The Reserve Bank of India's circular was struck down by the Apex Court. The circular appears to be aimed at prohibiting the trading of virtual currencies, commonly known as cryptocurrencies. The court found the Reserve Bank of India's limitations on banks and other businesses trading virtual money to be unjust and declared the restrictions unenforceable.
It was specifically stated in the judgment that:
"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"
In the instant case titled Internet and Mobile Association of India v. Reserve Bank of India three issues were raised before the Court for clarification, they are:
Is the prohibition founded on the expression of public interest or has it infringed on the Fundamental Right to Freedom of Trade provided by Article 19(1)(g) of the Indian Constitution?
Whether the RBI circular was reasonable?
Whether the RBI has the power to prohibit the activity of trading in VCs?
With regard to the first issue, of the Petitioners' alleged infringement of their fundamental rights, the Supreme Court of India concluded that any restriction on the freedom given by Article 19 (1) (g) of the Indian Constitution must pass the reasonableness test. The Petitioners argued that, because access to banking is analogous to the provision of oxygen in any contemporary economy, denying such access to people who engage in lawful trade is not a legitimate restriction and is grossly unfair.
With regard to the second issue, the SC found that the RBI circular is not reasonable or proportionate because: The RBI has not detected any negative impact of VC exchange activities on the way regulated businesses (such as banks) operate in the last 5 years or more. The RBI has stated that VCs are not prohibited in the country. As a result of the foregoing, the Supreme Court decided that the RBI Circular is susceptible to be thrown aside on the basis of proportionality.
With regard to the third issue, because some institutions accept VCs as acceptable payment for products and services, it's impossible to avoid the conclusion that VC users and traders are engaging in activities that fall under the RBI's scope. According to the Supreme Court, VC has the potential to create a parallel monetary system, which is seen as a danger to the existence of a central authority monetary system. As a result, the RBI has the authority to regulate or prohibit any such activity.
The Court categorically held that:
It is undeniably true that the RBI has extensive powers because of the statutory structure outlined in the three enactments mentioned above and because of the RBI's unique position and role in the country's economy. These powers can be used for both preventative and therapeutic purposes. However, the way and amount to which authority can be exerted differ from its availability.
While the Supreme Court's decision is a piece of welcome news for the VC and cryptocurrency industries, which have been harmed by the RBI's prohibition on its regulated entities dealing in VC transactions, it is important to note that the SC has not addressed the legality of VCs and cryptocurrencies, which are still unregulated under Indian law (in absence of any specific legislation or regulation). Although the Reserve Bank of India has broad powers and plays an essential role in the development of the Indian economy, the court found that it was unable to demonstrate any harm to its regulated firms. As a result, the Reserve Bank of India's directives urging banks to cease engaging with or providing services to organisations trading in virtual currencies are unenforceable.