Internet Mobile Association of India v Reserve Bank of India, Writ Petition (Civil) No.528 and Writ Petition (Civil) 373 of 2018.

The Supreme Court of India has struck down a Reserve Bank of India (“RBI”) Circular which disallowed Indian banks from dealing with virtual currency and also prohibited them from providing any services to individuals trading cryptocurrency or facilitating such trade.

The objectives behind the Circular dated 6 April 2018, as explained by the RBI, were concerns related to money laundering and terrorist financing risks. This had the effect of disabling the trade in cryptocurrency in India because it withdrew the formal banking facilities under which fiat currency could be utilised to buy and sell virtual currency. The RBI’s circular was challenged by cryptocurrency exchanges, as well as the Internet and Mobile Association of India.

Nakul Dewan, a Barrister member of Chambers, and a Senior Advocate designated by the Supreme Court of India, appeared on behalf of the cryptocurrency exchanges before the Supreme Court of India. He not only set out the reasons why the RBI’s Circular was required to be set aside but also dealt with the characteristics of cryptocurrency.

Relying on decisions of the United States, a decision of the Singapore International Commercial Court as upheld by the Singapore Court of Appeal in Quoine Pte Ltd v B2C2 Ltd, [2020] SGCA (I) 02 as well as the recent decision of the English High Court in AA v Persons Unknown & others Re Bitcoin, [2019] EWHC 3556 (Comm.), the Indian Supreme Court acknowledged that bitcoins “belong to different categories ranging from property to commodity to non-traditional currency to payment instrument to money to fund”, but further qualified this proposition by stating that it did not reflect the position of law in its entirety.[1]

The Supreme Court did not go so far as to state the precise nature of cryptocurrencies and while not equating cryptocurrencies with legal tender or fiat money, the court did observe that it could not be said that cryptocurrency “can never be regarded as real money.[2]

While the court did hold that the RBI had the power to regulate cryptocurrency,[3] it accepted the submission that the Circular which effectively banned cryptocurrency was a disproportionate measure and required to be set aside. It did so because it determined that none of the RBI’s regulated entities had “suffered any loss or adverse effect directly or indirectly, on account of the interface that the VC exchanges had with any of them”.[4] Furthermore, relying on a July 2018 report of the European Parliament titled ‘Cryptocurrencies and Blockchain’, the court held that there were alternative regulatory means through which the RBI could have achieved its stated objectives.[5] In light of this, and coupled with the fact that there was no legislative ban on virtual currencies in India, the court held that barring the interaction between cryptocurrency exchanges and the formal financial sector was not a proportionate response.

The effect of the decision is that cryptocurrency exchanges can restart their operations in India, and trade in cryptocurrency can be conducted through these exchanges.