Shot In Arm For Cryptocurrencies: SC Sets Aside RBI Circular

The Supreme Court of India (SC) set aside the circular dated 6th April 2018 issued by the Reserve Bank of India (RBI) prohibiting the entities regulated by it from, among other things, dealing in virtual currencies (VCs or cryptocurrencies). The SC passed a detailed judgment on 4th March 2020 in a writ petition filed by the Internet and Mobile Association of India. By the aforesaid circular, the RBI had told the regulated entities to “not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs”. In the same circular, the RBI had asked the said entities to exit, within three months, from any existing relationships for provision of the services in connection with VCs. 

Pursuant to the said circular, the concerned entities had been proscribed from providing services like “maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of VCs.”

The purpose of the circular was to insulate the financial system from the risks presented by the VCs. The circular affected all the stakeholders, inlcuding the crypto-exchanges. In its judgment, the SC upheld the petitioner’s contention that the subject circular imposed disproportionate restrictions. It is noteworthy that the highest court has declared the circular as violative of Article 19(1)(g) of the Constitution (which guarantees the right “to practise any profession, or to carry on any occupation, trade or business”) while recognising the RBI’s remit to regulate currency and contain the parallel economy.