Supreme Court Lifts Ban On The Cryptocurrencies
In the case of Internet and Mobile Association of India vs. Reserve Bank of India, the Supreme Court passed a landmark judgment on 4th March, 2020.
Virtual currencies are digital currencies which use encryption techniques to regulate the generation of the currency units. It is an umbrella term for all forms of the non-fiat currency which is traded online. On the other hand, cryptocurrencies have an extra layer of security with more protected encryption which makes the currency and the network on which it is traded, more secure.
Earlier, RBI had imposed curbs on regulated entities like banks and NBFCs from providing banking services to those dealing with virtual currencies and engaged in crypto businesses. The petitioner contended that RBI had banned the virtual currencies only on moral grounds and no prior studies had been done on how they affect the economy. The petitioner also submitted that RBI lacks jurisdiction to ban the dealings in cryptocurrencies and that it fell outside the regulatory framework of RBI.
The counsel for the petitioner explained that virtual currencies are not legal tenders but only tradable commodities or digital goods which can be used as a medium of exchange.
The Supreme Court’s three judge bench comprising Justices R F Nariman, Aniruddha Bose and V Ramasubramanianset aside the RBI’s two-year old ban on cryptocurrency trading and found that the prohibitive circular issued by RBI in 2018 is too disproportionate. The court, while striking down the circular took note of various factors such as RBI has not found any adverse impact of the vitual currency and that a ban on the virtual currency might be an extreme step to obtain the objectives which cannot be achieved through regulatory measures.
The Supreme Court attempted to define the virtual currencies by examining the defintions provided by various foreign countries and international authorities such as International Monetary Fund, Financial Action Task Force, European Central Bank, etc. It defined the virtual currency as digital representations of value which function as a medium of exchange, an unit of account and a store of value. The court added that virtual currencies are capable of performing most functions of real currency though they are not legal tender.
The court took notice that RBI can regulate or prohibit anything that may impact or act as a threat to the financial system of the country, but quashed the circular banning virtual currencies and business related to it. The court further added that RBI can possibly notify virtual currencies under the category of “other similar instruments” as provided in the definition of currency like promissory notes, cheques, bills of exchange, etc.
The final judgment set aside the circular on the ground of proportionality as the measures taken by the RBI did not pass the test of proportionality and infringe Article 19(1) (g) of the Indian Constitution of the petitioner which allows for the right to practise any profession, or to carry on any occupation, trade or business. The court said that the restriction is not reasonable and extremely disproportionate.
The judgment is a relief and significant for online financial transactions. This is a historic judgment for crypto in India as the country can now evolve and participate in the Blockchain revolution. But, even though this order of the Supreme Court has been welcomed, the relief is only temporary keeping in mind the Centre’s draft law which proposes to ban all private cryptocurrencies. This is also a cause for concern as a blanket ban would result the entire system to operate underground which would then have no regulation.
-Ayushi Mishra
Student Reporter, INBA