Supreme Court Lifts RBI Ban on Cryptocurrency Trading: Bitcoin Legal in India

Deepti Shikha

20 Jan, 2021

India’s Supreme Court on Wednesday overturned Reserve Bank of India’s (RBI) two-year-old ban on cryptocurrency trading in the country, which is considered as a historic verdict. Now the banks are permitted to handle cryptocurrency trading or transactions from exchanges and traders. This judgement overturns the cryptocurrency trading ban that had come as a major blow to the industry. In April 2018, RBI had ordered all the financial institutions to cut off ties with businesses or individuals dealing in virtual currency such as Bitcoin^[1] within three months. The ban collapsed the cryptocurrency trading business.

• The three-Judge bench comprising of Justices Rohinton Fali Nariman, Aniruddha Bose and V. Ramasubramanian brought some respite for India’s cryptocurrency traders.
• Startups now after the clarity of court expect more balanced regulations from the government.
• As per the Plaintiffs, this ruling proves that RBI has failed to show that any harm was caused to the banks due to cryptocurrency trading.
• The apex court also ordered Reserve Bank of India to direct the Central Bank to unfreeze Koinex’s account.

What is Cryptocurrency Trading?

Cryptocurrency is a digital currency in which encryption techniques like blockchain are used to regulate the generation of currency and verify the transfer of money or funds, operating independently of the Reserve Bank of India.

Cryptocurrency trading is an act of speculating on cryptocurrency price movements through a Contract of trading (CFD) account, or buying and selling the underlying coins via an exchange. Blockchain functions by recording cryptocurrency trading in blocks, with the new blocks added in front of the chain.

Historic Day for Cryptocurrency Trading Businesses

• In the present time, there has been an unprecedented crypto development in the country.
• Some of the prominent entities dealing in cryptocurrency trading business like OKEx, Binance have entered the Indian market either through partnership or acquisition. Zebpay which had shut down its business in India, also announced its comeback.
• According to Shivam Thakral, the founder and CEO OF BuyUCoin, this judgement is historical and also a proud moment for the Indian crypto business.
• The leading exchange Unocoin had to shut down its business due to circular passed by RBI on April 6 circular while the founders were arrested even before launching India’s first Bitcoin ATM.
• Another crypto startup Cashaa a London based start-up which had recently started offering Bitcoin and some other cryptocurrencies in Indian Rupees(INR) has announced plans to organise over 5000 KM long Indian Crypto Bull Roadshow, 2020 to increase awareness amongst the people all over the country.

What was the Case Before Supreme Court about Cryptocurrency Trading?

The central bank in its statement on the developmental and regulatory Policies on April 5, 2018, directed all the entities regulated by RBI by RBI not to deal with or provide any services to individual or business entities dealing with or settling cryptocurrencies. It also specified that if any individuals or entities are dealing in cryptocurrency trading or settling, cryptocurrencies must exit the business. 

The  IAMAI or Internet and Mobile Association of India on behalf of all Indian crypto startups had filed a civil writ petition in Supreme Court against the Reserve Bank of India(RBI) on May 16, 2018. However, the IAMAI was not the first one to approach the court on this matter.

An Ahmedabad based cryptocurrency trading firm Kali Digital, which used to run multi-cryptocurrency exchange CoinRecoil was the first to file a petition in Delhi High Court on April 16, 2018, which was followed by multiple cases all over India.

However, the matter got clubbed with all other pending crypto cases pending across various courts in India in August 2018.

What were the Favorable Arguments in the petition which helped in winning the Case for Cryptocurrency Trading?

According to Article 14, no person shall be denied equality before the law and equal protection of laws within the territory of India.

As per Article 19 (1) (g), all citizens can carry on any occupation, trade or business. The citizens have the right to practice any profession.

Counsel Ashim Sood and Shri Nakul Dewan in its 104-page written submission had put forward the following arguments among other major arguments:

• RBI has no power to prohibit trading in virtual currencies via such circular.
• RBI does not have any statutory power to forbid any economic activity or business based on its nature of business.
• All other stakeholders such as SEBI ( Securities and Exchange Board of India), Department of Economic Affairs, CBDT etc. have identified the beneficial aspects of cryptocurrencies.
• RBI accepts blockchain but not a cryptocurrency; hence it contradicts its statement.
• Cryptocurrencies are goods or commodities and not money or other legal tenders; hence it falls outside the preview of RBI Act 1934, Payment and Settlement Systems Act, 2007 and Banking Regulation Act, 1949

Will Exchanges’ Accounts Be Unfrozen in Cryptocurrency Trading Business?

An Indian crypto exchange who successfully had raised funding was Koinex. However, the exchange was down in July 2019 after the Central Bank of India (CBI) froze its account having money over Rs. 12 crores.

Even after many requests, the Central Bank refused to unfreeze the account due to RBI’s circular. Due to this Koinex filed a separate writ petition in the Supreme Court requesting to access the account.

The three bench judge addressed the issue and said that the lukewarm response of RBI in this regard is not justified. The activities carried by Koinex cannot be said as unlawful.

RBI must direct the Central Bank of India to defreeze the account of Koinex and release all its funds.

Takeaway

Bitcoin and all other types of virtual currency are just one type of tokens on the blockchain. Fintech could do wonders with the blockchain technology; for example, it can help in cutting the cost of cross-border remittances. Instead of banning cryptocurrencies, the government should empower the Reserve Bank of India (RBI) to regulate them. Cryptocurrency should be treated as commodities that can perform functions like making payments, serve as a unit of account and store value.

Please find the judgement in the link given below: