SC allows banks to provide services on cryptocurrencies; sets aside RBI ban

The Supreme Court Wednesday allowed banks and financial institutions from providing services related to cryptocurrencies by setting aside the RBI's 2018 circular which had prohibited them.

Cryptocurrencies are digital or virtual currencies in which encryption techniques are used to regulate the generation of their units and verify the transfer of funds, operating independently of a central bank.

A three-judge bench, headed by Justice R F Nariman, said the Reserve Bank of India (RBI) circular is liable to be set aside on the ground of "proportionality".

"Accordingly, the writ petitions are allowed and the circular dated April 6, 2018 is set aside," said the bench, also comprising justices Aniruddha Bose and V Ramasubramanian.

"When the consistent stand of RBI is that they have not banned VCs (virtual currencies) and 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 is proportionate," the bench said in its 180-page verdict.

The apex court delivered the verdict on pleas challenging the RBI circular.

According to the circular, the entities regulated by the RBI were prohibited from "providing any service in relation to virtual currencies including those of transfer or receipt of money in accounts relating to the purchase or sale of virtual currencies".

The petitioner, Internet and Mobile Association of India (IMAI), had argued in the top court that the RBI had banned cryptocurrencies on "moral grounds" as no prior studies were conducted to analyse their effect on the economy.

It had contended that the RBI barred all the entities regulated by it from providing services to any individual or business dealing in virtual currencies.

In 2013, the RBI in an advisory cautioned users, holders, and traders of virtual currencies, including Bitcoins, about the potential financial, operational, legal, customer protection, and security-related risks that they were exposing themselves to.

On July 3, 2018 while hearing IMAI's plea, the top court had refused to stay the RBI circular prohibiting banks and financial institutions from dealing with the cryptocurrencies like bitcoin.

It had sought response from the RBI, Finance Ministry and Union ministry of Information and Technology on the plea.