Indian supreme court overturns RBI crypto ban

The Reserve Bank of India’s ban on financial firms providing services relating to crypto assets has been overturned by India’s Supreme Court.

In a ruling dated March 4, the court ruled the RBI did have the power to take action against crypto asset services. But the stance it had taken was disproportionate given there was no evidence that regulated entities had suffered.

“When the consistent stand of RBI is that they have not banned [virtual currencies] and when the government of India is unable to take a call … it is not possible for us to hold that the impugned measure is proportionate,” the court ruled.

As a result, the court ruled the circular issued by the central bank is “liable to be set aside”.

In April 2018, the RBI issued a circular stating banks regulated by the central bank “shall not deal with or provide services to any individual or business entities dealing with or settling virtual currencies”. The circular came into effect in July 2019.

India’s central bank issued the circular over concerns that crypto assets could harm consumer protection, market integrity and anti-money laundering regulations.

Later in 2018, the Internet and Mobile Association of India, an industry lobby, challenged the ban. It argued the RBI did not have the power to prohibit trading in virtual currencies as they are not legal tender.

Iamai’s members include Yahoo! India, Apple and eBay.

The Supreme Court’s extensive ruling examined the RBI’s remit alongside background information regarding crypto asset usage and regulatory approaches taken around the world. The court also attempted to outline the defining characteristics of a crypto asset.

The RBI argued that crypto assets are a digital means of payment and the central bank was “empowered by law” to intervene. However, Iamai claimed crypto assets could be simultaneously commodities, a store of value and a medium of exchange and therefore the RBI had no jurisdiction.

“Virtual currencies are not legal tender but tradable commodities/digital goods, not falling within the regulatory framework of the RBI,” the court’s ruling said. “Virtual currencies do not even fall within the credit system of the country.”

The court also analysed whether financial firms had been damaged by the existence of crypto assets and their associated services. In its ruling, the court noted, “till date, RBI has not come out with a stand that any of the entities regulated by it … has suffered any loss or adverse effect directly or indirectly, on account of the interface that the VC 177 exchanges had with any of them.”

The court’s ruling said that although the RBI had the power to take action, it did not show proportionality in its response to crypto assets.