India’s complicated relationship with virtual currencies and firms dealing with them has now reached the courts.
On April 22, the Delhi high court issued a notice to the Reserve Bank of India (RBI) after a petition challenged the banking regulator’s April 06 order barring lenders from doing business with cryptocurrency exchanges. The RBI directive told banks to wind up their existing business relationships with such firms by July this year, signalling the end of the road for several entities in the Indian virtual currency ecosystem.
The petition was filed by Kali Digital Eco-Systems, which had plans to launch its own cryptocurrency exchange, CoinRecoil, in August 2018. The Ahmedabad-based firm has challenged the RBI order on two grounds: Under Article 19(1) (g) of the Indian constitution, which allows citizens to enjoy the right to carry on any occupation, trade, or business; and Article 14, which prohibits discrimination and mandates equal protection under the law for all.
“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. Logical and well-thought argument backed by solid facts are the primary requirements under the constitution to put a stop to any business in India,” said Rashmi Deshpande, associate partner, Khaitan & Co, a law firm that is representing Kali Digital Eco-Systems.
Besides the banking regulator, Kali’s petition also includes the government of India and the goods and services tax (GST) Council. The petition states that it’s the government that has empowered the RBI to take such drastic measures against exchanges, and the GST Council hasn’t yet formulated therequisite rules for digital currencies, causing the present situation to arise.
The next hearing of the case is scheduled for May 24.
Several other digital currency firms, too, are considering challenging the RBI’s order in court.
“It (the RBI directive) has come with this overarching order that can be challenged on several counts,” Anirudh Rastogi, managing partner at law firm TRA, which represents several bitcoin exchanges in the country, told Quartz earlier in April. “There is a right to trade and it cannot be restricted in absolute terms. Only reasonable restrictions can be imposed and applied but a complete prohibition as restrictive as this was unnecessary.”
The Narendra Modi government, meanwhile, has set up a committee under Subhash Garg, secretary of economic affairs in the finance ministry, to prepare a draft law for bitcoin and other cryptocurrencies. The panel’s report is likely to be submitted by March 2019.