Reserve Bank circular on cryptocurrency challenged

The Delhi High Court has sought the response of the Centre, the Reserve Bank of India, and the Goods and Services Tax (GST) Council on a plea challenging a circular which prohibits banks and financial institutions from providing services in relation to virtual currencies, including cryptocurrencies.

A Bench of Justice S. Ravindra Bhat and Justice A.K. Chawla posted the case for further hearing on May 24.

Gujarat-based company Kali Digital Ecosystems Pvt Ltd is proposing to undertake the business of operating a cryptocurrency exchange system for customers within the country.

The company said it has already undertaken substantial investment in this regard and had planned to roll-out the cryptocurrency exchange under the trade name ‘CoinRecoil’ in August 2018.

However, due to the April 6 circular issued by the RBI, the company claimed it will not be able to avail banking services, imperative for its business, to operate it, the petition has said.

‘No virtual currencies’

It said the RBI’s circular prohibits entities regulated by it, such as commercial banks and non-banking financial institutions, from providing any service in relation to ‘virtual currencies’, including those of transfer or receipt of money in accounts relating to purchase or sale of ‘virtual currencies’.

The plea said in case of regulated entities already in the business of virtual currency services, a time limit of three months was given by the RBI to cease such services. It sought quashing of the circular on the ground that it is “arbitrary, unconstitutional and violative of the Constitution”.

The petition has also sought a direction to the GST Council to “frame appropriate regulation on cryptocurrencies”. Cryptocurrencies are digital currencies in which encryption techniques are used to regulate generation of currency units and to verify transfer of funds, operating independently of a central bank.