In our previous post, we have highlighted the negative attitude of the Reserve Bank of India towards the use of BITCOINS. However it is important to note that BITCOINS are not illegal per se. There is tremendous scope for these trading units to be legalized in India. In this post we seek to highlight the possible ways in which these units can be legalized.
'Currency' is defined as " currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank." The definition gives the government wide powers to expand the scope of the definition. This power can be used to include BITCOINS as a currency. However as of now, a BITCOIN is not a currency as it does not satisfy the requirement mentioned in the definition.
The Securities Contracts (Regulation) Act, 1955 defines securities to include -
"(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ia) derivative; (ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes; (ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; (id) units or any other such instrument issued to the investors under any mutual fund scheme; (ii) Government securities; (iia) such other instruments as may be declared by the Central Government to be securities; and (iii) rights or interest in securities;”
The law again gives the power to the government to include 'such other instruments' as securities. Therefore there is scope for bitcoins to be termed as securities. If the government does take this decision to qualify BITCOINS as a security, it would give birth to a plethora of regulations and guidelines issued by SEBI.
However currently BITCOINS doesn't qualify as a security as it doesn't fall under any of the permissible heads mentioned in the definition.
The Indian Copyright Act, 1957, defines the term "computer programme" as "a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result." BITCOIN is a code which facilitates the transfer of bitcoin currency from one account to the other. Therefore BITCOINS can be regulated as a computer programme under the existing legal regime. As computer programmes are movable goods, therefore BITCOINS can also be categorized as a movable good.
Keeping in mind the growing popularity of BITCOINS across the globe, it will be interesting to see how the Government of India will regulate these virtual currencies in India.