The Reserve Bank of India in April 2018 pushed a circular that prohibited banks and other entities from servicing companies or individuals dealing in Cryptocurrrencies. India’s top court has said this circular aka ‘Banking Ban’ has failed the test of proportionality.
India’s Crypto Community can rejoice today as the Supreme Court has quashed the Reserve Bank of India’s ‘Banking Ban’.
Crypto exchanges and individuals will now be able open bank accounts freely. However, it remains to see how much the banks and payment processors themselves support the ruling, as they have been notorious in the past.
The joy is evident from twitter today, after Crypto Kanoon, the policy analysts from India broke the news.
The petitioners Internet and Mobile Association of India (IAMAI), crypto exchanges and few crypto traders argued in court that RBI’s circular was without any merit and purely against the constitution. Ashim Sood, representing IAMAI had also argued the circular had forced legitimate businesses to shut down. Nishith Desai Associates, the law firm representing IAMAI had also published a paper on how can Crypto assets be regulated in India.
Nakul Dewan represented other exchanges in the case, while RBI was represented by Shyam Divan, who argued that RBI had taken precautionary step before Crypto can be big and is able to destabilize the economy.
The supreme court has rejected all of the arguments by IAMAI but held that RBI’s circular fails the Test of Proportionality.
The Judgment reads,
“While we have recognized elsewhere in this order, the power of RBI to take a pre-emptive action, we are testing in this part of the order the proportionality of such measure, for the determination of which RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none.”Supreme Court Judgment for Writ Petition (Civil) No.528 of 2018
How it all began!
India’s central bank, aka Reserve Bank of India, on April 06, 2018 releases a circular barring any regulated entities from providing services to Crypto companies or traders. The domino effect of the circular led to several exchanges shutting down, or moving their HQ into different countries. Some exchanges survived by adding innovative Peer to Peer trading options hence not needing bank accounts themselves to operate.
CoinRecoil was one of the first exchanges to file a petition against the Reserve bank. The Delhi High Court issued notice to RBI for the same. Soon after the petition was moved to Supreme Court, as several other were filed in the top court against RBI.
Four exchanges and few individuals filed a writ petition for intrim relief – immediate stay on RBI’s circular, which was rejected by the Supreme Court. In May 2018, before the court took a break for Summer, IAMAI, India’s mobile body, filed an emergency writ petition to put a stay on RBI’s circular. The case was not heard.
The Merging and Un-merging of Many Appeals
Initially, the court merged two other Crypto related petitions in the court filed in November 2017. At one point, the court was to hear arguments to ban, allow and regulate cryptocurrencies, all at once.
In October, 2017 Siddharth Dalmia and Vijay Pal Dalmia filed a writ petition against Union of India, the Reserve Bank of India, ministry of Finance and the ministry of Home affairs. The petition 1071/2017 sought for a complete ban on cryptocurrencies in India deeming them illegal.
Two brothers Dwaipayan Bhowmick and Manab Kumar Bhowmick filed the now famous 43 page petition against seven government bodies including the union of India and Reserve Bank of India “seeking issuance of directions of appropriate nature so as to regulate the flow of Bitcoin (crypto money) and to ensure that the same be made accountable to exchequer.” In other words, a clarification of the state of Crypto in India.
The petition 1076/2017 was listed on registrar court for the longest time as several of the respondents failed to register. Petitions from both Dalmia and Bhowmick were tagged together with petitions from exchanges and IAMAI.
Fortunately, the court realized the need for segregating these issues and began hearing the arguments in only the Reserve Bank Circular related matter from August 2019.
From August 2019 to January 2020
In August 2019, after hearing the matter for four days, when it almost felt like the arguments were done, the Supreme Court threw a curve ball.
On August 22, the supreme court directed RBI to respond to representation made by IAMAI back in May 2018, point by point. The court noted that RBI had simply forwarded the representation to the inter ministerial committee instead of addressing the points raised by IAMAI. The next hearing date was set to September 25, 2019.
Due to multiple circumstances, the case got further deferred to January 2020 for hearing. On January 15, 2020 SC told the counsels they should present their case from the very beginning. The case was heard completely on January 28, 2020.
Now, it was time to wait for the Judgment.
The Side Project of Government
While RBI was busy choking the thriving crypto industry in India with Banking Ban, the government did not hold back.
In November 2017, India’s Finance Ministry setup an Inter-Ministerial committee to report on how to regulate Virtual currencies. The committee was heading by Subhash Chandra Garg, and after three meetings in the span of 1.5 years, the committee on July 22, 2019 released its report.
The report recommended a complete ban on Cryptocurrencies in India. Not just that, the draft bill to ban cryptocurrencies in India also suggested a prison sentence for offenders.
Nothing concrete has been announced since July 2019 around this draft bill.
People Fought Back
Despite the Draconian albeit quite effective effort, the Crypto Community found alternatives to keep the fire burning.
Exchanges built P2P trading solutons.
Blockchain and Cryptocurrency meetups and events did not stop.
Public Blockchains like Tezos, Cosmos, Harmony are setting up bases in India to support India’s developers.
These are just some examples of the drive of Indian Crypto community.
Now that the long awaited verdict is out, what do you think will be the next move by exchanges and the community? Let us know in the comments below.
Update: The article earlier said the Supreme Court set aside the RBI circular as it is unconstitutional, it has since been updated as RBI circular failed the test of proportionality.