SC sets aside RBI circular that curbed cryptocurrency in India

Kosha Doshi | Symbiosis Law School, Pune | 17th March 2020

Internet and Mobile Association of India v. Reserve Bank of India 2020 SCC OnLine SC 275

Facts:

             The concept of cryptocurrency has taken a boost in recent times. Many countries as apprehended usage of the same citing its safety and legality issues. Blockchains being the most integral part of the same process and transactions were banned by the Reserve Bank of India (RBI) circular. The transactions came to a standstill when the notification was passed by RBI regarding curb on its usage. The market crashed and faced lot of criticisms. A new avenue based on cryptocurrency entirely faces losses and no investor is willing to invest furthermore. 

Reserve Bank of India (RBI) had a circular passed on the 6^th of April, 2018 whereby the circular prohibited regulated entities from providing banking services to those engaged in trading or facilitating the trading of Virtual Currencies. The circular which curbed the usage of cryptocurrency was challenged in a writ petition brought before the court. Money in the form of cryptocurrency which was not allowed for financial transactions had been challenged by the petitioner Internet and Mobile Association of India (IMAI) wherein the ban was based on grounds of morality due to lack of prior studies being conducted on its effect on the economy.

Issue:

            Whether the justification of the Supreme Court in passing the order is appropriately justifiable or not?

Judgment:

            The Supreme Court on Wednesday, 4^th March, 2020 lifted the curb imposed by the Reserve Bank of India (RBI) circular. The circular wherein regulated entities such as banks and NBFCs utilized virtual currencies and services in relation to cryptocurrency was set aside by the apex court. The circular was set aside on grounds of proportionality. Cryptocurrency and blockchain technologies are distinct and could be segregated by the government. This segregation is the basis for the most federal policy to date. 

            The case heard by Justice RF Nariman, Justice Aniruddha Bose and Justice Ramasubramanian who laid the essence of the case on the violation of Article 19(1)(g) of the Indian Constitution of India. RBI’s notice proved to be violative of the same therein putting restrictions of freedom to practice any trade or profession. Further the Central Bank had failed to substantiate the threats with empirical data and statistics for analyzing the same. It was not found that Virtual Currencies had adversely impacted the way entities regulated by RBI function. 

            The court observed that a ban might be an extreme tool and that the same objectives can be achieved through regulatory measures. The court finally held that the petitioners are entitled to succeed and the impugned Circular dated 06-04-2018 is liable to be set aside on the ground of proportionality.