Cryptocurrencies in India always faced a rough ride. From time to time, the Reserve Bank of India (RBI) showed its dislike for unregulated private cryptocurrencies and in the year 2018 RBI issued a circular barring banking institutions from extending services to crypto exchanges in India. This was challenged before the Supreme Court of India (SCI) and in March 2020 a three judge bench of SC struck down the RBI circular as unconstitutional.
This is just a temporary relief as Indian govt is planning to enact The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 into a law soon. The Bill seeks to prohibit all private cryptocurrencies in India but it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses.
Some may consider the judgment of SC as a win but it has given more ammunition to the govt than to the crypto stakeholders of India. The court held that RBI has power to regulate cryptocurrencies but the prohibition imposed through the April 2018 circular was disproportionate, and,therefore, ultra vires the Constitution. It was disproportionate because the ban was not backed by any law made by the Parliament and it is only through a law made by Parliament that reasonable restrictions can be place on Article 19(1)(g), hence cryptocurrencies. Now govt is doing so through the proposed bill.
The argument that cryptocurrencies are not legal tender but tradeable commodities and therefore they fell outside the RBI’s regulatory ambit was rejected by the court. But the proportionality argument was accepted by the court and the circular was struck down.
The court observed that as long as there are certain institutions who accept cryptocurrencies as valid payment for the purchase of goods and services, it was sufficient to bring the currencies within the regulatory power of the RBI. The court held that “Anything that may pose a threat to or have an impact on the financial system of the country can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system.” This power to regulate also included the power to prohibit.
We at Techno Legal Centre of Excellence for Cryptoassets And Blockchain Of India (TLCECBI) request Indian govt to allow regulatory sandboxes and CoE like TLCECBI to continue to implement research and development works and projects in the cryptoassets, cryptocurrencies and similar fields.
We also invite crypto stakeholders in India and other jurisdictions to collaborate with us and work for establishing and implementing a techno legal crypto law regime in India. Let us build a responsible and law compliant crypto environment in India.