1. Introduction
The Supreme Court of India rendered a historic ruling in the matter of Internet and Mobile Association of India v. Reserve Bank of India, which had a substantial effect on the legal standing and regulatory framework of cryptocurrencies in the nation.
The conflict began when the Reserve Bank of India (RBI) issued a regulatory circular in April 2018 forbidding regulated entities like bank and others from rendering services to individuals or companies that deal in virtual currencies ( such as Bitcoin, Ethereum, etc.). This resulted in a de facto ban on cryptocurrency exchanges in India.
The Internet and Mobile Association of India (IMAI), representing crypto-related companies, challenged this circular under Article 32 of the Constitution, arguing that it violated their constitution guaranteed fundamental rights namely , the right to carry on any occupation, trade or business under Article 19(1)(g).
This case raised critical questions regarding the legal status of cryptocurrencies, the regulatory power of the RBI, and the application of constitutional protections to emerging technologies.
2. Issues
- Whether the RBI has the power to regulate or restrict virtual currencies?
- Whether the power was exercised properly and in accordance with law?
- Whether the RBI adopted a reasonable approach or prematurely acted without considering stakeholder interests?
- Whether RBI’s measures on virtual currencies were valid?
- Whether the concerns flagged by RBI had already been addressed by the petitioners?
- Whether different approaches should have been applied to different types of virtual currencies?
- Whether the RBI’s circular warranted deference as a policy decision?
- Whether RBI’s direction was constitutionally valid under Article 19(1)(g)?
3. Facts
- The RBI issued a circular on April 6, 2018 titled “Prohibition on dealing in Virtual Currencies,” directing all its regulated entities (banks, NBFCs, payment systems) not to deal in or provide services to entities dealing with virtual currencies.
- This action adversely affected cryptocurrency exchanges that depended on banking infrastructure for operation.
- The Internet and Mobile Association of India (IAMAI), along with stakeholders like WazirX and CoinDCX, filed a writ petition under Article 32.
- The petitioners argued that cryptocurrencies, though not legal tender, were not illegal either. The circular, though not banning them explicitly, crippled their business by cutting banking access.
- The core question was whether RBI had the legal and constitutional authority to issue such a directive without empirical evidence of harm.
4. Judgment
On March 4, 2020, the Apex court of India struck down and rendered the RBI circular dated April 6, 2018, void on the following grounds:
- The RBI approach remained futile on producing empirical data showing actual harm caused by cryptocurrency exchanges to the financial system.
- The Court recognized RBI’s power under the RBI Act, 1934, Banking Regulation Act, 1949, and Payment and Settlement Systems Act, 2007, but emphasized that such power must be exercised reasonably and proportionately, especially when affecting fundamental rights.
- Applying the doctrine of proportionality, the Court held that less intrusive methods were available and that the blanket ban was excessive.
- It reaffirmed that cryptocurrencies are not illegal, even though they are not legal tender.
- Hence, the RBI’s circular was declared unconstitutional, restoring banking access to cryptocurrency exchanges.
5. Application
- The Court analyzed the legal characteristics of money and virtual currencies, citing foreign judgments (USA, UK, Singapore).
- Virtual currencies, while lacking status as legal tender, could still serve as mediums of exchange or stores of value.
- RBI’s role as the apex regulator justified oversight of virtual currencies, even if they were not “money” in the traditional legal sense.
- However, the Court found that no actual loss or damage had occurred to RBI-regulated entities due to dealings with crypto exchanges.
- The Court referred to EU Parliament’s report (2018) advocating regulation over prohibition.
- Hence, while RBI was within its power to regulate, the circular lacked proportionality, given the absence of harm and the existence of alternative regulatory options.
6. Analysis
- The judgment was a significant relief for the crypto industry, lifting a functional ban on their operations.
- However, the Supreme Court did not determine the legality of cryptocurrencies outright—it only addressed the constitutional validity of the RBI circular.
- The issue remains open-ended as the 2019 Draft Bill on Banning Cryptocurrencies is still under governmental consideration.
- The ruling emphasized the need for evidence-based, proportionate regulation by statutory authorities and warned against arbitrary policy actions.
Grounds of the Ruling:
- Lack of Empirical Evidence: No direct harm shown by RBI.
- Proportionality: Blanket ban was disproportionate; less restrictive means were available.
- Violation of Article 19(1)(g): Fundamental right to trade/business unjustifiably restricted.
- Statutory Overreach: RBI’s power was stretched without proper legal basis.
- Global Practice: Most jurisdictions favored regulation, not prohibition.
- Recognition of Crypto as Virtual Asset: Not fiat currency but still warrants structured regulation.
7. Conclusion
The Supreme Court held that while the RBI has statutory authority to regulate the financial system, any restriction on fundamental rights must be reasonable, justified by data, and proportionate.
The RBI’s April 2018 circular lacked empirical justification, imposed an excessive restriction under Article 19(1)(g), and thus was unconstitutional.
While the Court did not legalize cryptocurrencies, it invalidated the ban on access to banking services by crypto businesses. The Court emphasized the importance of judicial review in economic policymaking and cautioned regulatory bodies against arbitrary or uninformed actions.