The Supreme Court considers that the measure taken in 2018 was unbalanced and rushed. The court indicates contradictions in the position of the BRI and the government regarding cryptocurrencies.
It was reported that the Supreme Court of India eliminated the ban on cryptocurrency trading in that country, which was imposed by the Reserve Bank of India (RBI) in April 2018. In its verdict, the Court stated that the ban was not proportional and that the RBI itself found no adverse impact or damage by the activities of cryptocurrency exchanges.
The Court also allowed a series of allegations that challenged the 2018 RBI circular, which stipulated the ban on banks and financial institutions to provide commercial services related to virtual currencies, among which were cryptocurrencies.
The RBI order had banned the trading of all virtual currencies in India. In this respect, the Internet and Mobile Association of India (IAMAI) requested the repeal of that order, on behalf of cryptocurrency trading companies.
The director of the Fintech Convergence Council of IAMAI, Naveen Surya, said that the industry is excited to work closely with regulators, among which is the Reserve Bank of India, to mitigate all possible risks concerning virtual currencies and to foster the growth of these innovations.
Verdict on the prohibition on cryptocurrencies
The Court, headed by Judge R. F. Nariman, stated in the verdict that they have recognized in some parts of this order the power of the RBI to take preventive actions. However, they are still testing the proportionality of such measures to determine whether the RBI needs to show at least some semblance of any damage suffered.
According to the jury, who said that the RBI circular was not provided, there was a contradiction in the RBI’s position when it insisted that virtual currencies were not banned in India since the circular prohibited all trading around them.
The Court said that through the banning of cryptocurrency trading and exchanges, virtual currencies had been disconnected from their lifeline. To make things worse, this was done despite the RBI not finding anything wrong regarding the operations of these exchanges and virtual currencies not being prohibited.
The verdict also refers to the position of the government of India and explained how the same inter-ministerial committee reached two completely different conclusions in 2018 and 2019. In the 2018 version of the legislative proposal for cryptocurrency regulation, the inter-ministerial committee approved the sale and purchase of digital assets in recognized cryptocurrencies exchanges.
This position changed completely in 2019 when this same committee requested a complete ban on “private currencies” while also requesting the creation of a digital rupee as legal tender.
Verdict Meaning to Industry
Naveen Surya considers that the RBI circular had surprised the industry and was seen as a hasty reaction. As the industry always wanted to work jointly with regulators, several skillful and responsible players understanding the risks communicated with the Securities and Exchange Board of India (SEBI), the government and the RBI.
The issue is still crucial as there is a legislative proposal to prohibit virtual currencies in Parliament. It is expected that the government will make appropriate decisions that allow a balance between innovation and risk, rather than just one dimension.
By Alexander Salazar
