The High Court of Delhi has sought a response from the Central Government of India over a statement issued by the Reserve Bank Of India on April 6, 2018. Amidst other restrictions, it barred banks and other financial institutions across the country from providing any banking services to companies involved in dealing with cryptocurrencies. The High Court also directed the GST Council and RBI to present their argument by the date of the next hearing.
A Petition Challenging RBI Circular
Ahmedabad based Kali Digital Ecosystems Private Limited had first filed a writ petition on April 16, 2018, arguing that the RBI regulation was a violation of articles 19(1)(g) and 14 of the Indian constitution. Kali Digital Ecosystems operates a multi cryptocurrency exchange.
Kali Digital Ecosystems has reportedly hired the legal firm Khaitan and Co. as its legal council. The petitioners argue that the sudden restrictions imposed by the Central Bank should be deemed illegal as they are a clear violation of laws prescribed in the constitution. Furthermore, such a blanket ban can potentially damage business sentiment and affect all cryptocurrency firms operating in the country.
The Petitioner’s Stand
Rashmi Deshpande, an advocate at Khaitan and Co., said:
“The move by the RBI has put the burgeoning cryptocurrency sector in jeopardy and may affect the basic rights of such entities to carry on any trade. The circular appears to be arbitrary and unconstitutional since it does not give strong facts as to why RBI is against the business of cryptocurrencies.”
RBI Regulation Damaged Cryptocurrency Sentiment
The Reserve Bank of India (RBI) came under heavy criticism after its announcement, particularly as the crypto community felt that it was a decision made in haste. As a consequence of the circular, various Indian banks also notified their customers that they would stop processing all cryptocurrency related transactions through their accounts.
The move dampened the digital currency market in the country, with several cryptocurrency exchanges reporting shrinking in trading volumes by almost up to 50 percent. There is still no absolute clarity on the legal status of cryptocurrencies in India as the RBI has only stated announced that it will not support a decentralized economy, while tax authorities have decided to tax profits from cryptocurrency trading as capital gains.
Indian Government Stand on Cryptocurrencies
While presenting the annual budget in the lower house of the parliament, Indian finance minister Arun Jaitley had said:
“The Government does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system… The Government will explore use of blockchain technology proactively for ushering in digital economy.”
Dwaipayan Bhowmick also petitioned the Supreme Court of India in a 43-page application, demanding to know why there had been a delay in issuing a concrete cryptocurrency policy in the country.
According to a report by a local publication, The Hindu, the advocate petitioner said:
“Certain countries have made bitcoin subject to their respective tax regimes, while a few other countries have designated it as a commodity, thereby making bitcoin subject to government regulation and accountable to the exchequer, but no such mechanism exists in India till date.”