Crypto-currencies are the new rage in the market and everyone we know are excitedly talking about investing in crypto-currencies like Bitcoin, Tether etc.
As a lawyer, I find that the crypto-currency market is a breeding ground for a new breed of criminals and fresh crimes like crypto-jacking (which essentially is a cyber-crime where someone gets unauthorised access to a different individual’s device and uses the resources available in such device to mine crypto-currencies).
There are no specific laws governing mining, trading and investing in crypto-currencies in India.
The general public needs to be aware that crypto-currencies will be treated same as assets while taxing the same i.e. same if someone buys gold in India.
However, the most vulnerable aspect of investment in crypto-currencies is that it still remains unregulated in India.
The RBI in 2018, had sought to restrain trade in virtual currencies by is Circular dated 6 April 2018. However, the Hon’ble Supreme Court set aside such circular in the case of Internet and Mobile Association v. Union of India in March 2020.
Recently, on 31 May 2021, the RBI issued a fresh circular advising banks and financial institutions not to rely on 2018 circular but cautioning the banks and other financial entities to carry out all customer diligences in addition to ensuring compliance with relevant provisions for overseas remittances.
The Government is planning to enact the “Cryptocurrency and Regulation Of Official Digital Currency Bill 2021”. The same will be tabled in the Parliament and be made an Act. This legislation shall be regulating the otherwise unregulated regime of crypto-currencies in India.
Since the crypto-currency space is completely unregulated, it is advised that the investors in crypto-currencies use strong cyber-security software to protect themselves from unauthorized hacking.
It is also advised to keep tabs and screenshots of the mode you are using to invest. There are popular crypto-currency platforms like WazirX which have gained reputation in recent times. Always keep the helpline number and other details handy so that in the event there is any fraud practiced, the same can be reported to the cyber cell of the Kolkata Police immediately.
Investing through popular platforms is better because they are more prone to correcting courses/providing solutions upon negative reviews or receiving threats to approach consumer forum.
Keeping all systems updated and in check goes a long way in protecting ourselves from crypto-jacking and any other frauds. One should never trust a software 100% and moreover, one should never fall for individuals who promise heavy incentives/returns in exchange of investing through them. As far as possible use secure payment gateways to transfer money and never invest through a middle-man by payment of cash. Such transactions shall be untraceable and cannot be proved in a Court of Law.
The Courts have recently observed that transactions in crypto-currencies would have to comply with the general laws in force in India including the Prevention of Money Laundering Act (PMLA), the Indian Penal Code (IPC), the Foreign Exchange Management Act (FEMA), the taxation legislations and the RBI Regulations mandating Know-Your-Customer (KYC), Anti-Money Laundering Requirements (AML) and Combating of Funding of Terrorism (CFT).
Volatility is the other important consideration in crypto-markets. Being unregulated, rumours are fast spreading and a little speech by someone like Elon Musk destroys or sky-rockets any crypto-currency’s future. In such circumstances, the general laws protect you in India and you can always complain about any person spreading false information on social media or messaging groups to the law enforcement authorities under harassment, spreading mis-information.
Private crypto-currencies are not safe to invest in and the new Bill as mentioned above intends to ban private crypto-currencies in India except with certain exceptions.
In March 2021, the Government by making amendments to Schedule III of the Companies Act 2013, has directed all companies to disclose their investment in crypto-currencies thus enabling crypto-currencies to be set out in the balance sheets for public viewing and making it easier for one to invest.
In conclusion, a blanket ban of crypto-currencies seems unfair as we would be missing on the global market and the benefits of crypto-currencies were highlighted in the Draft National Strategy on Blockchain 2021. Therefore I feel that the new Act shall regulate the crypto-exchanges and a watchdog like SEBI monitoring the crypto-currency exchange and market is the need of the day. Effective regulation is the order of day with the common substantive laws protecting individuals from getting defrauded by investing in crypto-currencies.
(Barnik Ghosh is a Founder Partner at Bamura Partners and practices primarily in commercial, banking and insolvency laws, corporate transactions and white collar crimes. He is a gold medallist from Gujarat National Law University.)
