Author: Sakshi Tripathi, United University, Prayagraj
To the Point
Does banning or restricting cryptocurrencies violate the fundamental right to trade?
What are the constitutional limits of RBI or government regulation on digital assets?
Can the state impose restrictions on a business activity that is innovative but risky?
Abstract
The rapid growth of cryptocurrencies and blockchain technologies has presented a regulatory conundrum for governments worldwide. In India, the debate has centered on balancing the fundamental right to trade and occupation under Article 19(1)(g) of the Constitution with the state’s obligation to regulate emerging markets for national security, financial stability, and consumer protection. The Reserve Bank of India’s (RBI) now-invalidated ban on virtual currencies brought the issue to the forefront, culminating in the landmark judgment of Internet and Mobile Association of India v. RBI (2020).
This article explores the constitutional challenges involved in crypto regulation, focusing on the interplay between economic liberty and state control, the applicability of reasonable restrictions under Article 19(6), and the evolving judicial approach. It critically examines key judgments, international practices, and India’s legislative vacuum in this area, proposing a framework that ensures regulatory legitimacy while respecting constitutional freedoms.
Use of Legal Jargon
Article 19(1)(g) – Guarantees the freedom to practice any profession or to carry on any occupation, trade or business.
Article 19(6) – Permits the state to impose reasonable restrictions on Article 19(1)(g).
Doctrine of Proportionality – Tests whether a restriction imposed is necessary and least restrictive.
Ultra vires – Outside the powers; frequently utilized to assess if a regulation surpasses legal authority.
Legitimate State Interest – A basis for curbing fundamental rights in favor of public welfare, morality, or security.
The Proof: Crypto and Trade in a Digital Economy
India has experienced rapid growth in cryptocurrency-related enterprises and user engagement. By 2023, India became one of the largest markets for crypto assets, despite regulatory uncertainty. Many argue that cryptocurrencies represent a legitimate business opportunity and innovation frontier.
However, the state raises concerns including:
Money laundering and terrorism financing (FATF compliance).
Volatility and consumer protection.
Tax evasion and capital flight.
This conflict — between innovation and regulation — lies at the heart of the constitutional challenge.
Constitutional Challenges
Violation of Article 19(1)(g)
Crypto exchanges argue that a ban on cryptocurrencies or denial of banking services infringes on their freedom to carry on trade.
Proportionality under Article 19(6)
Restrictions must be:
Based on legitimate aim (e.g., financial stability).
Rationally connected to the aim.
The least restrictive alternative available.
Backed by evidence and not speculative.
Lack of Legislative Clarity
India lacks a comprehensive crypto law. The RBI’s restrictions, imposed by circulars, are executive actions, not statutory law — raising delegation of power concerns.
Doctrine of Ultra Vires
The RBI’s authority under the RBI Act, 1934 and Banking Regulation Act, 1949 is limited to regulating currency and banking, not banning digital assets per se.
Comparative International Approach
USA: Mixed regulation with the SEC treating some crypto as securities and CFTC as commodities.
EU: Proposed MiCA (Markets in Crypto Assets) regulation to create a uniform legal framework.
China: Total ban on crypto trading and mining.
Japan: Legalized crypto with strict AML and KYC rules.
India must choose between outright prohibition and risk-based regulation.
Case Laws
1. Internet and Mobile Association of India v. Reserve Bank of India (2020)
Citation: (2020) 10 SCC 274
Court: Supreme Court of India
Facts: The RBI issued a circular in April 2018 prohibiting banks and financial institutions from dealing in virtual currencies or providing services to crypto exchanges. The applicant contended this infringed upon their essential rights.
Judgment:
The Supreme Court held that trading in crypto assets constitutes a part of the right to trade under Article 19(1)(g).
The RBI’s comprehensive prohibition did not meet the criteria of proportionality and was ruled unconstitutional.
The Court stated that while the RBI had the power to regulate, the absence of empirical data showing crypto’s adverse effect weakened the restriction’s legality.
Significance: Reaffirmed that even the RBI, a statutory authority, cannot impose disproportionate restrictions on trade without sufficient justification.
2. State of Gujarat v. Mirzapur Moti Kureshi Kassab Jamat (2005)
Relevance: This case emphasized that reasonable restrictions on fundamental rights must be justified on public interest grounds. It also elaborated on the scope of judicial review in determining whether restrictions on trade are excessive or reasonable.
3. Anuradha Bhasin v. Union of India (2020)
Relevance: Though not about crypto, this case laid down the principle of proportionality in restrictions on fundamental rights, particularly during state-imposed bans and suspensions.
Conclusion
Cryptocurrencies and blockchain technology symbolize a new frontier in economic innovation. However, as with any disruptive force, they challenge traditional legal frameworks — especially constitutional guarantees of economic freedom. The Indian Constitution, through Article 19(1)(g), confers upon citizens the fundamental right to carry on trade and business. This right, however, is not absolute and is subject to reasonable restrictions under Article 19(6) in the interest of the general public, morality, and security.
The IAMAI v. RBI (2020) The ruling confirms that the state’s regulatory power must be carried out within constitutional limits. A blanket prohibition on an entire class of economic activity — particularly one that has not been declared illegal by statute — fails the constitutional test unless justified by compelling evidence and necessity. In the digital economy, regulators must be proactive yet restrained, innovative yet constitutional.
India’s current approach — relying on executive circulars, vague tax policies, and regulatory uncertainty — undermines both investor confidence and the rule of law. The absence of a clear legal framework has created a grey zone where businesses operate without clarity, and users remain exposed to risks.
A balanced legislative and regulatory framework should aim to:
Recognize virtual digital assets (VDAs) in law with proper definitions.
Introduce a tiered regulation system based on risk (e.g., stablecoins vs. high-risk tokens).
Allow regulated use of cryptocurrencies with KYC/AML checks.
Encourage innovation through regulatory sandboxes, as seen in Singapore and the UK.
Empower financial watchdogs while providing judicial oversight and due process.
In conclusion, crypto regulation is not merely a question of finance or technology — it is a constitutional issue. The courts must continue to act as a bulwark against arbitrary state actions, while lawmakers must rise to the occasion and craft forward-looking legislation that respects rights, ensures security, and enables innovation.
FAQS
Q1: Is dealing in cryptocurrency a fundamental right under the Indian Constitution?
A: Indeed, the Supreme Court determined in IAMAI v. RBI (2020) that engaging in cryptocurrency activities constitutes a trade or profession safeguarded by Article 19(1)(g).
Q2: Can the government ban cryptocurrency entirely?
A: The government can regulate or prohibit cryptocurrency by legislation, but such a ban must be constitutionally valid — i.e., not arbitrary, and compliant with Article 19(6). A ban by mere executive fiat is likely unconstitutional.
Q3: What if the government cites national security or fraud risks?
A: Even in such cases, the restriction must pass the proportionality test. The state must demonstrate that no alternative, less intrusive methods exist to accomplish its goal.
Q4: Is cryptocurrency legal in India right now?
A: As of now, cryptocurrency is not banned in India. It is unregulated, and transactions are taxable (30% crypto gains tax introduced in 2022). The RBI advises caution.
Q5: Can the RBI stop banks from servicing crypto companies?
A: Not arbitrarily. The Supreme Court nullified the RBI’s 2018 circular in IAMAI v. RBI for being disproportionate. Any future ban must be based on statutory authority and factual evidence.
Q6: Does India have a crypto law?
A: Not yet. The proposed Cryptocurrency and Regulation of Official Digital Currency Bill has not been enacted. The sector remains governed by existing financial, tax, and IT laws.
Q7: What are the constitutional safeguards available to crypto businesses?
A: They can approach courts under:
Article 32/226 for enforcement of fundamental rights.
Doctrine of proportionality to challenge arbitrary regulation.
Right to natural justice, if action is taken without notice or hearing.
Q8: How is the right to trade in cryptocurrency different from other businesses?
A: Cryptocurrencies represent a decentralized and evolving form of trade, unlike traditional sectors regulated by established frameworks. While it falls under Article 19(1)(g), its regulation requires a unique balance due to associated risks like anonymity, volatility, and misuse for illegal activities.
Q9: Can the RBI regulate cryptocurrencies without legislative backing?
A: The RBI can regulate the banking system and protect financial stability, but it cannot outright ban crypto assets unless supported by a law enacted by Parliament. The Supreme Court in IAMAI v. RBI noted that regulatory actions lacking empirical basis and enacted via circulars are insufficient to impose such restrictions.
Q10: How does the doctrine of proportionality apply to crypto bans?
A: The doctrine of proportionality requires that:
The measure must serve a legitimate aim (e.g., preventing money laundering).
It must be rationally connected to that aim.
It must impair rights as little as possible.
A balance between the violation of rights and the benefit to the public is essential.
The Supreme Court ruled that RBI’s ban failed this test.
Q11: Is it constitutionally valid to tax crypto transactions while not recognizing them legally?
A: This creates a paradox. While the government does not formally recognize crypto as legal tender or a financial instrument, it imposes a 30% flat tax on crypto profits. This gives rise to legal ambiguity — recognizing crypto for taxation, but not for regulation — which may not hold under judicial scrutiny unless clarified by law.
Q12: Are there safeguards against misuse of crypto without banning it?
A: Yes. Instead of a ban, risk-based regulation can be employed:
Mandatory KYC and AML procedures.
Crypto exchanges registered and audited under regulatory supervision.
Smart contract audits and token vetting mechanisms.
Collaboration with global bodies like FATF and IMF for cross-border compliance.
Q13: How should India approach crypto regulation going forward?
A: A progressive yet cautious approach should include:
Passing a Crypto Regulation Bill clearly defining terms and permissible activities.
Creating a dedicated crypto regulatory body or task force.
Implementing measures for investor protection, including complaint resolution and asset recovery.
Incorporating public consultation in rulemaking to ensure democratic legitimacy.
Q14: What if the government launches its own digital currency (CBDC)? Will it affect crypto rights?
A: The Digital Rupee (CBDC) introduced by the RBI is a sovereign digital currency and may coexist with private cryptocurrencies. However, if the state uses CBDC to justify banning all private crypto, it could face constitutional challenges unless supported by clear evidence and proportionality.
Q15: Is judicial intervention likely in the future of crypto regulation in India?
A: Yes. If the government or regulators impose blanket bans, unconstitutional tax burdens, or arbitrary licensing regimes, affected parties may again approach the courts. The judiciary, based on past trends, will likely apply the principles of fairness, proportionality, and due process to test the validity of such measures.
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