The Supreme Court of India addressed two crypto-related issues Thursday after repeatedly postponing hearing them. The first issue concerns the banking restriction by the central bank.
The Reserve Bank of India (RBI) issued a circular in April last year banning regulated financial institutions from providing services to crypto businesses.
The Indian supreme court finally heard the crypto case today after postponing it several times. The court addressed the government’s crypto policy as well as the writ petitions challenging the banking restriction by the central bank.
The latter was heard in some detail while the former was further delayed at the request of the government.
Supreme Court Heard RBI Ban Case Today
According to Crypto Kanoon, an Indian platform for crypto regulatory news and analysis, the provisions of the RBI Act and the Banking Regulation Act, along with the circular in question, were all analyzed in court to ascertain whether the central bank has the power to impose such a ban. The “RBI is only a delegatee of power which cannot exercise the same powers as Parliament which has a direct impact on legitimate businesses”, the platform conveyed.
The counsel for crypto exchanges argued that the “RBI restricting banks from providing services to crypto businesses is a colorable exercise in the guise of consumer interest. It can exercise power in public interest only to the extent as provided under law such as interest of depositors, borrowers etc”, Crypto Kanoon detailed. The counsel showed the court that crypto exchanges have suffered losses due to the banking ban including a decrease in the number of users. The court further asked about companies and businesses that were shut down due to the banking restriction. “Why can’t you work without a bank?” the court continued to ask. The counsel explained that “Any settlement taking place will be converted into cash”, the platform conveyed, elaborating:
Technology underlying the blockchain and crypto is being explained to the Hon’ble judges … Manner in which other countries have treated cryptos has been discussed.
In addition, the counsel argued that cryptocurrency “must not be equated to sovereign currency i.e., rupee etc”, emphasizing that the former is a commodity while the latter a currency. Crypto Kanoon added that Thursday’s hearing ended with the court setting a follow-up date to resume hearing the case on Aug. 14.
Government’s Crypto Policy Hearing Delayed
The second issue the supreme court addressed Thursday relates to the government’s policy on cryptocurrency. Crypto Kanoon reported that the Indian government “submitted a draft regulation before the court which was submitted to it by the Garg committee”, adding:
Govt. requested the court to adjourn the matter till January as it intends to introduce the bill in Parliament in the winter session.
Subhash Chandra Garg
The Garg committee is the interministerial committee (IMC) constituted on Nov. 2, 2017, under the chairmanship of former Secretary of the Department of Economic Affairs (DEA) Subhash Chandra Garg, to study all aspects of cryptocurrency and provide recommendations. It has representation from the Ministry of Electronics and Information Technology, the RBI, the Securities and Exchange Board of India, and Central Board of Direct Taxes.
Year-Long Efforts to End RBI Ban
Soon after the RBI issued the aforementioned circular, a number of industry stakeholders filed writ petitions challenging the banking restriction. The ban went into effect in July last year and banks subsequently closed accounts of crypto exchanges. The Indian supreme court was scheduled to hear all crypto-related petitions in September last year, but the case was repeatedly postponed.
The lack of banking access has caused a number of crypto businesses to shut down, including at least four crypto exchanges. Zebpay, formerly one of the largest crypto exchanges in India, closed down its local exchange operations in September last year. Earlier this year, Coindelta announced its shutdown, followed by Coinome, Koinex, and Cryptokart. Gaurang Poddar, founder of Cryptokart, explained that since the RBI ban took effect, “The general interest in crypto in India has tanked. Also since the government isn’t going to introduce any regulations and leave it grey for a while, it just makes any long term planning difficult.”
The Indian government is currently deliberating on the country’s crypto policy. The IMC report submitted to the finance ministry was made public on July 22. The report, however, is dated Feb. 28. It contains the committee’s recommendations regarding crypto assets as well as a draft bill entitled Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019.
Garg tweeted after the report was made public that his “Committee is very receptive and supportive of distributed ledger technologies … but Private cryptocurrencies are of no real value. Rightly banned.” Noting “extreme fluctuations” in prices of cryptocurrencies, the committee believes that “private cryptocurrencies should not be allowed”, stating:
The committee has recommended a law banning the cryptocurrencies in India and criminalizing carrying on of any activities connected with cryptocurrencies in India.
Soon after the report was published, Indian Prime Minister Narendra Modi reshuffled his top-level bureaucrats and removed Garg from the DEA Secretary position, shifting him to the Power Ministry. Garg is reportedly unhappy with this shift and subsequently applied for voluntary retirement.
Indian Finance Minister Nirmala Sitharaman
The Ministry of Finance revealed on July 22 that the IMC report is being examined “in consultation with all the concerned departments and regulatory authorities before the government takes a final decision.” Finance Minister Nirmala Sitharaman has seen the presentation by the committee but she recently admitted that she had not looked at the report and bill in detail. “They have gone much ahead of all other countries that have thought about it. It’s a very futuristic and well-thought-out report. I have not spent time on it after the presentation”, she told the Economic Times in an interview.
Meanwhile, the Indian crypto community has ramped up efforts to engage lawmakers to show them how flawed the IMC report is in hopes that the government will not go ahead with the draft bill to ban cryptocurrencies.
Crypto Not Prohibited, Tax Laws Applicable
While the government is deliberating on the country’s crypto policy, the tax department has been sending a long list of probing questions to cryptocurrency owners. Anoush Bhasin, founder of Quagmire Consulting which specializes in crypto tax solutions, explained to news.Bitcoin.com Tuesday that “Not complying with the notice or furnishing incomplete / inaccurate information may lead to the taxman conducting a Search & Seizure operation.”
He emphasized: “Tax laws in India are applicable irrespective of the legal status of income … Even if a ban is introduced, taxes would continue to apply to crypto income and it would not stop the taxman from chasing unaccounted or untaxed income earned from dealing in crypto assets.”
In the meantime, cryptocurrency is currently not prohibited in India, Union Minister of State for Finance and Corporate Affairs Anurag Singh Thakur has confirmed.