Crypto Policy in India: A Test of Constitutional Law with insights from the 2018 ban -written by Poonam Chanchlani (BCA, Data Science)

In a landmark decision, the Supreme Court of India had invalidated a circular issued by the Reserve Bank of India (RBI) that prohibited financial institutions from facilitating transactions involving digital or cryptocurrencies, in 2018. The RBI's ban, which took effect in April 2018, had a detrimental impact on the Indian cryptocurrency industry, severely limiting its growth and potential.
 

The Internet & Mobile Association of India (IAMA) contested the ban in the Supreme Court, asserting that cryptocurrency trading was a legitimate business activity. They argued that the RBI's jurisdiction did not extend to these assets, as they could be categorized as commodities rather than traditional currency.

The concept of cryptocurrencies diverges from traditional fiat currency, which derives its credibility from central bank endorsement and legal backing. Unlike fiat currencies, cryptocurrencies lack sovereign guarantees and their underlying value source remains ambiguous. They tend to function more like investment instruments, resembling shares in the equity market, earning them the term "Crypto-Assets."

 

The court judgment is multifaceted. It recognizes the RBI's authority to address virtual currencies but deems the outright prohibition excessive, considering its adverse impact on lawful trade. The RBI failed to demonstrate harm to regulated entities or deficiencies in virtual currency exchange functioning due to their involvement.

On an administrative level, the Supreme Court views an all-out ban as disproportionate, advocating less intrusive alternatives. Existing regulations like the Consumer Protection Act, Information Technology Act, Foreign Exchange Management Act, PMLA, and taxation, deposit, and criminal laws already apply to virtual currency transactions, aligning them with mainstream economic activities.

 

Constitutionally, the court finds the ban unconstitutional as it infringes upon the right to trade, protected under Article 19(1)(g) of the Indian Constitution. Prime Minister Narendra Modi has highlighted the need for comprehensive cryptocurrency regulations, recognizing the sector's global significance. As part of its G20 Presidency, India is prioritizing cryptocurrency regulation, with a focus on achieving a unified, globally accepted framework.

PM Modi emphasizes the democratization of technology and the importance of a collaborative approach in adopting advancements. He envisions a consensus-based model for cryptocurrency regulation, ensuring uniformity across nations. As India paves the way for legitimate cryptocurrency activities, the finance ministry and RBI actively advocate for a structured regulatory framework.