The Reserve Bank of India seal on a gate outside its headquarters in Mumbai.  Photo: Reuters/Danish Siddiqui
The Reserve Bank of India seal on a gate outside its headquarters in Mumbai. Photo: Reuters/Danish Siddiqui

All powerful central banks usually have the authority to bulldoze anything that either threatens their own business or the economy of the nation.

Crypto-currencies have been their targets over the past six months or so and a number of countries have cracked down on digital assets via their central banks. The Reserve Bank of India (RBI) continued with its anti-crypto sentiment earlier this month with a clampdown on financial institutions working in the industry.

This may now land the bank in court.

In a bizarre twist, a private company has filed a petition challenging the banking regulator’s April 6 notice barring lenders from doing business with crypto-currency exchanges. The Delhi High Court issued a notice to the RBI on April 22 following acceptance of the petition earlier this month.

The company, Kali Digital EcoSystems, challenged the RBI order on two grounds of the 1950 Indian constitution: Under Article 19(1) (g), 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.

An associate partner from the law firm representing Ahmedabad-based Kali Digital told the media: “The circular appears to be arbitrary and unconstitutional since it does not give strong facts as to why the RBI is against the business of crypto-currencies. 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.”

The company had plans to open its own crypto-currency exchange in August 2018 and has had to put them on hold following the crackdown.

In addition to the banking regulator, the petition also includes the government of India and the goods and services tax council (GST). It claims that the RBI has been empowered by the government to make sweeping and drastic restrictions against exchanges and the crypto industry. The GST has yet to formulate a regulatory framework for digital currencies, which has exacerbated the problem and resulted in heavy handed action by the central bank.

Several other crypto-based firms are also preparing their own cases against the RBI in what they consider unconstitutional suppression of their businesses. Referring to the RBI notice, law firm TRA, which represents several bitcoin exchanges in the country, said: “It has come with this overarching order that can be challenged on several counts. 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 next hearing is on May 24 and if productive it may reopen the digital doors for India’s crypto companies.

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