The Supreme Court on Wednesday allowed a batch of pleas challenging the 2018 circular of the Reserve Bank of India which had prohibited banks and financial institutions from providing services with relation to cryptocurrencies.
Cryptocurrencies are digital currencies in which encryption techniques are used to regulate the generation of currency units and verify the transfer of funds, operating independently of a central bank. The Court held that the RBI's circular preventing bans from dealing in transactions involving cryptocurrency was disproportionate. The case (Internet and Mobile Association of India vs Reserve Bank of India) was heard by a three-judge bench comprising Justices R F Nariman, Aniruddha Bose and V Ramasubramanian.
"We have allowed the writ petitions," the bench headed by Justice R F Nariman said while pronouncing the verdict. The RBI issued a circular in April last year banning regulated financial institutions from providing services to crypto businesses. The ban went into effect three months later and banks subsequently closed the accounts of crypto exchanges. This was challenged in the Supreme Court by the Internet and Mobile Association of India and a few other stakeholders.
Advocate Ashim Sood, appearing for IAMI, submitted that Reserve Bank of India lacked jurisdiction to forbid dealings in cryptocurrencies. The blanket ban was based on an erroneous understanding that it was impossible to regulate cryptocurrencies, Sood submitted.
It was also argued that cryptocurrencies were not "currency" in the strict sense and that they could be termed as a medium of exchange or a store of value. Senior Advocate Shyam Divan, appearing for RBI, disagreed and said that it was a mode of digital payment, which the RBI had the power to control.
