A company engaged in trading in cryptocurrencies has challenged an RBI circular, prohibiting banks and financial institutions from providing services in relation to such virtual currencies, in the Delhi High Court. The plea on Friday was listed for hearing before Justice Rajiv Shakdher, who asked the high court registry to place it before the bench which is already hearing a similar matter.
The petitioner company, Flintstone Technologies Private Limited, has sought the withdrawal of the April 6 circular of the Reserve Bank of India (RBI), claiming that it is “arbitrary, unfair and unconstitutional”. The Maharashtra-based company has contended that the RBI circular has “fenced” all the entities regulated by the apex bank from providing services to any individual or business dealing in virtual currencies like cryptocurrencies.
The company, which claims to provide an online cryptocurrency digital wallet service for Bitcoin and Money trade coin — both virtual currencies — has contended that the RBI has not spelt out any reasons for imposing the restrictions. It has also submitted that while the Centre is studying the effect of cryptocurrencies without banning it completely, the RBI has come out with the circular to indirectly restrict the trade in virtual currencies. On April 22, the high court had sought the response of the Centre, the RBI and the GST Council on a Gujarat-based company’s plea, challenging the April 6 circular.
Gujarat-based Kali Digital Ecosystems Private Limited, which was proposing to undertake the business of operating a cryptocurrency exchange system for the customers in India, has stated that it has already made substantial investments in this regard and that it plans to roll-out the exchange system, called “Coin Recoil”, in August. However, due to the RBI circular, it would not be able to avail of the banking services to operate it, the petition filed by the company says.
According to the circular, the entities regulated by the RBI are prohibited from “providing any service in relation to virtual currencies, including those of transfer or receipt of money in accounts relating to the purchase or sale of virtual currencies”. Three months’ time has been given to those entities already providing such services.
Cryptocurrencies are a digital currency, in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. The company has claimed that a lack of regulations on cryptocurrencies has “increased the uncertainty over the treatment of such transactions and is adversely affecting the proposed business of the petitioner”.