India’s Supreme Court Set Aside RBI’s Crypto Banking Restriction

India’s Supreme Court set aside the Reserve Bank of India’s cryptocurrency banking circular on March 4, 2020, removing a restriction that had disconnected exchanges and traders from services supplied by RBI-regulated institutions.

The judgment in *Internet and Mobile Association of India v. Reserve Bank of India* concerned a circular issued on April 6, 2018. The direction told commercial and cooperative banks, payment banks, small-finance banks, nonbank financial companies and payment-system providers not to deal in virtual currencies or facilitate another party’s dealings in them. Regulated entities already providing such services had three months to end those relationships.

The decision mattered because bank accounts and payment transfers were essential infrastructure for exchanges connecting cryptocurrency markets to the Indian rupee. It did not make bitcoin legal tender, approve any exchange, establish an industry licensing system or prevent Indian authorities from adopting other lawful restrictions.

What the 2018 circular prohibited

RBI’s circular listed services that regulated entities could no longer provide in connection with virtual currencies. These included maintaining accounts, registering or settling trades, clearing transactions, lending against virtual tokens, accepting tokens as collateral, opening exchange accounts and transferring money related to virtual-currency purchases or sales.

The measure therefore operated through the regulated financial system rather than directly prohibiting possession or peer-to-peer transfers. The Internet and Mobile Association of India, cryptocurrency exchanges, company founders and individual traders challenged the circular through two joined writ petitions.

The Supreme Court rejected the contention that RBI lacked authority merely because virtual currencies were not sovereign money. Its judgment recognized the central bank’s broad preventive powers over regulated institutions, payment systems and activities capable of affecting the financial system.

That distinction defined the result: RBI possessed authority to act, but the specific action still had to satisfy constitutional limits.

The restriction failed proportionality review

The court examined the circular under Article 19(1)(g) of India’s Constitution, which protects citizens’ freedom to carry on an occupation, trade or business, subject to reasonable restrictions under Article 19(6).

The judgment found that the circular had almost eliminated cryptocurrency exchanges from India’s industrial landscape even though virtual-currency activity had not itself been prohibited by law. Access to banking channels, the court reasoned, was a lifeline for modern businesses, and depriving an enterprise of an operating bank account could effectively close it.

The court also found that RBI had not shown even some indication of damage suffered by its regulated entities through their dealings with cryptocurrency businesses. That absence was material when the restriction’s effects were weighed against its stated regulatory purpose.

The court consequently allowed the petitions and set aside the April 6, 2018 circular. It did not set aside RBI’s related April 5 policy statement because that statement was not a statutory direction.

Immediate significance and uncertainty

Contemporaneous Reuters reporting described the ruling as allowing banks to handle transactions involving cryptocurrency exchanges and traders again. Industry participants expected rupee services to return, but those event-day expectations did not establish that every institution immediately restored every account or payment channel.

Banks retained the ability to apply otherwise valid customer checks and institutional risk controls. The judgment also did not resolve how India would eventually classify cryptocurrency businesses, regulate exchanges, protect consumers or address illicit-finance concerns.

No cryptocurrency price or trading-volume reaction is asserted here. Digital assets traded continuously across multiple venues, and the reviewed records do not provide a consistent instrument, venue, currency pair and observation window capable of isolating the judgment’s market effect.

Later context

On May 31, 2021, RBI told regulated entities that the 2018 circular was no longer valid from March 4, 2020 and could not be cited or quoted. That later clarification confirmed the judgment’s effect while preserving applicable know-your-customer, anti-money-laundering and related due-diligence requirements.