Even as the government is looking for a middle ground on the issue of banning cryptocurrencies, many legal and regulatory questions remain in the realms of grey when it comes to digital currencies.
We catch up with Pamarty Venkataramana, an international corporate lawyer and member of the Supreme Court of India bar association, to understand the legal and regulatory challenges posed by cryptocurrencies
There is a talk about India enacting a law to govern cryptocurrency transactions. What must be the areas of focus to ensure its ethical and legitimate use?
First and foremost would be to confirm cryptocurrency as being a 'property'. Next would be to determine which Court of Law shall exercise jurisdiction as also the implications for service.
The appropriate cause of action for theft of a private key would be a key legal issue, too.
Also, to lay down as to when it is appropriate to permit service by alternative means in the context of crypto-frauds rather than the centralised channels provided by the Hague Service Convention.
What kind of frauds can be associated with cryptocurrencies? What legal recourse does an individual have in case of fraud?
The most likely case scenario is when a fraudster gains access to the private keys associated with cryptocurrency accounts held by a claimant. This would allow the fraudster to remove the assets held in the account and sell them.
In case of fraud, one can pray for a proprietary injunction to freeze the assets or their proceeds, a worldwide freezing injunction against any person knowingly involved in the fraud, and disclosure orders against certain third parties believed to have access to information that might assist in tracing the assets.
How would the courts pass such an order against persons unknown when it is so widely defined?
The class of persons unknown against whom the Courts would be prepared to pass orders would be narrowed down to three definite categories -- those who were involved in the fraud; a class designed to capture those who have received assets without having paid a full price for them and those who fall in the category of innocent receivers.
An innocent receiver would be those who have no reasonable grounds to believe that what has appeared in their account belongs to the claimant/plaintiff.
The challenge for a court would lie with this category as these persons should not find themselves unwittingly in breach of that court order.
Which factors makes a cryptocurrency fraud an actionable claim meeting the injunction order?
The private key of the claimant is confidential information since it was a code provided to the claimant for the purpose of operation of accounts. Thus, breach of trust, unjust enrichment and constructive trust are the elements that constitute this type of criminal offence. So, remedies exist under the law in the form of an injunction, damages and/or an account of profits.
What would be the definition of a 'virtual asset' and what is the legal standing of a virtual asset in India today?
A 'virtual asset' would be an intangible good that is an object of civil remedies, has a value and is expressed as a data set in the electronic form.
A virtual asset is not an acceptable means of payment under the existing laws of our country and so, cannot be directly exchanged for property, goods or services.
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Generally, a virtual asset key owner is deemed as being the owner of such a virtual asset. What exceptions would your draft within a cryptocurrency legislation to avoid confusion and prospective litigation?
Deemed owners would be the following class of persons:
a. The key of the virtual asset or the virtual asset is stored with a third party in accordance with the terms of a transaction between the custodian and owner of the virtual asset.
b. The virtual asset is transferred for safekeeping to any person in accordance with the law or a court order that has become enforceable
c. The key to the virtual asset was acquired by a person illegally.
What would be the applicability of any such law?
Such a law shall be applicable to services related to the circulation of virtual assets if subjects of such legal relations have a registered office or a representative office within the territory of India including J&K.
The law would also apply to transactions with a virtual asset as their object if the contracting parties have determined that the law of India applies to the whole of the transaction or any part of it.
Also, to transactions with a virtual asset as an object if either both parties are residents of India, or the acquirer of the virtual asset is a resident of India.
Which organ of the government should regulate virtual assets?
It would be prudent to create a new all-India level authority and make it responsible for the implementation of the government policy on the circulation of virtual assets. The RBI must have added responsibility to regulate the turnover of secured virtual assets with currency value on the territory of India.
The Securities and Exchange Board of India (SEBI) should be enjoined to regulate the turnover on the territory of India of such secured virtual assets which are secured by security or a derivative financial instrument.
Overall responsibility could rest with an inter-ministerial committee of finance, Information technology, defence and headed by Home Minister of India. Ultimate appellate authority ought to be the President of India.
The most recent tragedy of how investors lost millions in cryptocurrencies after being inspired by 'squid game' is an alarm bell. Will more such cases occur?
Be wary. They all begin cheap and speak of just a penny raking in fortunes for the layman investor. But, the end result reaffirms that old saying - 'penny wise, pound foolish'.
In the case of cryptocurrency frauds, though, it is going to burst in a fraction of a minute.
Has national interest been safeguarded by announcements made so far in relation to virtual assets and cryptocurrency?
It is a sad commentary that a most responsible body like RBI has said that it is neither legal nor illegal. A clear-cut cut policy needs to be formulated starting with a white paper on virtual assets and cryptocurrencies by the Government of India. Our country cannot afford to risk such uncertain, uncharted territory in light of the situation of hostilities with a few neighbouring countries, which are technically savvy, too.