The building of the Indian Supreme court In New Delhi, India. Source: iStock/anil_shakya19

India’s Supreme Court is set to rule on a legal challenge to restrictions placed on banks dealing with cryptocurrency traders imposed by the central Reserve Bank of India (RBI). If the challenge proved successful, the ruling could pave the way for the state to take a more lenient approach to the cryptocurrency sector.

The RBI decided to issue the ban on banks and financial institutions wishing to deal with cryptocurrencies back in April 2018.

The court will likely decide this week whether the Indian central bank exceeded its powers by imposing limits on cryptocurrency transactions.

In a Bloomberg podcast, New Delhi-based court reporter Upmanyu Trivedi said that the Reserve Bank of India’s April 2018 directive was “at the heart of this case.”

The reporter explained that the directive “was not a direct ban on cryptocurrencies, technically, but a ban on banking services’ [handling] any trade in cryptocurrencies.”

He claimed that cryptocurrency startups, industry boards and exchanges believe that the “RBI does not have these powers.”

The Internet and Mobile Association of India (IAMAI), an NGO whose members entities include India-based cryptocurrency exchanges, has per Bitcoin Exchange Guide, challenged the RBI’s decision stating that the ruling overstepped powers outlines in the country’s Banking Regulation Act.

Trivedi said,

“The RBI, of course, defended its actions and maintained that digital currencies such as Bitcoin are not currencies. So the legality of this RBI decision will be tested by the court and it will give a verdict […] on this kind of shadow ban”.

India’s crypto community is awaiting the ruling with trepidation.

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Last year, the country’s government was said to be considering a draft bill that would impose a comprehensive ban on cryptocurrencies, in response to possible fraud-related risks.

These plans were later confirmed by the Indian government’s Department of Economic Affairs, although the ban is still yet to materialize.

Among its other provisions, the controversial bill suggested punishing violators with prison sentences of up to 10 years.

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