said the RBI circular is liable to be set aside on the ground of “proportionality”. “Accordingly, the writ petitions are allowed and the circular dated April 6, 2018 is set aside,” said the bench, also comprising justices Aniruddha Bose and V Ramasubramanian. The top court said it has found the complete prohibition as bad in law and disproportionate to the objectives sought to be achieved by the apex banking regulator, RBI. With this judgment, decks should be cleared for a regulatory regime of cryptocurrency in India instead of a complete ban. “When the consistent stand of RBI is that they have not banned VCs (virtual currencies) and when the Government of India is unable to take a call 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 as proportionate,” the bench said in its 180-page verdict. The apex court delivered the verdict on pleas challenging the RBI circular.

According to the circular, the entities regulated by the RBI were 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”. The petitioner, Internet and Mobile Association of India (IMAI), had argued that the RBI had banned cryptocurrencies on “moral grounds” as no prior studies were conducted to analyse their effect on the economy.

In a separate bunch of petitions, the Supreme Court is also examining the issues related to regulation of cryptocurrency. The judgment on Wednesday will have an impact on the pending case too.