SC commence hearing on pleas against RBI circular banning cryptocurrency

The Supreme Court Thursday commenced final arguments on a batch of pleas challenging a Reserve Bank of India circular prohibiting banks and financial institutions from providing services in relation to cryptocurrencies.

Cryptocurrencies 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.

A bench of Justices R F Nariman and Surya Kant said that it will take up the matters seeking regulation of cryptocurrency at the later stage and would first deal with the batch of petitions challenging the RBI circular of last year.

According to the April 6 circular of last year, the entities regulated by the RBI are 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 Internet and Mobile Association of India (IMAI) opened the arguments in the case and said that the RBI had banned cryptocurrency on "moral grounds" as no prior studies were conducted to analyse the effect of these virtual currencies on the economy.

The association contended that the RBI circular has barred all the entities regulated by the apex bank from providing services to any individual or business dealing in virtual currencies like cryptocurrencies.

Counsel appearing for IMAI argued that the blockchain technology adopted in these virtual currencies was not disputed and therefore a blanket ban was "arbitrary, unfair and unconstitutional".

The counsel referred to a RTI reply given by the RBI in which it was said that no study had been undertaken by the top bank and not even any committee had been constituted to study the effect of cryptocurrency on the economy.

The hearing remained inconclusive and would continue on August 14.

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.

The RBI had on April 6, 2018 last year had said that it had repeatedly cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.

On July 3, last year while hearing a plea of IMAI, 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 RBI, Finance Ministry and Union ministry of Information and Technology.