The Supreme Court on March 4 allowed banks and financial institutions from providing services related to cryptocurrencies by setting aside the Reserve Bank of India’s 2018 circular which had prohibited them.
The order is likely to come as a big relief to virtual currency (VC) proponents in the country. 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.
“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 is 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 in the top court that the RBI had banned cryptocurrencies on “moral grounds” as no prior studies were conducted to analyse their effect on the economy.
In 2013, the RBI in an advisory cautioned users, holders, and traders of virtual currencies, including Bitcoins, about the potential financial, operational, legal, customer protection, and security-related risks that they were exposing themselves to.
On July 3, 2018, while hearing IMAI’s plea, the top court had refused to stay the RBI circular prohibiting banks and financial institutions from dealing with the cryptocurrencies like bitcoin. It had sought response from the RBI, Finance Ministry and Union ministry of Information and Technology on the plea.