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Supreme Court Lifts RBI’s Ban on Crypto Currency

March 6, 2020

By Rupin Chopra and Aditi Rao

The Supreme Court on March 04, 2020 lifted the ban imposed by RBI on crypto currency in 2018. The Apex Court’s verdict is being considered a historic verdict, especially for India’s virtual currency industry and start-ups.

RBI’s Ban on Crypto Currency Trading

The Apex Court ruling comes as a response to the RBI’s 2018 circular dated April 6, 2018[1], wherein it directed that all entities regulated by it would hereinafter not deal in virtual currencies or provide any services facilitating the same. This echoed the Indian government’s sentiments, who have for the longest time, treated the concept of virtual and crypto currency with skepticism, issuing repeated warnings against investing in the same and even going as far as to call them Ponzi schemes. Further, post the circular, regulated entities that were already providing such services were told to exit the industry in three months, which not only led to plummeting trade volumes, but also many exchanges shutting down their business. As a result of which , the Supreme Court’s present order is quoted to act as a catalyst that ought to revive the Indian virtual currency industry post its 2018 standstill.

SC- Very Little Evidence to show that crypto currencies pose a threat to Banking system

The Three-Judge Bench of the Supreme Court in its ruling in the case of Internet and Mobile Association of India v. Reserve bank of India[2] stated that while the RBI as a central bank has the power to take pre-emptive actions, the same must be validated in view of the proportionality to the risk being addressed by such a ban. “RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none,” the Court held in its 180-page ruling. There was, in fact very little evidence to suggest that crypto currencies posed a threat to the Indian banking system, they observed.

Take Away

While this move seemingly paves the way for crypto currencies to start right back up, it must be noted, that the 2018 ban wound-up many such operations, the ramifications of which are going to be difficult to offset[3]. The ban on a larger scale discouraged virtual currency based innovation and caused money and organizations to shift to far more innovative and lucrative countries. It also begs the question as to whether merely removing the legal embargo shall be a smooth sail in renewing the virtual currency market. With banks being aware of the distrust that the Indian government has reserved for crypto currencies, the question remains if they would continue to avoid dealing with the same by no reason but way of caution. Moreover, with the information on crypto currencies still being largely nascent in India, it cannot be ignored that largely, organizations still worry about heightened issues of money laundering and unregulated competition.

Despite the uncertainty of what this move means for the tech and crypto currency industry, the judgment is a welcomed eventuality, especially for crypto-ventures in India and those seeking to enter it. Across the world, this marks a move that allows the tech-industry to now tap into India’s 1.2 billion strong market in more avenues. Any hurdles that may remain or come up would be addressed in the coming time, with the Indian government recognizing this highly upcoming and moving industry and looking to create a more nuanced law to deal with the same. Until then, it looks like India is now a willing player in the bigger picture.

[1] Reserve Bank of India (2018). Prohibition on dealing in Virtual Currencies (VCs). [online] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11243

[2] Writ Petition (Civil) No. 528 of 2018

[3] Rastogi, A. and Roshan, R. (2020). Cryptocurrency | SC judgment brings short term respite. [online] Moneycontrol

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