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In contrast to banknote money, which is issued by the central bank, a cryptocurrency is a digital currency that does not generally exist in physical form. It is a concept meant to function as a where individual coin ownership data are maintained in an existing in the form of a computerized utilizing to protect transaction records, control the production of more coins, and verify the transfer of coins. It ideally utilizes a decentralized authorization system of operation as opposed to the conventional system of operation, a network of records including a distributed ledger in an electronic encrypted form known as blockchain technology. As the valuation of these cryptocurrencies began to rise, many individuals in India began to invest in cryptocurrencies through numerous trading platforms that were accessible in the market from time to time. However, just like a regular stock market, bitcoin saw ups and downs in value as an asset, with some earning gains and others losing money. When the trade volume steadily rose to a noteworthy level. It drew the attention of the Government of India as well as the banking sector regulator, the Reserve Bank of India, as it has done with other governments and authorities across the world. This raised several concerns among investors, the government, and regulators.
Understanding the Legal Position in all this would lead us to the crucial question of whether cryptocurrency is legal in India. There is no simple solution since the location has shifted like a pendulum clock. To understand the legality of all this we have to dive a little deeper into the concept of cryptocurrency and how it works. India, being an unexplored, uncontrolled market with a capacity of over a trillion dollars, experienced a tremendous increase in cryptocurrency exchanges. As a result of the crypto market’s huge popularity, usage within a year, and possible income loss, the Government of India, regulators, and authorities began to take notice, and as a result, the Reserve Bank of India released a press statement in 2013 warning the public against trading in virtual currencies such as Bitcoin. In 2013, the financial regulator, the Reserve Bank of India, released a press statement on December 24, 2013. Recently, on March 24, 2021, the Ministry of Corporate Affairs, Government of India, issued a notification amending Schedule III of the Companies Act 2013. Wherein it advised individuals about the use of cryptocurrencies, as well as the legal, consumer protection, and security risks they face. It also stated that the Reserve Bank was looking into the concerns around the usage, Cryptocurrency holding, and trading is permitted within the country’s existing legal and regulatory framework, which includes Foreign Exchange and Payment Systems laws and regulations.
Following that, on February 1, 2017, the Reserve Bank of India released a press statement. It warned the public that it has not given any licenses or authorizations to any entity/company conducting any schemes or dealing with Bitcoin or any cryptocurrency. As a result, any user, holder, investor, trader, or other person dealing with Virtual Currencies does so at their own risk. Following that, on December 5, 2017, the Reserve Bank of India released another explanation. Whereas, in the aftermath of a large increase in the valuation of several Cryptocurrencies and a quick rise in Initial Coin Offerings (ICOs), the RBI reaffirmed its consternation.
The Government of India formed a high-level Inter-Ministerial Committee in November 2017 to report on several concerns relating to the usage of virtual money, and in July 2019, this Committee published its findings, which recommended that private cryptocurrencies be banned entirely in India. The Government of India presented a new law, the Crypto-token Regulation Bill of 2018, on November 2, 2017, but it was not enacted. Even though the Inter-Ministerial Committee’s report was still pending, the RBI issued a circular in early April 2018 prohibiting all commercial and cooperative banks, small finance banks, payment banks, and NBFC from not only dealing in virtual currencies themselves but also from providing services to all entities dealing in virtual currencies. The year is 2018. The Reserve Bank of India issued a notification per the powers conferred by Section 35A read with Section 36(1)(a) of the Banking Regulation Act, 1949, Section 35A read with Section 36(1)(a) and Section 56 of the Banking Regulation Act, 1949, Section 45JA and 45L of Section 2 of the Reserve Bank of India Act, 1934, and Section 10(2) read with Section 18 of Payment and Settlement Systems Act, 2007 the Reserve Bank of India issued a notification dated April 6, 2018.
This effectively broke down the crypto business since exchanges required banking services to transmit and receive the money required for turning it into cryptocurrency as well as to pay employees, vendors, office space, and so on. However, the situation surrounding cryptocurrencies and their use altered on March 4, 2020, when the Apex Court of India, i.e., the Hon’ble Supreme Court of India, issued a well-reasoned judgment quashing the prior prohibition placed by the RBI. The Supreme Court of India reviewed the case primarily through the lens of Article 19(1)(g) of the Indian Constitution, which stipulates the right to practice any profession or carry on any employment, trade, or business, as well as the theory of proportionality. In the case of Internet and Mobile Association of India v. Reserve Bank of India, the court delivered a decision in which it overturned the Reserve Bank of India’s prohibition on cryptocurrencies. This ruling was issued on March 4, 2020, per Article 19(1)(g) of the Indian Constitution, which guarantees the right to practice any profession or carry on any occupation. commerce or company, as well as the proportionality theory Meanwhile, the Government of India introduced a new bill, titled Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019. However, the same could not be done this time since the bill draughts were in direct conflict with one other.
Wherein it issued directions to all Commercial and Co-operative Banks/Payments Banks/Small Finance Banks/NBFCs/Payment System Providers regulated by it to refrain from dealing in Cryptocurrencies or providing services to assist any person or organization in dealing with or settling Cryptocurrencies. Maintaining accounts, registering, trading, settling, clearing, lending against virtual tokens, accepting them as collateral, opening accounts with exchanges dealing with them, and transferring/receiving money in accounts relating to the purchase/sale of Cryptocurrencies were all examples of such services. The banking regulator’s orders were to take effect with immediate effect from the day they were announced. It also directed regulated companies who currently supply such services to end the arrangement within three months of the circular’s publication date. This meant that any cryptocurrency transaction was legally prohibited. This circular was then challenged in the Supreme Court of India in the year 2018.
The clause calls for information to be disclosed. The following information must be provided if the Company traded or invested in cryptocurrency or virtual currency during the fiscal year: Profit or loss on cryptocurrency or virtual currency transactions, amount of currency owned as of the reporting date, any individual may make deposits or advances for trading or investing in cryptocurrency or virtual money. The clauses went into effect on the first of April 2021. The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, was just introduced in parliament. It seeks to establish a supportive environment for the development of the Reserve Bank of India’s official digital currency. The Bill also intends to outlaw all private cryptocurrencies in India, although it provides for some exclusions to encourage the underlying technology of cryptocurrency and its applications. The administration has not established a timetable for this. And the aforementioned measure is still awaiting passage in Parliament.
The Indian government is now exploring the introduction of a new law dubbed “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”, which is similar in spirit to earlier iterations. However, with some exclusions, the RBI wants to outlaw private cryptocurrencies in India to promote the underlying technology and trade of cryptocurrency and to establish a framework for the creation of an official digital currency that would be issued by the RBI. The New Bill acknowledges the murky issue of cryptocurrency legislation and seeks to outright outlaw all private cryptocurrencies; nevertheless, there is still a grey area in which all types of cryptocurrencies will come under the jurisdiction of private cryptocurrency. The RBI has issued a warning to the general public about the potential abuse of private cryptocurrencies in a variety of ways. However, if the New Bill imposes a full prohibition on private cryptocurrencies, cryptocurrency investors would be forced to invest and trade in unregulated marketplaces. Furthermore, the goal of enacting a virtual currency/ cryptocurrency law is to ease the process of trading and keeping in a safer technical environment. However, even with the introduction of state-owned cryptocurrency that will be controlled by the RBI, the risk element associated with cryptocurrency investing and ownership will remain the same. Furthermore, according to the most recent modifications to Schedule III of the Companies Act, 2013, the Government of India has instructed that from the newly launched financial year, Companies must declare their cryptocurrency stakes. That is, firms must now report profit or loss on cryptocurrency/virtual currency transactions, the amount held, and information of deposits or advances from any individual for trading or investing in cryptocurrency/virtual currency. This specific step has been greeted with open arms by those involved in the crypto business since it is thought that it would allow all Indian enterprises to carry cryptocurrency on their balance sheets.
Based on the inferences that can be taken from the aforementioned facts and the current reality revolving around the world of cryptocurrencies, it is clear that there is a lack of clarity in India concerning cryptocurrency legislation. Well-structured cryptocurrency legislation in terms of cryptocurrency trading exchanges, blockchain technology, investors, and so on. Because the people engaged in such a field are in high demand, thus such regulation requires greater attention. It is worth noting that the benefits of cryptocurrencies were emphasized in the Ministry of Electronics and Information Technology’s Draft National Strategy on Blockchain, 2021. As a result, prohibiting global virtual money, which has influenced many nations, is not the greatest answer for our country’s growth. To maintain the trust of investors and the general public in the growing country, the government must take significant steps toward regulating cryptocurrencies. Though Union Finance Minister Nirmala Sitharaman has stated that there will not be a complete ban on cryptocurrency – “we will allow a certain amount of window for people to experiment on blockchain, bitcoins, and cryptocurrency.” – it will be critical to take a step back and review the Government formulated regulations concerning cryptocurrencies before moving forward. We are currently in the middle of a technology revolution that is radically altering how we interact, access information, and perform commercial operations. The Reserve Bank of India, for example, is responsible for fostering monetary and financial stability, as well as the safety and efficiency of the payment system.
People must have faith and trust not only in the currency, but also in the payment networks, banks, and other payment service providers that allow money to move regularly for any economy to run well. Governments all around the world, including India, are keeping a close eye on developments in this field. In the past, they have implemented technical advancements in the financial sector regularly. The growth of distributed ledger technology in recent years has resulted in the development of new goods and services, including cryptocurrencies. The only remaining issues are the volatility character of the money, which authorities must handle. It is predicted that governments would leave the door open for the adoption of new cryptocurrencies. At the same time, they are considering the idea of developing their cryptocurrency that will guarantee financial stability, consumer safety, legal protection, and privacy.
We are currently in the middle of a technology revolution that is radically altering how we interact, access information, and perform commercial operations. The Reserve Bank of India, for example, is responsible for fostering monetary and financial stability, as well as the safety and efficiency of the payment system. People must have faith and confidence not only in the currency, but also in the payment networks, banks, and other payment service providers that allow money to flow regularly. Governments all around the world, including India, are keeping a close eye on developments in this field. In the past, they have implemented technical advancements in the financial sector regularly. The growth of distributed ledger technology in recent years has resulted in the development of new goods and services, including cryptocurrencies.
 The Companies Act, 2013amendments in Schedule III Ministry of Corporate Affairs.
 Reserve Bank of India, Prohibition on dealing in Virtual Currencies (VCs), (April 6th, 2018).
 Internet and Mobile Association of India V. Reserve Bank of India, Writ Petition (Civil) No.528 of 2018.
 Internet and Mobile Association of India V. Reserve Bank of India, Writ Petition (Civil) No.528 of 2018 Supreme Court of India.
 Lok Sabha Bulletin No.1989-2025.
Author: Diksha Diwaker, Bennett University, Greater Noida
Editor: Kanishka Vaish, Senior Editor, LexLife India.