Varun Sethi, the founder of Blockchain Lawyer, shared the ‘Banning of Cryptocurrency and Regulation of Official Digital Currency Bill 2019’ on Monday and it has stirred quite a lot of debates among the Indian Crypto community. However, this bill was not announced by the Indian government, so the question of authenticity, and whether the bill would be implemented or not, still remains.
The Finance Secretary and Secretary of Economic Affairs Subhash Chandra Garg headed a committee engaged in studying all aspects of cryptocurrency and recommending crypto regulation for India.
This document cannot be claimed as the final recommendation of the expert committee to the Ministry of Finance. The document contains no mark of authentication on it nor it has come out from any official source – Advocate Mohammed Danish, Co-founder, Crypto Kanoon
Sethi himself claimed, “This looks like a very very rough draft of a proposed bill … [it might be] just a random discussion paper and it may not actually become [a] bill in the same manner and mode in which this has been stated.” The “appropriate regulators”, according to the bill are, the Insurance Regulatory and Development Authority of India, the Pension Fund Regulatory Development Authority, the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), “and any other appropriate regulator as may be notified by the central government.”
However, the RBI stated last month that they do not have any knowledge of this bill. Nischal Shetty, CEO of local crypto exchange Wazirx, too has been calling the bill a “rough draft”.
The Monsoon session of Parliament will not be discussing this bill, which means now we need to see if it gets discussed in the next parliament session which might be in December. If this is a real draft then it’s a very regressive approach to new technology. I’m certain our lawmakers will question and amend it such that the ban applies on money laundering and not on entrepreneurship or public participation – Nischal Shetty, CEO, Local crypto exchange Wazirx
India has declared that it would work towards applying the crypto standards set by the Financial Action Task Force (FATF). If this is to take place, India would lose a lot on the industrial growing level. Advocate Danish said, “Based on the language of the document coupled with other information based on earlier filed RTIs, it can be safely assumed that it may be that document which the committee has recommended.”
Sethi apparently noticed some positive aspects of the bill. First, he found that in the bill.
means 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 in 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 – Cryptocurrency
According to Sethi, the definition mentioned here is unlike any other countries. Second, the bill allows cryptocurrency to be used for research purposes. Sethi raised the question of what would happen if all companies declare that the cryptocurrency that they are using are for research purposes only. Furthermore, he also raised the issue if a professor would be allowed to sell the tokens of cryptocurrency.
Professor A. Damodaran of the Indian Institute of Management in Bangalore said, “It is narrowly scoped. By design, the bill is meant to strengthen India’s Payment and Settlements Act 2007 and attack money laundering. Crypto tokens (including ICOs) which are assets/ securities are out of the ambit of this Bill.”
The draft bill has six parts. Part 1 introduces the bill, states that it applies to all of India, and defines 18 terms including cryptocurrency, digital rupee, distributed ledger technology, foreign digital currency, investment schemes, miner, mining, and the RBI. Part 2 singles out the activities that are prohibited.
Part 3 deals with regulating the digital rupee and foreign digital currency, as well as prohibiting various uses of cryptocurrency. Part 4 describes the powers of the investigating authority and Part 5 focuses on the penalties and proceedings. The last part of the bill has miscellaneous items such as “protection of action taken in good faith.”
Advocate Danish further mentioned, “Now coming to the provisions of the bill, the definition clause attempts to transgress than what is actually required which is giving rise to confusion in understanding the terms like ‘cryptocurrency’ and ‘distributed ledger technology’ among others. The bill prescribes the punishment of fine/jail term of up to 10 years for even buying, selling and storing of cryptocurrency. The bill not just cracks down on industry players but it also gives a shock to influencers by prescribing jail term up to 7 years for soliciting or inducing participation for use of cryptocurrency.” Summed up, this bill has a zero-tolerance policy.
He continued: “I must say that for implementing such special legislation, the administration/ investigating agency must be well equipped. And I don’t think the decision of the Home Ministry to provide special training to the police officials in September is a coincidence.” The prohibition, however, excludes, “digital rupee, or any foreign digital currency recognized as foreign currency in India.”
Section 7 of Part 5 explains, “Cryptocurrency shall not be used as legal tender or currency at any place in India … 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.” Section 8 asserts, “No person shall directly or indirectly use cryptocurrency” for the activities subsequently spelled out.
The activities are “as a payment system; buy or sell or store cryptocurrency; provide cryptocurrency-related services to consumers or investors which includes registering, trading, settling, clearing or other services; 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; and/or as a means for investment.”
Chapter 6 has a list of all the offenses, “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 [Section 7 and 8] … shall be punishable with fine as may be prescribed by the central government in the First Schedule or with imprisonment which shall not be less than one year but which may extend up to ten years, or both.”
Sethi suggests a more democratic approach to cryptocurrency on the government’s part. Supreme Court is scheduled to hear the crypto case on July 23.