In this opinion piece, Mohammed Danish, a lawyer practicing at the Delhi High Court in India, argues that the Indian central bank’s recent directive to bar banking services to cryptocurrency exchanges is not sustainable by law. You can direct your queries to the Author at [email protected].
The year 2018 does not seem to bestow a sigh of relief to the crypto community as a new press release by the Reserve Bank of India (RBI) has sparked off a tumultuous reaction which is driving the crypto-hopefuls in a tizzy.
Time and again the RBI has been issuing cautionary to the crypto community about the potential financial, operational, legal, customer protection and security related risks which the community is exposed to while dealing in cryptocurrency but despite operating under the dark clouds of such occasional cautionary by RBI, the sector continued to grow buoyed by the rising prices of cryptocurrencies.
Shedding the haze about the Government’s stance in recognizing the potential of “Blockchain” technology and exploring its use for aiding digital economy, the Hon’ble Finance Minister in his budget speech stated that cryptocurrency is not recognized as a legal tender, thus leaving a baffling ambiguity as to which way the camel will sit on the issue of legality of trading! Many in the crypto community welcomed the mention of “crypto” in the speech and interpreted it to be a subtle nod for endorsing the crypto-trading, whereas others were apprehensive on the fate of the investments if the destiny turns out to be otherwise.
Since the wrath of RBI has fallen now, the crypto community has stuck in another whirlpool of legal haphazard. The press release of RBI acknowledged the potential of Blockchain in improving the efficiency of the financial system, however, it simultaneously pointed out the risks involved with cryptocurrencies such as consumer protection, market integrity and money laundering. The RBI further informed that the entities regulated by it will be precluded from providing services to any individual or business entities dealing with cryptocurrencies. As a consequence of this, crypto investors will not be able to transfer money from their bank accounts to crypto trading wallets like Zebpay, Coinsecure, Unocoin etc.
The RBI has the power to issue directions to the banks under Section 35A of the Banking Regulation Act, 1949, inter alia, in the public interest. In an earlier press release dated 24th December 2013, the RBI had enumerated various risks posed by the cryptocurrency entities to their users. If it is assumed that the RBI seeks to protect the general public from such risks then it has to indicate the relevant reasons which became ground for issuing such a draconian direction.
The RBI is considered to be a “State” under Article 12 of the Constitution and therefore RBI is prohibited under Article 13 to issue any direction/circular which takes away or abridges the fundamental rights enshrined in Part III of the Constitution and any direction so issued in contravention of Article 13 shall be void.
The said move taken by RBI is the direct infringement of the fundamental right to carry on trade guaranteed to the crypto exchanges in India under Article 19 (1) (g) of the constitution and therefore such direction has to pass the twofold test of legislative competence and constitutional validity. However, a reasonable restriction can be put in the interest of general public under Article 19 (6) but the RBI has to explain the mischief it seeks to check by putting such restriction.
On the contrary, the RBI has put a blanket restriction on the banks to deal with all the business entities. The direction of the RBI seeks to paint all the entities in the trade of crypto with the same brush, which cannot sustain the test of constitutional validity.
It is commonly believed that the challenges give rise to the opportunities for growth. At the present juncture, the crypto community is required to keep patience and wait for the law to take its own course as unlike other territories where the crypto is struggling for survival, India is a country which is governed by the rule of law. The unfolding events will certainly bring about the new avenues for the world of cryptocurrencies in India.
Disclaimer: The views expressed in this article are the personal views of the author and are purely informative in nature.