The Supreme Court recognized that Reserve Bank of India (RBI) has the power to regulate the monetary and credit system, which also extends to the regulation of virtual or cryptocurrencies.
The Court, however, held that the RBI circular of April 2018, which completely banned regulated financial institutions from providing services to crypto businesses, is a disproportionate measure and not a reasonable restriction under Article 19(2).
This judgement came in the case of Internet and Mobile Association of India v. Reserve Bank of India
The Internet and Mobile Association of India and other petitioners had challenged the circular given by RBI that barred banks and other financial institutions from facilitating transactions involving cryptocurrencies.
The supreme Court ruled that ruled that the restrictions put in place by the RBI are disproportionate.
“There can be no quarrel with the proposition that the RBI has sufficient power to issue directions to its regulated entities in the interest of depositors, in the interest of banking policy or in the interest of the banking company or in public interest,” the judgment said.
But when it comes to the test of proportionality of the RBI’s measure, the central bank needs to provide proof that its regulated entities have been damaged by virtual currency exchanges and other entities, the court said, adding that the RBI could not show any proof of damage.
The RBI, however, did not consider the availability of alternatives, the top court said