By Rohit Chakraborty, third year student (5 year B.A.LL.B.), National Law Institute University, Bhopal
Introduction
Bitcoin is the earliest form of Cryptocurrency which was introduced back in 2008 by a pseudonymous group called Satoshi Nakamuro. With the advent of time, a lot of new cryptocurrencies were also introduced such as Litecoin and Ethereum although Bitcoin stays the predominant amongst all of these till date.
The concept of Bitcoin evolved from the idea of having a decentralized, peer-to-peer network to transfer cash without any regulations proposed by an intermediary. Hence, it provides unmatched autonomy to the users as they can send or receive virtual cash without having to go through a bank or multiple banks and their gateways.
More often than not, it is heard that Bitcoin is a more secure way to operate finances than real money. The reason here is that Bitcoins are transferred through the blockchain technology which uses complex cryptographic codes for each transaction which are extremely difficult to decode.
Through this article, we shall understand the stance of the Indian government on cryptocurrencies including but not limited to Bitcoins.
Timeline of Legality
India has not been very receptive towards the very idea of virtual currencies ever since the beginning. Finance Minister Arun Jaitley, in his budget speech of 2018 had pointed out that the Indian Government shall thrive to ban the usage of cryptocurrencies in order to prevent all criminal activities associated with it. [1] In April 2018, the Reserve Bank of India passed a draconian law which forbid the citizens from mining, possessing and investing in Bitcoin. Regulated financial institutions were forbidden from providing any services to crypto-related business practices.[2] Again, since the ban was imposed on individuals as well, a person found dealing in or with Bitcoins was to be subjected to a term extending upto 10 years of imprisonment along with fines. The law was prima-facie extreme and disproportionate.
By 2nd week of July, 2019, the Reserve Bank of India (RBI) was supposed to come up with its own regulations for cryptocurrencies including, but not limited to, Bitcoins. However, such a regulation was unduly delayed and never came up. Hence, the blanket ban on cryptocurrencies continued to prevail.
This absurd ban on the usage of cryptocurrencies was challenged through numerous lawsuits at Supreme Court as well as at the High Courts of several states.[3] All of these cases were transferred to the Supreme Court through transfer petitions.. Finally, through the case of Internet and Mobile Association of India v. RBI [4], the impugned circular issued by the Reserve Bank was declared ultra-vires of Article 19(1)(g) and Article 19(6) of the Constitution by the Supreme Court on the 25th of March, 2020.[5] The judgment was highly celebrated by people all around the world.[6]
The most recent development, however, is the floating of a new draft bill [7] in 2019 before the parliament for consideration. It was supposed to be a part of the agenda in the winter session of the parliament, but the parliamentary decision on the same was postponed till mid-2020. The bill seeks to ban cryptocurrencies in India once again but whether it is going to retain the same draconian form as in 2018 is uncertain. Through this enactment, the parliament also intends to introduce “digital rupee” which shall be a form of digital currency issued and regulated by the Reserve Bank of India.
According to Section 7(1) of the Draft Bill, “no person shall directly or indirectly use Cryptocurrency for activities including:
(a) as a payment system, whether authorised under Section 4 of the Payments and Settlement Systems Act, 2007 (51 of 2017) or otherwise;
(b) buy or sell or store Cryptocurrency;
(c) provide Cryptocurrency related services to consumers or investors which includes registering, trading, settling, clearing or other services;
(d) trade Cryptocurrency with Indian currency or any foreign currency;
(e) issue Cryptocurrency related financial products;
(f) as a basis of credit; (g) issue cryptocurrency as a means of raising funds; and/or
(h) as a means for investment.”
The Government believes that a statute would be a better way to put a ban to cryptocurrencies than a circular by the RBI. Hence, even though there is no ban as of now on cryptocurrencies, people investing in cryptos are still at a risk since there is no way to know whether these virtual currencies would be banned by the Government in the near future. The new bill also proposes that any person who has already invested in cryptos and presently holds them, shall dispose off the same within a time period of 90 days from the date of enactment. This defeats the purpose of the investment because by that time the appreciation of such an investment may not be fruitful enough. Considering that India currently holds Rs. 3500 crores in cryptocurrencies [8], majorly Bitcoins, the community wouldn’t want to dispose the same off without appreciable returns.
Now, the question that strikes us is, why is the Indian parliament trying so hard to put an end to crypto-transactions?
It is to be understood that cryptocurrencies like Bitcoins are not traceable or trackable. It is a decentralized form of currency which uses a peer-to-peer technology. Hence, it is very difficult to regulate transactions through the blockchain.
Using this technology as a loophole, a lot of problems would emerge, the most predominant one being tax-evasion and fraud. Incomes through Bitcoins would avoid the eyes of the RBI and the Income Tax department and hence, a lot of people might start dealing in cryptocurrencies to hide their incomes.
Conclusion
(a) As of today, there is no de-facto ban on the usage or possession of cryptocurrencies.
(b) Even if the draft bill gets the parliamentary nod, it is high likely that the court is going to strike it down like it did with the RBI circular. The historic conflict between the legislative body and the judiciary shall continue.
(c) Putting a ban on cryptocurrencies is not a solution for tax-evasion. Even though a blanket ban may be issued on the usage of cryptos, there would certainly be other ways to deal in them.
(d) The parliament was supposed to come up with methods to regulate cryptocurrencies but instead they have headed towards putting a ban to it.
The concept of “digital rupee” is totally different than cryptocurrencies. The most unique feature of cryptocurrencies is, it is decentralized. The same is not true for digital rupee. Thus, digital rupee shall, in no way, be posed as an alternative to cryptos.
Endnotes
[1] Nupur Anand, Arun Jaitley has just killed India’s cryptocurrency party, QZ India, (Feb. 1, 2018), https://qz.com/india/1195316/budget-2018-busts-bitcoin-arun-jaitley-has-just-killed-indias-cryptocurrency-party/ [2] India bans crypto-currency trades, BBC News (Apr. 6, 2018), https://www.bbc.com/news/world-asia-india-43669730 [3] Upmanyu Trivedi, Cryptocurrency Bourses Win India Case Against Central Bank Curbs, BBC News (Mar. 4, 2020, 10:57 AM), https://www.bloomberg.com/news/articles/2020-03-04/india-s-top-court-strikes-down-curbs-on-cryptocurrency-trade [4] Internet and Mobile Association of India v. Reserve Bank of India, Writ Petition (Civil) No.528 of 2018. https://main.sci.gov.in/supremecourt/2018/19230/19230_2018_4_1501_21151_Judgement_04-Mar-2020.pdf [5] Aneesha Mathur, Supreme Court quashes RBI ban on cryptocurrency trade, India Today (Mar. 4, 2020), https://www.indiatoday.in/business/story/supreme-court-quashes-rbi-ban-on-cryptocurrency-1652254-2020-03-04 [6] Kevin Helms, Bitcoin Legal in India: Exchanges Resume INR Banking Service After Supreme Court Verdict Allows Cryptocurrency, Bitcoin.com (Mar. 5, 2020) https://news.bitcoin.com/bitcoin-legal-india-supreme-court-verdict-cryptocurrency/ [7] Banning of Cryptocurrency & Regulation of Official Digital Currency Bill, 2019. https://www.prsindia.org/sites/default/files/bill_files/Draft%20Banning%20of%20Cryptocurrency%20%26%20Regulation%20of%20Official%20Digital%20Currency%20Bill%2C%202019.pdf [8] Neil Borate, Government’s new bill may finish India’s crypto spring, Livemint (Jun. 16, 2020) https://www.livemint.com/money/personal-finance/government-new-bill-may-finish-india-s-crypto-spring-11592283789942.html