Reserve Bank of India v/s Cryptocurrency Traders in India-The Supreme Court of India, the highest court of the country is yet to pronounce the final verdict on the ongoing case between the Reserve Bank of India and the Indian cryptocurrency traders. The Reserve Bank of India has never really had a favorable stance when it comes to the topic of cryptocurrency. This ideology, however, is in line with several other banks across the world.
The tussle started earlier this year when RBI which is the central bank of India, issued a circular. Circular prohibited all regulated financial institutions to enter into a partnership with individuals or organizations that deal with cryptocurrencies. Members of the Indian cryptocurrency community claim that this was unfair on the part of the RBI. Hence their right to practice a trade or occupation is being violated. This led to a court battle between the RBI and the cryptocurrency community. Currently, it is an ongoing issue in the Supreme Court of India.
The Reserve Bank sent out another Press Release in December of 2017, titled: ‘Reserve Bank cautions regarding risk of virtual currencies including Bitcoins’, where the RBI commented on ICOs, saying: In the wake of significant spurt in the valuation of many VCs and rapid growth in Initial Coin Offerings (ICOs), RBI reiterates the concerns conveyed in the earlier press releases.
In their Annual Report of 2017-18 (page 48), the Reserve Bank of India addressed various concerns regarding cryptocurrencies – stating that they can lead to money laundering, as well as terror financing. In the report, the RBI has addressed cryptocurrencies as an ‘Emerging Challenge’. However, these concerns have been resonated by a number of other banks across the world as well.
Finance Minister’s Statement
India’s Finance Minister Arun Jaitley has been rather consistent when it comes to his stance on cryptocurrencies. In December 2017, Jaitley commented that Cryptocurrencies are not a legal tender in India. This was followed by a similar statement in January 2018. However, the most impactful of his statements was perhaps the one that came on the 1st of February, 2018, where he again reiterated his statement.
However, 1st of February 2018 happened to be the Union Budget presentation in India and his statement was broadcasted to an audience of millions watching the budget live – causing a panic among the investors who began to withdraw funds rapidly, having misunderstood his statement. This led to FUD (Fear, Uncertainty and Doubt) in the Indian cryptocurrency markets, causing the price of Bitcoin on Zebpay, one of the most popular Indian cryptocurrency exchanges to slide to as low as $4,000 while it traded at $10,000 internationally.
RBI Issues Notification
Following multiple warnings on trading safely and making their stance on cryptocurrencies clear, the Reserve Bank of India. Notification on 6th of April, 2018 titled ‘Prohibition on dealing in Virtual Currencies (VCs). NThe notification stated that “entities regulated by the Reserve Bank shall not deal in VCs or provide services.”
The Reserve Bank provided a three month period to financial institutions. In which all regulated financial institutions will stop providing services to those people or firms. These firms are involved in cryptocurrency-related transactions. This deadline ended on the 6th of July, 2018.
Exchanges Fight Back
Following this notification, Indian cryptocurrency exchanges, as well as Indian cryptocurrency traders were outraged. A number of online petitions started off, with over 125,000 people signing one of them. Following that, a number of cryptocurrency exchanges moved to the courts – stating that this violates their right to free trade.
Kali Digital Ecosystems, the parent firm of CoinRecoil cryptocurrency exchange was among the first ones to move to the court. In a writ petition filed with the Delhi High Court, the firm claimed a violation of Article 19(1)(g) of the Indian constitution. Article guarantees the right to choose any occupation, trade or business.As well as Article 14, which prohibits discrimination among equals. The firm named the Reserve Bank of India, the finance ministry and the GST Council respondents to the petition. This petition was accepted by the Delhi High court on the 22nd of April.
Following this initial petition, a number of writ petitions were filed across courts in India. The Supreme Court then ruled that all these petitions would be clubbed together. They will be addressed in a single hearing on the 20th of July.
Supreme Court Refuses Injunction
Reserve Bank of India v/s Cryptocurrency Traders in India-Early in July, just days before the three-month deadline came to an end, the petitioners had requested the Supreme Court to issue an injunction upon the RBI’s order. They demanded temporary reversion the decision taken by the Reserve Bank of India before a final verdict could come on this case. However, the Supreme Court refused to provide an injunction in this case – and the hearing was set for the 20th of July.
Exchanges Stop INR Deposits/Withdrawals
Meanwhile, Cryptocurrency exchanges across India had been reminding users to deposit or withdraw the funds before the deadline – and following 6th of July, all deposits were stopped. Some exchanges stopped deposits and withdrawals a few days before the deadline. Though others stopped it on the 6th of July.
Those interested in transacting cryptocurrencies were advised to deposit funds into their wallet account before the deadline. Moreover, frequent reminders were sent out to users of Indian cryptocurrency platforms that they cannot withdraw their funds after the 6th.
Supreme Court Moves Hearing to September
20th of July was a date every cryptocurrency trader and investor in India was waiting for with bated breath. On this day the Supreme Court was going to decide the fate of cryptocurrencies and cryptocurrency exchanges in India.
Limited arguments were heard from RBI and the IAMI(The Internet and Mobile Association of India), which represents internet firms on that day. However, the Supreme Court decided to move the hearing to 11th of September because SEBI and a few other parties were yet to submit their responses to the petition, hence the court ordered them to complete these requirements and to get back on the 11th of September. This led to many of the petitioners being disappointed as they were expecting a swift action and a final judgment to arrive on that day.
India’s Plans for Cryptocurrency Regulations
While the Supreme Court stated that the final hearing for the cryptocurrency case will take place on the 11th of September. The Government of India is planning towards introducing laws for the regulation of cryptocurrencies. The New Indian Express, a local Indian news publication reported that a senior member of the Finance Ministry told them that a detailed paper on digital currency would be ready by that time.
The government body that is working on drafting these regulations is consulting the likes of the RBI, IAMI and SEBI. It is because these bodies are going to be the representatives of the cryptocurrency exchanges, the public and the government.
While regulations are a polarizing topic across the cryptocurrency community – governments around the world are looking forward to regulating cryptocurrencies. USA’s SEC and CFTC, Japan’s FSA etc. are some of the organizations which are working relentlessly towards this goal. India too wants to ensure that they have a proper regulatory framework for cryptocurrencies.
Rise of P2P Exchanges
Following the expiration of three-month deadline issued by the Reserve Bank of India, Indian cryptocurrency exchanges began to rely on alternate means for transactions between cryptocurrency traders to take place. One of the best ways to do this was using Peer To Peer exchanges (P2P exchanges) where consumers could directly transact with each other with the exchange acting as an escrow agent.
Peer-to-Peer platforms began to rise in India, and today almost every cryptocurrency exchange has begun to offer such solutions for their traders. India is a lucrative market for international exchanges too – as Huobi also entered India with their P2P platform Huobi OTC. Moreover, it is not just international players like Huobi which are starting off with their P2P platforms in India. Indian exchanges such as Wazirx have also been providing similar services.
Basically, these P2P platforms act as an escrow agent to ensure that a fair deal takes place between traders. The buyer sends the Indian Rupees to the platform and the seller sends the cryptocurrencies. Once both the parties commit to their part of the deal, the platform pays the money to the seller and the cryptocurrencies to the buyer – and charges a fee for this escrow activity. This ensures that the buyer, as well as the seller, are protected and that there is no scope for fraud.
Finally, while P2P platforms are on the rise in India to bypass the RBI sanctions, the Reserve Bank is aware about this development. The bank stated this in their Annual Report of 2017-18, stating that:
Developments on this front need to be monitored as some trading may shift from exchanges to peer-to-peer mode. which may also involve increased usage of cash. Possibilities of migration of crypto exchange houses to dark pools/cash and to offshore locations…require close watch.
Hearings Get Postponed Again
The Supreme Court had announced in July that the final hearings will take place on the 11th of September.
The court was hearing other lengthy matters – and after a couple of adjournments, the matter was announced to be heard the next day. The same happened on the next day as well and on the 13th of September. The announcement was that this case would now be heard on Tuesday, the 18th of September. A similar incident happened on Tuesday as well, which postponed the hearing to Wednesday. The 19th of September, the Supreme Court ruled that this hearing would take place on 25th of September. But the case was adjourned again.
[Stay tuned with us : This article will be updated as and when Hon’ble Supreme Court makes its next announcement on the case]