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Crypto currency And Law In India A Sail Through Hostile Waters

A cryptocurrency is a digital currency that does not typically exist in a physical form, unlike banknote currency which is issued by the central bank. It is a concept designed to work as a wherein individual coin ownership records are stored in an existing in a form of a computerized using to secure transaction records, to control the creation of additional coins, and to verify the transfer of coin ownership.[1]

It ideally uses a decentralised permission system of operation as opposed to the traditional system of operation, a network of records that contain distributed ledger in an electronic encrypted form known as blockchain technology.

As the market value of these cryptocurrencies also eventually started to appreciate, many people in India too started to invest in cryptocurrencies through a various trading platform available in the market from time to time. However, just like a traditional stock market, cryptocurrency too had its own ups and down in value as an asset while some earned profits and some earned losses. When the trading gradually increased at a noticeable volume. Like other governments and regulators around the world, It invited the attention of the Government of India as well as the banking sector regulator the Reserve Bank Of India (RBI).

This posed various questions to investors, government and regulators alike.

Position of Law
This brings us to the important question is cryptocurrency legal in India?

There is no straight answer to this as the position has been shifting like a pendulum clock.

The journey is thus so far:
In the year 2013 the banking regulator issued a press release dated December 24, 2013, by Reserve Bank Of India. Wherein it cautioned the people about the usage of cryptocurrencies and the legal and consumer protection and security risk they are exposed to. It also further mentioned The Reserve Bank was examining the issues associated with the usage, holding and trading of cryptocurrencies under the extant legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.

Thereafter, in 2017, the Reserve Bank of India issued a press release dated February 01, 2017.[Wherein it cautioned the people that it has not issued any licence/authorisation to any entity/company operating any schemes or dealing with Bitcoin or any cryptocurrency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.

Subsequently, in the same year, another clarification was issued by the Reserve Bank of India dated December 05, 2017.[4] Wherein it in the wake of significant spurt in the valuation of many Cryptocurrencies and rapid growth in Initial Coin Offerings (ICOs), RBI reiterated the concerns.

On November 2, 2017, the Government of India, introduced a new bill namely the Crypto-token Regulation Bill of 2018, However, the same could not be passed.

In the Year 2018. As per the powers conferred by section 35A read with section 36(1)(a) of Banking Regulation Act, 1949, section 35A read with section 36(1)(a) and section 56 of the Banking Regulation Act, 1949, section 45JA and 45L of 2 the Reserve Bank of India Act, 1934 and Section 10(2) read with Section 18 of Payment and Settlement Systems Act, 2007, the Reserve Bank of India issued a notification dated April 6, 2018.[5]

Wherein it issued instructions to various all Commercial and Co-operative Banks /Payments Banks/Small Finance Banks / NBFCs / Payment System Providers regulated by it to not deal in Cryptocurrencies or provide services for facilitating any person or entity in dealing with or settling Cryptocurrencies.

Such services included maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/ sale of Cryptocurrencies. The said instructions were to be in force with immediate effect by the banking regulator from the date of instructions issued. It also further instructed the regulated entities that already provide such services to exit the relationship within three months from the date of the said circular.

This legally meant that any transaction with cryptocurrencies was deemed to be banned.

In the year 2018, this circular went on to be challenged before the Hon’ble Supreme Court of India.In the Internet and Mobile Association of India V. Reserve Bank of India[6]

The court issued a judgment wherein it struck down the ban on cryptocurrency by the Reserve Bank Of India. This judgment was given on the 4th March 2020, from the perspective of Article 19(1)(g) of the Constitution of India which provides for the freedom to practice any profession or to carry on any occupation, trade or business, and the doctrine of proportionality.

In the meantime the Government of India had come up again with fresh namely ] Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019.

However, this time too the same was could not be passed as the bill drafts have sharp contradictions with each other.

Lately, on 24th March 2021 the Ministry of Corporate Affairs, Government of India issued a notification wherein it amended the provision of Schedule III of the Companies Act 2013.[7]

The provision provides for disclosure of information Where the Company has traded or invested in Cryptocurrency or Virtual Currency during the financial year, the following shall be disclosed:
  1. profit or loss on transactions involving Cryptocurrency or Virtual Currency,
  2. amount of currency held as at the reporting date,
  3. deposits or advances from any person for the purpose of trading or investing in CryptoCurrency or virtual currency.
The provisions came into force with effect from the 1st day of April 2021.

The direction ahead
The new regulation, The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 was lately introduced in the parliament.[8]

It aims to create a facilitative framework for the creation of the official digital currency to be issued by the Reserve Bank of India. The Bill also seeks to prohibit all private cryptocurrencies in India, however, it allows for certain exceptions to promote the underlying technology of cryptocurrency and its uses. The government has not set a defined timeline for the same. And the said bill stands pending to be passed in Parliament.

Conclusion

In these times we are the midst of a technological revolution that is fundamentally changing the way we communicate, access information, and conduct business transactions. The regulating intuitions such as the Reserve Bank of India is charged with promoting monetary and financial stability and the safety and efficiency of the payment system.

Effective functioning of any economy requires that people have faith and confidence not only in the currency, but also in the payment networks, banks, and other payment service providers that allow money to flow daily

The governments around the world including India are carefully monitoring the development in this area. In the past, they have adopted technological innovations in the banking system from time to time.

In recent times the rise of distributed ledger technology has a range of creation of new products and services—including cryptocurrencies.

The only concerns which remain are the volatile nature of the currency for the regulators to address.

It can be foresighted that, the governments are keeping the window open to adopt the new cryptocurrencies. At the same time reckoning the possibility to come up with their own form of cryptocurrency which will provide for financial stability, consumer protection, legal, and privacy.

End-Notes:
  1. https://www.forbes.com/forbes/2011/0509/technology-psilocybin-bitcoins-gavin-andresen-crypto-currency.html?sh=25a8c0fc353e
  2. Press Release: 2013-2014/1261 - https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/IEPR1261VC1213.PDF
  3. Press Release: 2016-17/2054 - https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR205413F23C955D8C45C4A1F56349D1B8C457.PDF
  4. Press Release: 2017-2018/1530 - https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR15304814BE14A3414FD490B47B0B1BF79DDC.PDF
  5. RBI/2017-18/154 , DBR.No.BP.BC.104 /08.13.102/2017-18 - https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI15465B741A10B0E45E896C62A9C83AB938F.PDF
  6. Internet and Mobile Association of India V. Reserve Bank of India, Writ Petition (Civil) No.528 of 2018 Supreme Court Of India.
  7. The Companies Act, 2013amendments in Schedule III Ministry of Corporate Affairs. -  https://mca.gov.in/Ministry/pdf/ScheduleIIIAmendmentNotification_24032021.pdf
  8. Lok Sabha Bulletin No.1989-2025 - http://loksabhadocs.nic.in/bull2mk/2021/29012021.pdf
Disclaimer:
The content of this article is intended to provide a general guide to the subject matter only. Specialist advice should be sought about your specific circumstances.
Should you have any legal query you may contact us at Need Legal Assistance. Written By: Harshad Rathod Advocate, HNR LEGAL
www.hnrlegalconsulting.com

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