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4 July, 2017
The legal status of virtual currencies (“VCs”) such as Bitcoins continues to be debated as it remains unrecognized in India.
The Reserve Bank of India (“RBI”) in the past had issued several advisories clarifying that creation, trading or usage of VCs, as a medium for payment are not authorized by any central bank or monetary authority in India and entails various risks, but RBI stopped short of declaring VCs as illegal. However, pursuant to issuance of these advisories, the Enforcement Directorate did reportedly conduct raids against operators of trading platforms of VCs in India, creating an atmosphere of regulatory uncertainty for the VC industry. In absence of any clear direction or regulation by the Government, the matter of VCs seems to have remained in an uncertain limbo riddled with regulatory pitfalls.
However, given the increasing traction in the world of VCs, it seems that the Indian Government has finally decided to step up and address the issue of VCs through legislative measures. In a recent development, the Department of Economic Affairs, while referring to the previously issued advisories and the underlying concern of circulation of VCs in the Indian market, has invited comments/suggestions of the members of public in this regard. Comments were primarily requested on questions involving whether or not VCs should be banned, regulated or observed; in case regulated what measures should be taken to ensure consumer protection and orderly development of VCs and which appropriate institution should monitor/regulate VCs. Comments were also requested on the effective self-regulatory mechanism and measures to be adopted to ensure consumer protection in case such VCs were not to be regulated.
Interestingly, an Inter-Disciplinary Committee chaired by the Special Secretary (Economic affairs) and representatives from the Department of Economic Affairs, Department of Financial Services, Department of Revenue (CBDT), Ministry of Home Affairs, Ministry of Electronics and Information Technology, Reserve Bank of India, NITI Aayog and State Bank of India has also been formed to examine the existing framework of VCs in India. The committee is expected to give its report by July 2017. Recently, an inter-ministerial meeting was also held by the Finance Minister to discuss the concerns arising out of the use of VCs in India, however, no decision has been taken by the authorities in the meeting in this regard. The above developments point out the seriousness with which the Government is now considering the growing popularity and the consequential risks associated with use and trading of VCs in India. However, the tenor of the questions does indicate that the Government has not yet decided to declare VCs as illegal and is mulling over introducing a regulatory framework to govern the use and trading of VCs.
Meanwhile, VCs like Bitcoins have and continue to survive and wade through the cloud of apprehension underlying their usage in India. Interestingly, despite the cautionary approach advised by RBI, investors continue to invest heavily in Bitcoins considering the significant gains being made through investments. Even Bitcoin exchanges like Zebpay have received huge amount of investment, and have also reported an all-time high number of users trading in Bitcoins. Further, in an attempt to address the growing concerns around VCs it seems that a Digital Assets and Blockchain Foundation in India has been launched by certain prominent players operating in the Indian VC industry, with an aim to create awareness on the benefits of the use of VCs, and is also expected to formulate a self-regulatory regime for the transparent trading of VCs in India.
On the global front, VCs like Bitcoins have reportedly been banned in certain countries, however at the same time it has also been recognized and regulated in certain other countries. For instance, trading in Bitcoins in Bangladesh is a punishable offence, while Japan has recently passed law accepting Bitcoins as a legal form of payment in the country. Even Russia is contemplating to regulate its cryptocurrency market.
In this digital age, where the current trend strongly suggests that VCs are not going anywhere in the near future, it has become pertinent for India to take a clear stand, and decide whether, in light of the underlying concerns of the usage of VCs, it needs to prohibit use/trading of VCs completely or adopt a more moderate stand and instead formulate an appropriate regulatory framework to govern VCs.
For further information, please contact:
Seema Jhingan, Partner, Lex Counsel Law Offices
sjhingan@lexcounsel.in
