General

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This Blog is written by Yash Yadav from Alliance University, Bengaluru. Edited by Prakriti Dadsena.

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INTRODUCTION

This article would revolve around the situation of Cryptocurrency in India as earlier cryptocurrency was banned by the Reserve Bank of India (RBI) in April 2018 and it was considered illegal but later the ban was removed. Currently, in India, cryptocurrency is legal and every ordinary Indian person can in India purchase and sell this cryptocurrency. As a result, there are specific rules and regulations regulating crypto-currency in India, as we should be aware of crypto-currency before beginning. Cryptocurrencies are the currency / money / value digital representation. It’s a digital currency / monetary in simple words, this type of money isn’t physical and is digitally transferred via the internet mode.  In this article various things will be covered firstly, it will cover the whole situation of cryptocurrency which was banned when it became legal, since then the whole situation can be divided up into 2 parts as in the pre-April and post-April 2018 situations, it can be regarded as an increase in cryptocurrencies in India and the development of trade markets linked to these currencies, as there are various types of cryptocurrencies like Bitcoin and Litecoin. Later in that particular time and after the post- April time, the limited role of government was fully barred by RBI before the judgment was passed by the Supreme Court and also the case of the Supreme Court which lifted the ban on cryptocurrencies in India in the light of the discussions regarding the legislation regulating the cryptocurrency in India.

THE SIGNIFICANCE OF THIS DEVELOPMENT

In this the whole development and journey of the cryptocurrencies in India and in-between the time of its prohibition imposed by the Reserve bank of India on April 2018 till the time its prohibition was lifted by the Supreme Court that was imposed by the Supreme Court of India in the favor of cryptocurrencies. So, this situation can be explained in two time periods:

Pre-April Period 2018

This period was referred before April 2018, when free flows of cryptocurrencies were present throughout India. That was a time of trade developments and there are different kinds of cryptocurrencies such as Litecoin, Ethereum, and Ripple and one of the most important cryptocurrencies was Bitcoin. Government interference was very minimal and the currencies were free to circulate with very little government intervention without interdiction, but later in the year different threats related to cryptocurrencies were involved, and in 2018 they were expelled as the Reserve Bank of India issued a circular claiming that cryptocurrencies were forbidden from now on.

Post-April Period 2018

It is referred to as the era after that the Reserve Bank of India threw out the circular on the prohibition of the use of cryptocurrencies because the RBI announced that the cryptocurrency had not been allowed in India at that time to preserve the dignity of the entire banking system. Most of those linked to cryptocurrencies, who deal with these digital currencies as a result of the risks involved, were continuously cautioned by the RBI and eventually, in April 2018, RBI imposed its full ban officially on India because of risks and was declared illegal after this circular until the Supreme Court decision was imposed on.

When we talk of the control of cryptocurrencies, work is still on and pending and the RBI will lay down the law after a case before the Supreme Court.

 

IMPACT OF CRYPTOCURRENCIES ON ECONOMY

Some experts and reports say Cryptocurrencies could help India improve its economy during this pandemic as economic slowdowns have slowed down all over the world, including India, and Indian GDP has deteriorated significantly as employment and small businesses have shut down and this has affected Indian and GDP in great measure. So the Cryptocurrencies could help India to boost their Economy as it can be beneficial in the market and overall boosting of the Information Technology (IT) sector of India, which would directly increase the Jobs in the country for the younger generation. It would also attract new foreign capital investment into the Indian Startups which would be helpful for India and If we look into the report, Initial Coin Offering (ICO) raised more than $346 million dollars globally and Recently CoinDCX[1] raised 18.98 crores which are issues but Indian infrastructure for cryptocurrencies is not mature enough and all the people are new to this type of currencies which make it obvious that they are more vulnerable to the Hackers. Currently, cryptocurrencies are legal but there is no regulation of RBI and also waiting for the Supreme Court judgment. Overall, if we see there are more pros than cons of cryptocurrencies. [2]

STATUTORY PROVISIONS RELATED TO CRYPTOCURRENCIES

Since we are aware that the cryptocurrencies in India were made illegal, notably Bitcoin following the Reserve Bank of India’s circular in April 2018 on cryptocurrencies prohibition in India because of the security risk of such currencies, and the lift was banned after the judgment was rendered on a ban on cryptocurrencies by the Supreme Court of India. After the ban was lifted, the cryptocurrencies were legal and can be traded, but for that, one has to know about the laws and this should be noted that the case is still pending in the Supreme Court and after that judgment, the RBI would act and will make any regulation over the Cryptocurrencies.

RBI has set certain Regulatory framework which is mentioned below in brief:

1) The Securities Contract Act 1956: some of them will come under the cryptocurrencies are deemed securities act and it falls under this act.

2) Company Act and Payment Systems 2013 & Payments and Settlement Act 2007: For all the token types in India, this falls under the category and rules of the company’s act and payment tokens come under Payments and Settlement Act.

3) Prevention of Money Laundering Act 2002: The use of Cryptocurrencies may also fall under the Money Laundering act as these types of Currencies have values attached to them.

4) Unregulated Deposit Schemes: There is also a bill that was passed by the parliament in 2018 which prohibits all the unregulated deposits which are also an application on initial coin offerings.

5) Securities Exchange Board of India: Some of the tokens also fall under the collective scheme of Investment, in that particular case, it is regulated by the SEBI. [3]

CASE LAWS:

If we look at the cryptocurrency rules, we can see the RBI moratorium on Cryptocurrency. This entire state of affairs was reawakened when RBI released April 2018 circularly announcing that all cryptocurrencies were banned and would from then on be illegal in India.

RBI Case

As we know that the RBI banned the Cryptocurrencies in India due to the Security and risk-related issues. As the people are not fully aware of the currency which makes them vulnerable to hackers. RBI stated that they banned the cryptocurrencies to uphold the integrity of the banking system in India. The entire drama of cryptocurrencies went to the Supreme Court on the issue of whether the illegals of Cryptocurrencies in India and the Supreme Court supported the overriding of cryptocurrencies RBI ban and then lifted the ban and cryptocurrencies were restored to usual.

ANALYSIS

While evaluating the whole situation of cryptocurrencies, it was prohibited by the danger associated with them, since this form of currency is a new phenomenon which takes time to work properly in India and its infrastructure is not adequately established and that’s why RBI has prohibited cryptocurrencies fully in India in 2018 and to protect the entire banking system. Yet the ban was lifted after the judgment of the Supreme Court on digital currency was issued and now the cryptocurrencies in India are constitutionally lawful. So we’re on legal issues, but there’s no such clear law on cryptocurrencies in India as RBI is waiting for a decision in the Supreme Court that’s actually beyond its ban, so India’s government is also pressurizing RBI to negotiate cryptocurrency legislation, as there’s too much uncertainty in cryptocurrencies.[4]

CONCLUSION

Cryptocurrency in the modern era has become quite famous and has a potential to become global currency especially Bitcoin and if we look into India back in 2018 it was banned by the RBI as they said to protect the entire banking system and keeping in mind the risk related to Cryptocurrencies but it was removed by Judgment passed by the supreme court and then after it became legal but currently, it is a bit confusing what going on cryptocurrency as in Parliament a bill was passes related to Ban for public and in the supreme court case related to cryptocurrencies other than ban one and it is going on and the Indian government is also discussing with RBI to regulate the Cryptocurrencies as Legal Regulation over cryptocurrencies are still work in progress and till now, there is no such official regulation that has been made over cryptocurrency and over this matter, all the action would be taken after the Judgment that would be passed in the Supreme Court in the Upcoming Time.

REFERENCES

[1] Chandrashekhar A, ‘Crypto Exchange Coindcx Raises $2.5 Million In Fresh Funding’ (TheEconomicTimes,2020)<https://economictimes.indiatimes.com/markets/stocks/news/crypto-exchange-coindcx-raises-2-5-million-in-fresh-funding/articleshow/76010363.cms> accessed 11 June 2020

[2] (com, 2020) <https://www.ijlmh.com/wp-content/uploads/2019/05/Impact-of-Cryptocurrency-in-India.pdf> accessed 12 June 2020

[3] ‘What Is Cryptocurrency, How to Buy Cryptocurrency in India’ (in, 2020)<https://www.businesstoday.in/buzztop/buzztop-technology/what-iscryptocurrency-how-to-buy-cryptocurrency-in-india/story/397534.html> accessed 12 June 2020

[4] ‘Crypto Can Boost Indian Economy – How Banning Will Hurt It | Regulation Bitcoin News’ (Bitcoin News, 2020) <https://news.bitcoin.com/crypto-can-boost-indian-economy-banning-will-hurt-it/> accessed 12 June 2020