New Delhi: The Supreme Court on Tuesday refused to stay a Reserve Bank of India (RBI) circular prohibiting banks and financial institutions from dealing in virtual currencies such as Bitcoin.

With no interim stay on the circular, all virtual currency transactions through banks would be blocked from 6 July, effectively resulting in a ban.

A bench comprising chief justice Dipak Misra and justices A.M. Khanwilkar and D.Y. Chandrachud was hearing a petition filed by the Internet and Mobile Association of India (IAMAI) challenging the 6 April RBI circular that prohibited banking services for dealing in virtual currencies, while giving three months to banks to settle their accounts with such entities or customers.

The apex court issued a notice to the RBI while asking it to consider the representations made by the stakeholders in the matter.

Counsel appearing for IAMAI, C.A. Sundaram sought an extension of the three-months time period given to banks to close the accounts dealing with cryptocurrencies, as the move would be “irreparable" and result in a demonetization-like situation for customers. The association is not opposed to any regulation, Sundaram clarified.

Counsel appearing for RBI, V.P. Singh objected to the reference to demonetization and said cryptocurrency was never legal tender and said RBI was examining the representations made by the parties.

RBI has repeatedly through its public notices on December 24, 2013, February 1, 2017 and December 5, 2017, cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.

“The RBI restriction will kick in from 6 July 2018 as envisaged in the circular. This is a big blow to not only cryptocurrency trading platforms, but also individuals holding cryptocurrency. The choking of banking channels means that virtually all cryptocurrency-related transactions will have to be done in cash or not at all.", said Rashmi Deshpande, associate partner, Khaitan & Co.

On 5 April, the RBI had said entities regulated by it shall not deal in virtual currencies or provide services for facilitating any person or entity in dealing with or settling virtual currencies, while giving entities which already provide such services to exit the relationship within three months.

Such services included maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer or receipt of money in accounts relating to purchase or sale of virtual currencies.

The matter would be next heard by the court on 20 July along with other petitions which have also challenged the legality of the circular.

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