On March 4, the Supreme Court of India pronounced the verdict which was the culmination to two years’ worth of legal battle that ensued after the Reserve Bank of India (RBI), on April 6, 2018, restricted financial entities from providing services to cryptocurrency players. In its decision, the court has held that since the RBI was not able to provide evidence to prove the potential harm that could be suffered by the regulated entities due to the operation of the cryptocurrency players, the RBI’s ban was unjustified.
Whether this settles the debate once and for all and provides the necessary impetus for the growth of the crypto-industry in India or merely settles as a paper tiger is to be seen.
After the initial trickle of crypto-players from 2015 onwards who were viewing India as a favourable landscape for conducting business owing to the affinity towards trading and availability of tech talent, the scene drastically changed in April 2018 when the first step towards regulating cryptocurrencies was taken in the form of the RBI circular. However, instead of a gentle push to keep these players in check, the RBI shoved them aside by cutting off their financial sources.
This resulted in several prominent and budding cryptocurrency players shifting base to other countries such as Estonia, Singapore etc. With the challenge to the RBI circular being taken to the Supreme Court, it was for the first time that we heard the view of the regulators. Surprisingly, in its response, the RBI maintained that it did not seek to ban cryptocurrencies. However, this can be perceived as duplicitous considering, in 2017, the RBI issued advisories warning against dealing in cryptocurrencies.
The lack of definite observations from the various interdisciplinary committees set up by the government and the Securities Exchange Board of India (SEBI) during the course of 2017 also contributed to the confusion. With this backdrop, the Supreme Court commenced hearing the petitions filed by Internet and Mobile Association of India and other cryptocurrency players. These petitions were clubbed with the earlier petitions filed by individuals who sought a ban and/or regulation of cryptocurrencies. Interestingly, later the petitions were again split into two batches owing to the differing prayers and different questions of law involved.
Interestingly, from a legal perspective, this decision although landmark in its own way, does not provide all the answers. Although the court has taken cognisance of the position taken by several international committees and the views taken by other countries due to the ample material placed on record, there is no finding on the legality of the use of cryptocurrency or regulation thereof.
The limited point that has been decided is the legality of the RBI circular whose basis itself was suspect to begin with. We cannot deem the battle to be over as the larger question regarding the legality of use of cryptocurrency could probably be decided by the Supreme Court when hearing the other petitions filed by the individuals. Even though as on date trading in cryptocurrency can effectively commence in India, there is no saying that the tax authorities or other regulators will not run these cryptocurrencies to the ground due to the lack of clarity.
The need of the hour is exhaustive regulations formulated after stakeholder consultations, which covers every facet of all transactions associated with use of cryptocurrencies. Instead of creating ring fences and smokescreens, a holistic set of guidelines on the regulatory, tax and governance of cryptocurrency is crucial as ignoring this futuristic model of trading will only deprive the overextended cash economy of India the much needed respite. Also, it would deny the trade an opportunity to study the benefits of integration of the blockchain technology into financial transactions.
In this state of confusion, it is unlikely that the cryptocurrency players will be very encouraged to return to Indian shores confidently. With all this one can only wonder if the Supreme Court decision has achieved too little and if it has come too late in the day.
Rashmi Deshpande is Partner and Anjali Krishnan is Senior Associate, Khaitan & Co. Views are personal.