Supporters perceive dealing in crypto as a way forward for India to become digitally advanced as a nation, while the opposers believe crypto to be a twisted way of earning through which many a times, innocent ones are deceived and looted, in a sense.

Due to the release of the said draft legislation ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019′ submitted by expert panel constituted by Union Government on banning cryptocurrencies, there has been quite a buzz on social media and other electronic mediums of interaction. People that are in millions, are involved in dealing with cryptocurrencies and they would be affected directly by the draft, if it becomes an Act. Though a lot of hue and cry has been in the air since days, the govt has officially said that there is no complete or blanket ban. It’s a matter of time after which we all be in a position to get to the truth of this statement, if and when the legislature makes a concrete law on the matter.

We as a developing economy, should really be careful at each step and not rush in with the world and adopt crypto world in a full fledged manner, whats required before that is creation of an ecosystem of stability and predictability which would help in increasing clarity on the matter for all, including the investors and start ups.

Salient features of Bill:

The draft says, it extends to the whole of India, in its initial sections. The proposed legislation makes room for crypto research, but bans most normal activities, including mining and holding cryptocurrency. In the same legislation, the authors would establish a “Digital Rupee” system which would be the only legal crypto tender in India.

S.6 says, (1) No person shall directly or indirectly use Cryptocurrency in any manner, including, as,- (a) a medium of exchange; and/or (b) a store of value; and/or (c) a unit of account. (2) Cryptocurrency shall not be used as legal tender or currency at any place in India. Plus, on violation of this, the person might get upto 10 years in imprisonment.

Some of the definition clauses that can be labelled as salient features of the Act as well, are as follows:

The word ‘cryptocurrency’ has been defined as any information or code or number or token not being part of any official digital currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchange with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes. This noticeably divorces cryptocurrency from digital rupee and digital foreign currencies. The definition appears to be targeting digital currencies not backed by any central banks. 

S.2(1)(c) defines – currency, means currency as defined under sub-section (i) of Section 2 of the Foreign Exchange Management Act, 1999 (Act No. 42 of 1999); (d) ―Digital Rupee means a form of currency issued digitally by the Reserve Bank and approved by the Central Government to be legal tender.

S.2(1)(o) ―person includes – (i) an individual, (ii) a Hindu Undivided Family, (iii) a company, (iv) a firm, (v) a trust, (vi) a limited liability partnership, (vii) an association of persons or a body of individuals, whether incorporated or not, (viii) any other entity or authority established under a statute, (ix) every artificial juridical person, not falling within any of the preceding sub-clauses,and (x) any agency, office or branch owned or controlled by such person;

Coming to the punishment clauses, According to the draft “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019”, holding, selling or dealing in cryptocurrencies such as Bitcoin could soon land you in jail for one to 10 years. The draft has proposed a 10-year prison sentence for persons who “mine, generate, hold, sell, transfer, dispose, issue or deal in cryptocurrencies in any form, whether directly or indirectly through an exchange or trading.

The exact words of the draft are in S. 8. (1) Whoever directly or indirectly mines, generates, holds, sells, deals in, transfers, disposes of or issues Cryptocurrency or any combination thereof with an intent to use it for any of the purposes mentioned in, or directly or indirectly uses Cryptocurrency for any of the activities mentioned in, clauses (e), (g) and/or (h) of sub-section (1) of Section 7 shall be punishable with fine or with imprisonment which shall not be less than one year but which may extend up to ten years, or both; further, (3) Whoever directly or indirectly promotes, issues any advertisement, solicits, abets or induces any participation in any activity involving the use of Cryptocurrency for any of the purposes or activities mentioned in sub-section (1) of Section 6 or sub-section (1) of Section 7 shall be punishable with fine or imprisonment which may extend up to seven years or both.

Also S.12. says, (1) Notwithstanding anything contained in the Code of Criminal Procedures, 1973, all offences under section 8 and section 9, other than offences under sub-section (1) of section 8, shall be non-cognisable and bailable. Offences under sub-section (1) of section 8 shall be cognisable and non-bailable. (2) If any conduct is punishable under any other law, this Act will be in addition to and not in derogation of such law.

Part II of the draft deals with general prohibitions. It in actuality just contains one section which is S.3 which is as follows:

3. (1) No person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use Cryptocurrency in the territory of India. 

(2) Nothing in this Act shall apply to any person using technology or processes underlying any Cryptocurrency for the purpose of experiment or research, including imparting of instructions to pupils provided that no cryptocurrency shall be used for making or receiving payment in such activity. 

(3) Nothing in this Act shall apply to the use of Distributed Ledger Technology for creating a network for delivery of any financial or other services or for creating value, without involving any use of cryptocurrency, in any form whatsoever, for making or receiving payment. 

The draft spells out that certain terms will not apply to any person using technology or processes underlying any cryptocurrency for the purposes of experiment or research including education provided that no cryptocurrencies are used for making or receiving payment in such activity.

Part III contains “REGULATION OF DIGITAL RUPEE AND FOREIGN DIGITAL CURRENCY”. Here S.4 talks about Government authorised Cryptocurrency as legal tender and currency which means that a cryptocurrency can be recognized as a legal tender if and when the government and RBI wish so. This also leads to an assumption that there isn’t a blanket ban on cryptocurrencies. Also S.5 in the same vein tells us that the RBI by a notification in compliance with the relevant provisions of the Foreign Exchange Management Act, 1999 (Act No. 42 of 1999), can treat Foreign digital currency as foreign currency.

S.6 says Cryptocurrency, not to be used as legal tender and currency. In exact words it says:

6. (1) No person shall directly or indirectly use Cryptocurrency in any manner, including, as, – 

(a) a medium of exchange; and/or 

(b) a store of value; and/or 

(c) a unit of account. 

(2) Cryptocurrency shall not be used as legal tender or currency at any place in India.

Further S.7 talks about  Prohibition on use of Cryptocurrency for certain activities like ) as a payment system, buy or sell or store Cryptocurrency, provide Cryptocurrency related services to consumers trade Cryptocurrency with Indian currency or any foreign currency, issue Cryptocurrency related financial products, as a basis of credit, issue cryptocurrency as a means of raising funds, or as a means for investment. 

Next, S.8, as already discussed, defines what is and isn’t an offence. Under S.8, not only “directly or indirectly mines, generates, holds, sells, deals in, transfers, disposes of or issues Cryptocurrency or any combination thereof” is an offence but also, according to S.8(3) Whoever directly or indirectly promotes, issues any advertisement, solicits, abets or induces any participation in any activity involving the use of Cryptocurrency shall be punishable with fine or imprisonment which may extend up to seven years or both. 

S.9 provides us with Attempt to commit offences, abetting and contravention of other provisions of the Act to be punishable, while S.10 lays down the max amount of fine for S.8 and S.9.

PART IV deals in “POWERS OF THE INVESTIGATING AUTHORITY”. S.11 tells us that search or seizure made under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973, and also that the Central Government may notify appropriate levels of police officer for investigation of offences specified under this law. Part IV ends here.

Conclusion

Many questions still are left unanswered like, once the bill gets enacted, how are people supposed to dispose of their cryptocurrencies? Especially when nobody in India would be allowed to buy the same.

In conclusion, while China has banned crypto completely, Russia accepts it not as a currency but as a medium of exchange, whereas USA has adopted it completely into its system. With reference to India, if at all we ever need to adopt it, proper regulatory framework around it needs to be created. Whereas, if we decide to ban it, then too proper disposition mechanisms need to be at place while ensuring the millions of crypto holders a sense of stability, security, predictability and clarity.