The Supreme Court on March 4 set aside an April 6, 2018, circular of the Reserve Bank of India (RBI) prohibiting banks and entities regulated by it from providing services in relation to virtual currencies (VCs).
“Till date, RBI has not come out with a stand that any of the entities regulated by it namely, nationalised banks/scheduled commercial banks/cooperative banks/NBFCs, have suffered any loss or adverse effect directly or indirectly, on account of VC exchanges,” a Bench comprising Justices Rohinton Nariman, Aniruddha Bose and V. Ramasubramanian observed in a 180-page judgment.
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Justice Ramasubramanian, who authored the ruling, found the RBI circular “disproportionate” with an otherwise consistent stand taken by the central bank that VCs were not prohibited in the country. Besides, the court found that the RBI did not consider the availability of alternatives before issuing the circular.
Again, the April circular was issued despite the fact that the central bank could not quote a single instance when VC exchanges “actually impacted entities regulated by RBI”. VCs are digital currencies in which encryption techniques are used to regulate the generation of the currency units and verify the transfer of funds, operating independently of a central bank.
Besides, the apex court referred to the Centre’s failure to introduce an official digital Rupee despite two draft bills and several committees. “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 (April 6, 2018 circular) is proportionate,” Justice Ramasubramanian wrote.
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The court expanded on how the Centre had been toying with plans for an official digital currency.
On November 2, 2017, the Centre constituted an Inter-Ministerial Committee, which initially recommended the ‘Crypto-token Regulation Bill of 2018’. This Bill found a complete ban on VCs an “extreme tool” and suggested regulatory measures. At that point, the committee was even fine with the idea of allowing the sale and purchase of digital crypto assets at recognised exchanges.
The Supreme Court noted how the same committee did a “volte-face” in just two years.
From a permissive draft bill, the Inter-Ministerial Committee went on to recommend a “total ban” on private cryptocurrencies through a proposed legislation called ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Act’ in February 2019. This proposed law contemplated the creation of a digital rupee as official currency and a legal tender by the central government in consultation with RBI.
The court said that had this law come through, there would be an official digital currency. The Centre and the RBI would have had monopoly over its creation and circulation.
“But that situation had not arisen. 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 April 6 circular by disconnecting their lifeline namely, the interface with the regular banking sector,” Justice Ramasubramanian explained.
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The verdict came on a petition filed by the Internet and Mobile Association of India, which had contended that the RBI circular was “arbitrary, unfair and unconstitutional”.