While allowing traders in cryptocurrency access to banking, the Supreme Court on Wednesday cancelled a circular issued by the Reserve Bank of India (RBI) in 2018. In the 5 April 2018 circular, the central bank had barred all its regulated entities, including banks, from dealing in virtual currencies like bitcoins, following its earlier multiple warnings on their risks.
A bench of justices Rohinton Nariman, Aniruddha Bose, and V Ramasubramanian held that the RBI's circular, which prevented regulated entities from providing banking services to those engaged in the trading or facilitating the trading in virtual currencies (VCs), was liable to be set aside on the ground of proportionality.
"When the consistent stand of RBI is that they have 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, both of which advocated exactly opposite positions, it is not possible for us to hold that the impugned measure is proportionate", the apex court stated.
As per a report from LiveLaw
, the SC observed, "The position as on date is that VCs are not banned, but the trading in VCs and the functioning of VC exchanges are 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 (i) despite RBI not finding anything wrong about the way in which these exchanges function and (ii) despite the fact that VCs are not banned".
The RBI statement in April 2018 had said: "We have now decided to fence RBI-regulated entities from the risk of dealing with entities associated with virtual currencies. They are required to stop having a business relationship with entities dealing with virtual currencies forthwith, and unwind the existing relationship within three months. Virtual currencies, also variously referred to as cryptocurrencies and crypto assets, raise concerns of consumer protection, market integrity and money laundering, among others".
Internet and Mobile Association of India (IAMAI) and few other stake holder had challenged the RBI circular before the Supreme Court.
According to the report from LiveLaw, the apex court took note of three factors, including if the activities of VCs had impacted adversely, RBI has consistently stated that it had not prohibited VCs in India and the Inter-Ministerial Committee set up in November 2017, was of the opinion that a ban might be an extreme tool.
In 2017, the finance ministry set up a nine-member inter-disciplinary committee that included Niti Aayog to study the global situation and suggest measures for dealing with such currencies. The finance minister announced in November 2017, ‘The government’s position is clear, we don’t recognise this as legal currency as of now.’
Then, on 29 December 2017, the finance ministry issued a formal press release warning people about ‘virtual currencies’ (VCs). It said, “VCs are not backed by government fiat” and they are also not legal tender or even currencies, in the real sense, although they are called ‘coins’. VCs don’t have “any intrinsic value and are not backed by any kind of assets,” their prices are “entirely a matter of mere speculation” and that there is a “real and heightened risk of investment bubble of the type seen in Ponzi schemes," says the release.
Equating crypto-currency to Ponzi schemes, the ministry had warned people to avoid getting trapped by them and to note that digital currencies are often used to carry out subversive activities such as drug and terror funding. It was also emphatic in stating that “VCs do not have any regulatory permission or protection in India” and people should deal with them at their own risk. This warning was issued after seeking public views on future of Bitcoins (in May 2017) on its portal MyGov.
Greed and risk-taking behaviour go hand-in-hand; so, despite this emphatic warning, and at least three previous warnings by the RBI, once in 2013 and twice in 2017, there are thousands of people queuing up every day to register with crypto exchanges. We have listed only five such exchanges operating in India (in Delhi, Mumbai, Pune, Bengaluru and Hyderabad); these include Zebpay, Unocoin, GlobalDCX, CoinSecure and BtcxIndia.