The Supreme Court scrapped a Reserve Bank of India ( RBI ) circular preventing banks from providing services in support of cryptocurrencies, lifting a de facto ban on trading in bitcoin and other such instruments. Cryptocurrency exchanges welcomed the decision and startups said they will revive plans to invest and expand their businesses in India. The move may set the tone for a more calibrated regulatory approach toward digital currencies, lawyers said.The three-member bench headed by Rohinton F Nariman said the central bank hadn’t demonstrated that trading in such currencies was deleterious in any manner, while pointing out that there was no ban on them. “While we have recognised… the power of RBI to take a pre-emptive action, we are testing in this part of the order the proportionality of such measure, for the determination of which RBI needs to show at least some semblance of any damage suffered by its regulated entities. But there is none,” the bench said.The bench said the rules governing the matter would depend on what Parliament decides, based on the currently pending draft Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.It added that the RBI and the central government would have a monopoly on the creation and circulation of any official digital currency whenever such a situation arose. The Supreme Court is hearing another case on regulations for digital currencies. The RBI circular of April 6, 2018, had barred financial entities regulated by it from entering into any transactions involving cryptocurrencies.“When the consistent stand of RBI is that they have not banned virtual currencies and when the government is unable to take a call despite several committees coming up with several proposals including two draft bills, both of which advocated opposite positions, it is not possible for us to hold that the impugned measure is proportionate,” the bench said on Wednesday.The court, however, allowed the April 5, 2018, circular from the RBI that urges caution when engaging with cryptocurrencies to stand. The court said this was a nonbinding advisory that dealt with the risks underlying virtual currencies.The next day’s follow-up circular, which the Supreme Court rejected, had given all regulated entities including payment system providers three months to halt cryptocurrency activities.Among those entities that challenged the RBI were the Internet and Mobile Association of India (IAMAI), which represents the interests of the online and digital services industry, exchanges and crypto asset traders. Their cases were argued by lawyers Ashim Sood and Nakul Dewan. Justices Aniruddha Bose and V Ramasubramanian were the other two judges on the bench.The bench, however, said it was not possible to agree with the contention of the petitioners that virtual currencies are goods or commodities and can’t be regarded as real money. Once virtual currencies are accepted as valid payments for the purchase of goods and services, the activity falls squarely within the RBI’s purview, it said.“If an intangible property can act under certain circumstances as money, then the RBI can definitely take note of it and deal with it,” the bench said. “Anything that may pose a threat to or have an impact on the financial system of the country, can be regulated or prohibited by RBI, despite the said activity not forming part of the credit system or payment system.”It also said that the circular can’t be interpreted as a total ban on the activity. “The impugned circular does not impose a prohibition on the use of or the trading in VCs (virtual currencies),” the bench said.As long as those trading in such instruments don’t want to convert them into “fiat currency in India” and exchanges don’t try to collect their service charges or commission in fiat currency through banking channels, they will not be affected, the bench said. “The repeated warnings through press releases from December 2013 onwards indicate a genuine attempt on the part of RBI to safeguard the interests of the public,” it said. “Therefore, the contention that the circular is vitiated by malice in law and that it is a colorable exercise of power, cannot be sustained.”The bench also lifted a freeze on the account of Discidium Internet Labs, which contained about ₹12 crore.The ruling will hopefully pave the way for a better regulatory regime, said L Vishwanathan, partner, Cyril Amarchand Mangaldas.“It is expected that the RBI will consider its approach to cryptocurrency and come up with a new, calibrated framework or regulation that deals with the reality of these technological advancements (given that even central banks across the world are issuing their own cryptocurrencies) and simultaneously balancing considerations of regulatory, consumer protection, security and monetary control that the RBI is expected to have over currency and financial products,” he said. “This might also catalyse the potential for the use of block chain in diverse areas.”Prohibiting technologies is a losing battle and in that sense the Supreme Court judgment is not surprising, said GV Anand Bhushan, partner, Chennai head, general corporate, Shardul Amarchand Mangaldas & Co.