Central govt is yet to implement a monitoring mechanism for virtual currencies
Anonymity of transactions and fluctuation of value make it hard to regulate cryptos
NEW DELHI :
The Supreme Court on Wednesday lifted the ban imposed by the Reserve Bank of India (RBI) on virtual currency trading, including cryptocurrencies. The three-judge bench headed by Justice Rohinton Nariman quashed the central bank’s order while hearing petitions challenging the April 2018 circular imposing the ban on financial service providers.
The bench, also comprising Justices S. Ravindra Bhat and V. Ramasubramanian, allowed the petition on the “ground of proportionality".
“When the consistent stand of RBI is that they have not banned 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," said the top court.
The circular issued by the central bank in July 2018 said that entities regulated by 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". However, it had not banned virtual currencies.
“RBI’s regulatory powers are wide and with the benefit of the Supreme Court’s judgment it is expected that it will reconsider its approach to cryptocurrency and come up with a new, calibrated framework or regulation that deals with the reality of these technological advancements, given that central banks across the world are issuing their own cryptocurrencies," said L. Viswanathan, partner, Cyril Amarchand Mangaldas.
The Centre is yet to implement a regulation or put in place a monitoring mechanism on virtual currencies. Last July, an inter-ministerial panel set up by the government on virtual currencies had proposed banning of private cryptocurrencies, barring any digital currency issued by the government by enacting a law and imposing fines and penalties, including jail-term, for trading in cryptocurrency.
The panel comprising officials from the finance ministry’s department of economic affairs, the ministry of information technology, and RBI finalized a report and a draft bill, Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019, on virtual currencies. However, it is yet to be implemented. “It is yet to be seen how lawmakers and the government go ahead and adopt a legal framework for regulating the trade of cryptocurrencies in India.
The biggest challenges attached to dealing in cryptocurrencies that requires regulation are anonymity of transactions and volatility and fluctuation of the value of cryptocurrencies," said Tanuj Hazari, advocate, KNM and Partners Law Offices. “I think what’s likely to happen now is that (Indian cryptocurrency) exchanges, which had shut down after the RBI’s order, will reopen," said Vishal Gupta, founder of crypto-based startups, SearchTrade and Binex.