RBI is worried that the order could pave way for trade in virtual currencies, putting the banking system at risk.
The Reserve Bank of India (RBI) is planning to file a review petition in the Supreme Court against the quashing of a central bank circular aimed at curbing cryptocurrencies, said people with knowledge of the matter.
The central bank is concerned that the apex court’s decision on Wednesday could pave the way for trading in virtual currencies and put the banking system at risk. Several cryptocurrency platforms that had shifted base to Singapore and elsewhere after the RBI circular that was issued on April 6, 2018, are now looking to move back to India. This may also mean that banks will allow customers to link bank accounts to cryptocurrency platforms, facilitating trading. The circular had barred financial entities regulated by the RBI from entering into any transactions involving cryptocurrencies.
The apex court said the right to create something that doesn’t violate any existing rule is an unsaid fundamental law. Hence, citizens have the right to create a new industry of cryptocurrencies and exchanges along with the fundamental right to trade, it said. The bench also said that the central bank hadn’t demonstrated that trading in such currencies was damaging to the entities it regulated.
“In a way, the verdict upholds the legality of cryptocurrencies and decriminalises the investors who have already invested in various crypto assets like bitcoin, ether, and various others,” said Sidharth Sogani, founder and CEO of Crebaco Global Inc. “Cryptocurrency exchanges in India can now legally operate for fiat-tocrypto trading pairs as well, in addition to crypto-to-crypto pairs. It remains to be seen how soon the banks will start supporting the exchanges.”
Crebaco is engaged in blockchain and cryptocurrency research.
In 2018, the Indian government and the RBI issued several warnings against dealing in cryptocurrencies such as bitcoin, the former even comparing it with a Ponzi scheme. The RBI had warned users of virtual currencies about potential economic and financial risks and stated that it had not licensed any company in this area. It went on to ban access by cryptocurrency services to the banking system.
Top banks had suspended the current accounts of some top cryptocurrency platforms following the RBI guidelines. Many banks may now lift the freeze, said people in the know. Legal experts said a review may not impact the status of cryptocurrency platforms.
“SC may look at the RBI’s review petition but as of now the cryptocurrency platforms can operate in India,” said Abhishek A Rastogi, partner, Khaitan & Co who had filed a case in Delhi High Court (later transferred to Supreme Court) for a cryptocurrency platform. “Many companies have even gone bankrupt after the RBI’s diktat and they may also look to initiate action in this regard.”
The cryptocurrency platforms had also come under the lens of the income tax department, which had issued notices to 500,000 investors, asking whether they had paid taxes on rise in valuations after a surge in prices. Apart from that, the indirect tax department had issued notices to the platforms and sought explanations on whether they were treating cryptocurrencies as the supply of goods or services and if they were paying goods and services tax (GST).