Recent Legal Compliance on Cryptocurrency India; A Challenge in Regulation

Scope of Cryptocurrency in Indian Law’s

India’s constitution provides that the central government has the authority to investigate any matter that falls within its legislative purview. As per Schedule VII of the Indian Constitution, the central government has the ability to take action in relation to currency, money as legal tender, negotiable documents, and other instruments. A practical solution can be adopted if it can be proven that cryptocurrencies can be interpreted in such a way as to come under the legislative power of the central government. The Indian constitution is widely regarded as the supreme legislation of the land, outlining the extent to which various authorities may use their authority. It is therefore regarded to be invalidated by law if a power is used outside of its scope. The following laws can be used to examine the legality of cryptocurrencies: In terms of currency and foreign exchange, the RBI is in charge. Every single one of these pieces of legislation has to do with the production and circulation of currency.

A reference to Section 2 of FEMA can be made in the absence of a clear definition of currency under the RBI Act, which states that “currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, traveler’s cheques, letters of credit, Acts of exchange and promissory notes, credit cards or such other similar instruments, as may be notified1 by the Reserve Bank”. Aside from that, currency issued by the RBI is accepted as legal tender. Legal tender is defined under Section 6 of the Coinage Act, which states that only coins struck in compliance with this Act are considered legal tender. Since they are not legal money, cryptocurrencies cannot be used as a medium of exchange. It is implied that additional instruments do not fall within the scope of the act if it explicitly names instruments. Because they don’t satisfy these criteria, virtual currencies aren’t really currencies at all.

Judiciary and RBI view on Cryptocurrency

Cryptocurrency trading has been the target of government attempts for some time now. It is feared that cryptocurrencies might be used to funnel illegal cash and terrorist financing because there is no financial body in place to monitor them. Despite the odds, virtual money has acquired international and Indian popularity over time. The Reserve Bank of India (RBI) has always prohibited virtual currency transactions in order to avoid trading.

A number of press releases have been made warning of the dangers presented to India’s financial system by the use of virtual currencies like Bitcoin. Cryptocurrencies were banned from being purchased, sold, or exchanged due to their cyclical nature. As a result, a large number of companies had gone out of business or had migrated to another country. An inter-ministerial committee proposed a comprehensive ban on private cryptocurrency in February 2019, and the “Banning of Cryptocurrency and Regulating Official Digital Currency Bill, 2019” was submitted in the parliament on February 28. The Parliament, on the other hand, did not approve the Bill. The whole Indian cryptocurrency sector has been thrown for a loop since the circular forbidding bitcoin trade was issued. Because of this, a number of commercial entities have taken legal action against the circular. After examining the RBI’s role as the country’s central bank, India’s highest court has confirmed the bank’s authority to monitor the country’s virtual currency market. Supreme Court of India rejected circular because Reserve Bank of India failed to establish “proportional damage” caused by bitcoin transaction in India. When India’s Supreme Court decided in March 2020 in an Internet and Mobile Association of India and Others case v. Reserve Bank of India, it stated that there was not enough proof of cryptocurrency’s negative impact on Indian trade. The Supreme Court’s decision on cryptocurrencies has proven their validity in some way. There is a pressing need for a comprehensive legal framework for virtual trade, even if the Supreme Court of India has contemplated regulating cryptocurrency. Digital assets will be taxed at a rate of 30 percent regardless of whether they are held in physical or virtual form, according to Finance Minister. Government efforts to regulate digital money have given the cryptocurrency business in India a little hope, but they also intend to criminalize private cryptocurrencies like Bitcoin, making the future of digital currencies like these even more unsure. COVID 19 was a good time for India’s cryptocurrency business, but its future has been jeopardized once again because of the country’s government’s present stance.

The Payments Act gives the Reserve Bank of India (RBI) the ability to supervise India’s payment system. Due to the peer-to-peer nature of cryptocurrency transactions, no money changes hands between the sender and the recipient, hence this Act does not apply to them. Prepaid instrument payments must be made in compliance with RBI guidelines, which provide that the equivalent value of the instrument must be retained. The value is stored in the same way that the holder paid for it.

Cryptocurrencies, on the other hand, are based on speculation rather than equivalency, which causes them to fluctuate widely in value. The Securities Contract (Regulation) Act of 1956 does not recognize cryptocurrencies as securities because no such asset is displayed during bitcoin transactions. Furthermore, the mining process creates cryptocurrencies rather than the company issuing them.

Additional considerations include the Indian Contract Act, which specifies that contracts that contravene public policy can be invalidated. This might be used to make remarks about the violation of public policy while dealing in cryptocurrencies. A Bitcoin contract is not prima facie such that its enforceability would violate the law or be otherwise fraudulent according to the Supreme Court when considering the same problems. There are no criminal penalties for contracts using Bitcoin, regardless of whether they are based on mining, exchanging Bitcoins for goods/services or exchanging Bitcoins for cash. Because the legislation makes no mention of cryptocurrencies as a threat to public policy, contracts involving them cannot be ruled unlawful.

Difficulties faced in the control of Cryptocurrency

India must adopt proper cryptocurrency policies. The Reserve Bank of India (RBI) has disapproved of cryptocurrency trading throughout its history and issued several notices to ban it. The RBI has warned investors against trading cryptocurrencies. RBI opposes cryptocurrencies due to their inherent risk.

Because cryptocurrencies are digital, they threaten computer security. Without regulations to protect citizens’ rights, the situation is dangerous. There is no legal recourse if a digital currency is permanently lost. Because the transaction is online, there is no consumer protection system. Cryptocurrency prices are completely determined by market speculation based on supply and demand, with no underlying assets to provide stability. Cryptocurrencies aren’t legal everywhere. Investors and dealers in cryptocurrencies face financial risk because their rights aren’t guaranteed by countries that haven’t or only partially legalized cryptocurrencies. KYC regulations can’t be applied to bitcoin because it’s not tangible. Because transactions can’t be traced, money laundering is possible. Since their debut, cryptocurrencies have been accused of being used for money laundering, causing global concern.

Study Analysis

Developing countries like India, which are embracing new technologies at a rapid rate, need to establish regulations for dealing in cryptocurrencies. Financial institutions are wary of investing in virtual currencies since there is no regulation in place. For the sake of preventing the diversion of cash and investments via cryptocurrencies to countries with more lenient regulations, it is vital to implement a comprehensive regulatory framework for cryptocurrency trading. Other private digital currencies may likewise pose a problem for adequate regulation, as the author has discovered. In order to adopt a uniform policy to govern cryptocurrencies, the country will need to take a methodical approach to clarifying the concept of cryptocurrency. According to an investigation of the legality of cryptocurrencies across countries, there is substantial diversity in how each country handles it.

The legal status of cryptocurrencies has been recognized by a number of nations, while others have refused to embrace it as a legalized platform for commerce. Cryptocurrency has not been given a status of fiat money in the USA, but the country has recognized it as legal tender. It’s possible that regulatory compliance has been enforced to a high degree to prevent cryptocurrencies from being used for illegal purposes such as money laundering, terrorist financing, and other types of crime like trafficking in narcotics or fraud. The surge in digital currency trading at COVID-19 could be regarded as the most significant milestone in India’s crypto market. In addition, comparative legal procedures should be used instead of a sledgehammer approach to completely ban cryptocurrency trading in India for the establishment of regulatory framework. Instead of just outlawing technology, the regulatory system should be designed in a way that punishes the wrongdoers.

CONCLUSION

Virtual currencies may replace traditional cash soon. The government can deny the legitimacy of cryptocurrencies and invalidate it, or it can control cryptocurrency transactions. Considering the growth of online transactions, it’s proposed that making cryptocurrencies illegal will not address the problem. Thus, regulating it would be a better move for India than rejecting cryptocurrencies, because any such strict stance may reveal that the government lacks legislative ability.

Sources-

<https://prsindia.org/billtrack/draft-banning-of-cryptocurrency-regulation-of-official-digital-currency-bill-2019>

(Author Shreyansh Barve is a fifth-year student at National Law University, Delhi)