Introduction: India experienced an unprecedented increase in the number of people investing in the crypto markets in 2021! About 20 million people have jumped onto the crypto bandwagon in 2021. Cryptocurrencies have become a part of the India Investor’s lexicon. At present, Indians hold crypto assets worth $5.3 billion!! Bitcoin continues to dictate the rest of the crypto market. Fuelled by intensive advertising campaigns by prominent personalities and crypto prices touching all-time highs in April 2021, many small Indian investors put their risk capital in crypto currencies. The favourites being Bitcoin, followed by Ethereum and a lesser-known coins like Solana, Polygon, Terraluna and stable coins like Tether too! As a result, crypto platforms witnessed record growth in users and transaction volumes. The biggest Indian crypto broking platform registered a 3500% rise in transaction volumes and touched 14 million users recently.
Also Checkout – Updates – Tax On Cryptocurrencies
As things progress, crypto currencies have become mainstream. Especially people from Tier II and Tier III cities stared participating in numbers and the key players also launched new products to attract a wider user base. With such a fast and exponential increase in the users, it is being increasing felt the need to secure it!
While most crypto platforms are secured enough for a longer duration, it is always advisable to know all that you can about how to ensure that you don’t get scammed or fall prey to phishing when it comes to your hard-earned cryptocurrency. With the gaining popularity we are already witnessing various crypto scams across the globe. Here are a handful of measures which one should take while managing cryptocurrencies:
Conclusion: In spite of following all the safety and security measures, you might still be susceptible to various attacks and frauds, but caution is the key to safeguard your crypto assets. Crypto currencies once lost or stolen are impossible to retrieve. So, stay alert at all times!
Ukraine has filed a suit against Russia with the International Court of Justice at Hague. Ukraine has prayed for holding Russia accountable for creating a false theory of genocide to justify their illegal aggression on Ukraine. The Suit also prays for stoppage of military activity by Russia on Ukraine. There are also prayers for reparations. The Suit is likely to come up for hearing next week. Now the biggest question is “will Ukraine get Justice from ICJ”?
The International Court of Justice (ICJ) is the principal judicial organ of the United Nations. It was established in 1945 by the Charter of the United Nations. The two most important functions of ICJ are:
The in-camera hearing before ICJ starts with written submissions followed by oral submissions. Thereafter the bench of judges deliberates and decides the issue by passing judgment. However, all these proceedings normally take months. In such a scenario, can Ukraine expect some urgent relief from the ICJ?
Another issue is What if Russia does not participate in the proceedings before ICJ? Though, Non- participation of Russia will not prevent the case from moving on. However, it will raise serious practical and structural difficulties for conducting the proceedings. This will make the entire proceeding ex-parte and difficult for enforcement. Another issue that may come up is what if Russia participates and order is against Russia but Russia refuses to abide by the order? Though, the judgement of the ICJ is final and binding, ICJ lacks teeth to make it enforceable. No Doubt, the judgment of the ICJ will be final and binding on Russia, but the order of the ICJ is not enforceable as there is no process of enforcing them. There are instances in the past when big and powerful nations refused to abide by the order of ICJ. In fact, even Ukraine is aware of all these drawbacks. But still, Ukraine has approached ICJ for the simple reason that a ruling against Russia can hurt Russia’s international reputation and set a legal precedent which may cost Russia dearly on a long-term basis.
What is UOI’s stance on this!
For a long time now, there were discussions whether “Crypto” will be considered as a legal tender or not! The Budget 2022 announcement has made it clear that, in India, Crypto will be considered as a “Virtual Digital Asset” as per the newly inserted Clause 47A in Section 2 of the Income Tax Act, 1961.
Virtual Digital Assets (‘VDA’) means:
(a) Any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
(b) Non-fungible Token (NFT) or any other token of similar nature, by whatever name called;
(c) Any other digital asset, as the Central Government may, by notification in the Official Gazette specify.
In simple words, the virtual digital asset shall mean a cryptocurrency, NFT or another virtual digital asset as notified by the Central Govt. It will not cover subscriptions to any OTT platform, mobile applications, e-commerce platforms, etc.
The Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of a virtual digital asset subject to such conditions as may be specified therein. Such powers might have been given to the Central Govt. to exclude India’s first digital currency or Central Bank Digital Currency (CBDC).
Notably, Indian currency and foreign currency as defined under the Foreign Exchange Management Act, 1999, have been excluded from the ambit of VDAs.
While VDA includes cryptocurrencies, the definition can cover a wide variety of digital assets which is implied by the wording ‘or otherwise’ in the phrase “generated through cryptographic means or otherwise”. The definition is also made exhaustive with the words ‘information’, ‘code’, ‘number’.
The Government is in the process of passing The Crypto Currency and Regulation of Official Digital Currency Bill, 2021 but the same has been delayed as the Government is seeking technical inputs from RBI as RBI has concerns about private digital currencies citing macroeconomic and financial stability issues.
From the above is it clear to us that Crypto is not a legal tender but is considered as a Virtual Digital Asset. The question remains whether one can buy / sell or trade in it??
The Budget 2022 has announced an income tax @ 30% on the income from transfer of digital assets with no set offs allowed except the cost of acquisition being the only allowable deduction.
The loss on sale of digital assets cannot be set off against any other income nor allowed to be carried forward to subsequent tax years.
To regulate and capture details of the transactions, tax shall be deducted (TDS) @ 1% on payment made to the seller of crypto currency by crypto exchange or any other payer, if the total payment during the tax year is above INR 10,000. The threshold limit for TDS would be INR 50,000 a year for specified persons which include individuals and HUFs who are required to get their accounts audited under the income Tax Act. These provisions, applicable from July 1 2022, primarily requires the crypto exchanges to deduct taxes whenever required.
Gifting of digital assets will also be taxed in the hands of the receiver. The taxability will arrive only if the value of the Virtual Digital Asset exceeds INR 50,000 but there will be no tax liability in case of receipt of such assets through a relative as defined under the tax law on the occasion of marriage, etc.
The Income Tax forms from April 1, 2022 will have a separate column for making disclosures on gains made from crypto currencies and paying taxes.
Virtual Digital Assets (VDA) are now a part of Moveable assets under income tax Act Sec 56(2)(x).
The Reserve Bank of India has been working on the Central Bank Digital Currency (CBDC) for the past 18-24 months which will be issued by the Reserve Bank of India after considering risks like cyber-security and counterfeiting in mind. Work is in progress on wholesale and retail use of CBDC and it will be considered as another form of Fiat currency.
CONCLUSION: There are currently no laws in India that prohibit buying, selling or trading in crypto currency. Further, taxing on the profits of Crypto trading makes it clear that Crypto currency is not illegal and Crypto Trading is legal. It also clarifies that Crypto is a legal and tradable asset. However, the heavy taxes levied on the income generated from dealings in Crypto and the TDS provisions coupled with the proposal to launch CBDC, clearly indicates the Government’s reluctance to give Crypto a “Currency” status. Government is studying and analysing crypto and has no immediate plans to declare it as a legal tender. However, what is important is that Crypto is here to stay.
Introduction:
Litigation Financing, as the name suggests is essentially an agreement where a non-beneficiary third party, funds a litigation/arbitration proceeding in exchange for a possible profitable return out of the court decree or award.[1] Such agreements are also referred to as Third Party Fundings (TPF). The concept recently gained global traction and has evolved rapidly, specifically in the jurisdictions of Australia, Germany, United Kingdom, Singapore, and Hong Kong.[2] This exponential growth can be attested to two main rationales; 1) It provides a level field for both parties in court by ensuring that legal rights are not compromised due to scarcity of funds and; 2) From a business perspective, it can be quite a bountiful investment for such funders.[3] The jurisdictions which saw a growth in Third Party Funding noticed similar benefits associated with the concept i.e., “enhanced capital, effective recovery mechanism, and facilitating access to justice”[4].
The Judicial History and Evolution of Litigation Financing:
One of the earliest cases decided on this topic was the case of Ram Coomar Coondoo and Ors. v. Chunder Canto Mookerjee,[(1876) L.R. 4 I.A. 23] where the Privy Council declared that if the agreement to supply funds to carry on a suit, with consideration being a share of the property may not be against public policy if it were to be recovered. Third Party Funding was permitted on the grounds of promoting access to justice as long as these agreements were agreed upon with bona-fide intentions and not for illegal objectives. Though they allowed funding, the Privy Council laid down that if such agreements were found extortionate, unconscionable, for improper object or for the purpose of gambling in litigation i.e., against public policy, they would not be valid. The Apex Court, in Re: ‘G’, A Senior Advocate of the Supreme Court,[G Senior Advocate, AIR 1954 SC 557; Bar Council of India V. A.K. Balaji, (2018) 5 SCC 379] laid down that the rigid English Laws and doctrines of champerty and maintenance [Historically, English law deemed TPFs illegal due to the application of doctrines of champerty and maintenance.] are not applicable in India. It was clarified that such funding agreements were not morally wrong or against the public policy of India. As long as such agreements do not shock the conscious of public morality, they will be good in law.
The consequences of such agreements being against public morals were seen in the case of Suganchand v. Balchand.[Suganchand v. Balchand, 1956 SCC OnLine Raj 127] The Rajasthan High Court laid down that, agreements made with the intent of gambling in litigation to earn huge profits cannot be legally upheld. Another aspect which would render litigation funding agreements void would be advocates funding such cases. In the case of Bar Council of India v. AK Balaji,[(2018) 5 SCC 379] the Apex Court acknowledges that litigation funding by advocates can be impermissible in India. The court also noted that this was the only restriction on third party funding. All non-advocates can become potential funders for such cases and may benefit from the profit returns if any. The bench in Re: ‘G’, A Senior Advocate of the Supreme Court,[G Senior Advocate, AIR 1954 SC 557; Bar Council of India V. A.K. Balaji, (2018) 5 SCC 379] also explicitly barred advocates from entering into litigation funding.
The Legality of Litigation Funding in India:
Though much of Indian Legislature has been derived from English Common Law, India has not inherited the strict laws of maintenance and champerty which were initially the cause of Third-Party Funding being illegal in England.[Damodar Kilkar and Ors. v. Oosman Abdul Gani CITE] Thus, there was never an express bar or restriction preventing litigation funding to be applied in India.[Ibid] The Supreme Court in Bar Council of India v. AK Balaji[(2018) 5 SCC 379]held that third-party funding is not legally prohibited in India. The Civil Procedure Code even goes on to recognize third-party financing in states like Maharashtra, Gujrat, Karnataka and Madhya Pradesh by way of amendment to Order XXV rules 1 and 3 of the Civil Procedure Code, 1908. This empowers the courts to secure costs for litigation by asking the financier to become a party and depositing the costs in court. It is important to note that though the practice is legal in India, it still remains unregulated which could lead to potential complexities.
Potential Complexities with Third-Party Funding in India:
Does Litigation Funding Have a Future in India:
Litigation matters are notoriously known for being expensive and lengthy in India. This, in addition the financial crisis caused by Covid-19 could dissuade potential plaintiffs and petitioners from bringing their meritorious claims to court. The process of litigation funding would help the current financial situation of people and companies who are unable to afford litigation.
Citing a recent example, infrastructure majors like Patel engineering and Hindustan Construction Company have already secured litigation funding for their arbitral matters with the objective to ease their leveraged positions. Thus, the method can also be useful to major companies who are debt ridden. Further, anticipating a rise in contractual and bankruptcy cases, several international litigation funding firms are planning on entering the Indian market. Litigation financing can have a major role in the future of Indian Litigation and Arbitration. Though it is in its nascent stages in India, with proper regulations and legal frame-work, it can become popular. In jurisdictions where TPF is regulated and promoted, it has proven to be an effective tool for guaranteeing justice to the wronged, be it one individual or a major corporation.
This article is written by an intern from our office, Ms. Tanya Mahajan, under the supervision of a Senior of the firm.
For understanding whether trading of Crypto Currencies in India is legal or not, we will have to first understand the definition of Trading! Trading in its conventional sense means the activity of buying and selling goods and / or services. However, we are mooted with a fundamental issue of how is crypto currency classified as ….?
Is Crypto Currency classified as a Currency or is Crypto Currency classified as an Asset or is Crypto Currency classified as a Commodity?
The Reserve Bank of India had on April 6, 2018, vide Notification No. RBI/2017-18/154, DBR.No.BP.BC.104/08.13.102/2017-18 prohibited dealing in virtual currencies. Subsequently, the Supreme Court of India vide its Judgement in Writ Petition (Civil) No. 528 of 2018 had quashed the RBI notification.
The Government was then contemplating to pass and implement the Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019 which later got substituted with The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021.
The introduction of this bill in the Parliament has been delayed. Simultaneously, the Reserve Bank of India is in the process of coming out with their own Central Bank Digital Currency (“CBDC”).
While all this will take some time, the investors are confused whether to trade or not in Crypto Currencies!
The cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology, a distributed ledger enforced by a disparate network of computers.
A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation. Considering the inherent nature of the Crypto Currencies, getting them regulated by any country’s Central Government is a gargantuan task.
Presently, there’s no law in the country that bans cryptos or says that trading such digital assets is illegal. Currently, the Government is working on a bill that will regulate crypto trading, and it will bring rules on how cryptocurrency exchanges are supposed to operate in the country and how income from such currencies will be taxed and other aspects. Even the RBI hasn’t said cryptos are illegal, though the bank has concerns.
In the absence of any laws, if individuals are trading in crypto currencies, they should be mindful of the taxation implications, GST implications and FEMA guidelines that would impact the trading activity when the Bill is passed and implemented.
“When the RBI, after due internal deliberation, says that there are serious concerns on macro-economic and financial stability, there are deeper issues, which need much deeper discussions and much more well informed discussions,” said RBI Governor Shashi Kanta Das at an event recently. So, till such time the laws are indecisive, investing in Crypto currencies for long term investments or trading activity is to be decided by each individual bearing in mind the implications that might follow on its regularisation!
This article is written by the
Crypto Legal team of RKS ASSOCIATE
Background:
In April 2019, the Ministry of Corporate Affairs (“MCA”) constituted a Committee to make recommendations to expand the ambit of the Companies (Auditor’s Report) Order, 2016, (CARO), which lays down audit reporting norms. The Committee had recommended the inclusion of disclosures on cryptocurrency holdings and trading under Schedule III of the Companies Act.
Let us understand what does Schedule III of Companies Act, 2013 include:
Schedule III of the Companies Act, 2013 provides a general reporting format of Financial Statements for companies. It is divided into three parts, i.e. Division I, Division II and Division III.
Division I is applicable to entities preparing their financial statements as per the Companies (Accounting Standards) Rules, 2006;
Division II is applicable to entities preparing their financial statements as per the Companies (Indian Accounting Standards) Rules, 2015; and
Division III is applicable to non-banking financial institutions preparing their financial statements as per Ind AS.
MCA Notification:
Consequent to the recommendations of the Committee, the MCA vide its Notification dated March 24, 2021, amended Schedule III of the Companies Act, 2013, with effect from April 1, 2021, mandating companies to make certain disclosures with respect to virtual currency / crypto currency transactions undertaken by them during the financial year.
The details required to be disclosed in the financial statements included:
Market Sentiments:
Cryptocurrency is fast gaining ground as an exciting option among investors in India. The past few years have seen a burgeoning number of investors. Most of its recent users come from small cities and towns in India. However, despite the mounting excitement, much ambiguity persists around the legality of cryptocurrency in India. If you are considering investing in cryptocurrencies, you want to be sure you are not breaking any law or regulations. Therefore, it’s important to understand the legality that surrounds cryptocurrencies clearly.
Here’s a quick guide for you to get going.
Is Crypto a Legal Tender?
As things stand today, Crypto currencies are not owned or controlled by any particular country or a bank. They are not issued by a Central Bank of any country as legal tender.
Most (Not all) Governments around the globe have not recognised crypto as legal tender and neither they are being regulated by any Regulatory body, as on date. There are no laws that prohibit trading in crypto.
In that sense, cryptocurrency is like any other asset class such as gold, commodities or real estate. People trade in gold or other assets without the government creating a law for it. Same is the status of cryptocurrency at the moment.
In India, crypto is not a valid currency in the conventional sense, which means that one cannot pay with cryptocurrency to buy and sell anything in India. The currency of a country is legal tender backed by a sovereign guarantee. In India, only the Reserve Bank of India can issue any currency.
Crypto, on the other hand, is minted across the world by a complex decentralised, peer-to-peer distributed software systems. Since it can be traded online, cryptocurrencies are digital currencies and valid as an asset class in India.
Supreme Court judgement on Crypto:
In 2018, the Reserve Bank of India had prohibited banks, Non-Banking Financial Companies (NBFCs) and payment systems regulated by it, from facilitating financial transactions for entities related to cryptocurrencies.
However, this was quashed by the Hon’ble Supreme Court of India in March 2020.
The judgement paved way for financial institutions facilitating the trading of cryptocurrencies, creating the ground for several crypto market exchanges in the country.
Over the past few years, the Government of India has been deliberating over the fate of virtual currencies / cryptocurrencies, and has released various advisories cautioning investors against the risks associated with virtual currencies/ cryptocurrencies in India.
The MCA Notification may possibly indicate a step to meet expectations of the investors.
The Crypto Bill:
The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to create a facilitative framework for creation of the official digital currency to be issued by the Reserve Bank of India and to prohibit all private currencies in India but allows for certain exceptions to promote the underlying technology and its uses.
The Bill will take some more time to be introduced in the Parliament and may not be introduced in the forthcoming budget session.
Conclusions:
Currently, cryptocurrencies are unregulated, but not banned. Hence, companies are required to report all their investments and transactions in such virtual currencies for the purpose of transparency and compliance. This will help authorities to check tax evasion and give an idea of penetration of cryptocurrencies in corporate transactions.
This disclosures mandated by the MCA Circular will serve as a useful data point to the government, at a time when a law to regulate cryptocurrencies is to be finalised and rolled out.
The reporting is a year-end disclosure, as opposed to regular market trade linked disclosures, which is what would be needed if the aim is to regulate dealing in cryptocurrency.
The rules on disclosures have made it clear that the government wants to gather data on digital currencies. The government can also use this data for evaluating the FEMA (Foreign Exchange Management Act) and taxation impacts of trading in cryptocurrency. It will also help investors in evaluating if companies are taking money out of core business and investing in cryptocurrency. There is an inherent conflict between the government’s directive to companies to report transactions in cryptocurrencies and the proposed bills seeking to ban private cryptocurrencies. The apparent conflict may be resolved once the understanding of ‘private’ cryptocurrencies is made clear.
This article is written by the
Crypto Legal team of RKS ASSOCIATE
Background:
The first known crypto currency, Bitcoin was created in January 2009.
The original intent of creating Bitcoin was to be electronic cash, but its volatility scrapped its original intent.
As of now there are about 9,929 cryptocurrencies worldwide.
Definition of Money:
Crypto currencies aimed to mirror some or all of the uses of traditional money. Traditionally “Money” has always been defined in terms of the three functions or services that it provides, namely:
But in course of time, a fourth function, namely that of being a final discharge of debt or standard of deferred payment was also added. This fourth function of money was acquired by money through the conferment of the legal tender status by a Government / Central Authority.
Crypto Craze:
When a crypto currency is released, the creator can set its parameters, which cannot be changed thereafter. You cannot duplicate it and neither recreate it. The limited supply of a particular crypto currency creates more demand due to its limited supply and consequently leads to inflated prices.
In recent times, similar to other assets like gold and diamonds, crypto currencies are bought to hold for its value rather than to be treated as electronic cash. Crypto currencies are easily transferable and can be easily stored compared to other assets.
Mining:
Mining is the process by which new crypto currencies are entered into circulation. It is also the way new transactions are confirmed by the network and a critical component of the maintenance and development of the block chain ledger.
Mining is performed using sophisticated hardware that solves extremely complex computation math problem. The first computer to find the solution to the problem is awarded the next block of coins and the process begins again.
Volatility:
The values of the crypto currencies are highly volatile mostly due to the immature market. New regulations and policies are constantly reshaping the market and causing drastic swings.
More so, since the crypto currencies are not confined to any geographical area, any relevant event in any part of the globe could cause an impact on the price and its tradability.
With very little historical data compared to more conventional investments crypto currencies are considered as risky assets, but potential rewards come with higher risks!
Conclusion:
In India, investors have been caught in a cross fire between companies and exchanges promoting investments in crypto currencies and lack of regulations for digital currencies. The investors’ interest and enthusiasm in this new asset class has been on the rise and it’s here to stay for long…!!