Digital trade is the order of the day. So also is crave for digital money trade.
Crypto currency is a type of digital or virtual money like Bit coin. But it has no physical counterparts. It exists only in electronic form. Let us discuss about the legality of trading Crypto currency in India.
During April 2018, the Reserve Bank of India had imposed a ban on Crypto currency trading that barred banks and other financial institutions from facilitating “any service in relation to virtual currencies vide Notification dated April 6, 2018. The Supreme Court of India quashed the said RBI circular in March 2020. However, RBI may file a review petition in the Supreme Court against the quashing of a central bank circular aimed at curbing Crypto currencies.
In July 2019, an inter-ministerial panel set up by the government on virtual currencies had proposed banning of private Crypto currencies, barring any digital currency issued by the government, by enacting a law and imposing fines and penalties including jail-term, for trading in Crypto currency. The panel comprising officials from the Finance Ministry’s Department of Economic Affairs, the Ministry of Information Technology and RBI finalized a report and proposed a draft bill viz. Banning of Crypto currency and Regulation of Official Digital Currency Bill, 2019. However, this bill is yet to be introduced in the parliament for enactment.
Generally, banks are the Authorised Dealer (AD) for any Foreign currency transactions and they are awaiting directions from RBI on Crypto currency transactions. At present, there is no specific law prohibiting this trading, since the above said Bill is yet to be implemented. However, as an Indian Citizen we are bound by the Act passed by the Indian Parliament. The Foreign Exchange Management Act 1999, regulate the Foreign Exchange receipt and payment of INR from India.
In this connection, reference is invited to Sec 3 of The Foreign Exchange Management Act, 1999 (FEMA) which deals in foreign exchange. The relevant extract of Section 3 of FEMA is as under:
Section 3 Dealing in foreign exchange, etc. —Save as otherwise provided in this Act, rules or regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall —”
(a) deal in or transfer any foreign exchange or foreign security to any person not being an authorised person;
(b) make any payment to or for the credit of any person resident outside India in any manner;
(c) receive otherwise through an authorised person, any payment by order or on behalf of any person resident outside India in any manner. Explanation.—For the purpose of this clause, where any person in, or resident in, India receives any payment by order or on behalf of any person resident outside India through any other person (including an authorised person) without a corresponding inward remittance from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorised person;
(d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person.
Explanation.—For the purpose of this clause, “financial transaction” means making any payment to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or negotiating any bill of exchange or promissory note, or transferring any security or acknowledging any debt.
While seeking clarity on permissibility of Crypto Currency in India, it is pertinent to understand that Sec 3 of FEMA categorically states that any payment made abroad or received from abroad by a resident of India without the permission of RBI shall be deemed to have been contravened the provisions of FEMA.
To understand what is legal definition of the term “authorised person”, we need to study the Section 2(c) of FEMA which states that ‘authorised person’ means an authorised dealer, money changer, off-shore banking unit or any other person authorised under section 10 (1) to deal in foreign exchange and foreign securities. These persons / dealers are authorised by RBI under section 10 of FEMA to deal in foreign exchange.
The subject of dealing with Crypto Currency cannot be relied upon any exclusive law for the same but has to be, inevitably, considered in conjunction with FEMA.
Therefore, while dealing with the subject of trading in Crypto Currencies or Virtual Currencies in India, it is not advisable to jump to a blank conclusion that Crypto Currency trade is permitted in the absence of any prohibiting law in India and that it is legally tenable and safe to trade in such digital currency. One doing so is likely, in all probabilities, to land one day in legal tangle unaware. Any violation in this regard would attract penalty under Sec.13 of FEMA, 1999. Hence, we conclude that a person resident in India shall not be allowed to trade with Crypto currency under the ambit of Section 3 of FEMA.
SRI LAW ASSOCIATES
Disclaimer: Posting on this blog is for information purpose only and it’s not a legal advice.