This article has been written by Yash devda pursuing a Diploma in Corporate Law & Practice: Transactions, Governance and Disputes course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

In India, there are laws for every topic that govern the entire country. The same goes for  corporations and businesses. The law that especially deals with corporations and businesses in India is company law, which provides rules, guidelines, etc., for the most efficient working of companies and businesses. As  time passes, new technologies are also invented that help companies reach new heights, and this gives birth to amendments in law related to them. Cryptocurrencies are governed or issued by any government or central agency in the world. The technology used in crypto-currencies is called blockchain technology, which gives its users an untraceable Internet Protocol (I.P.) address over the internet. Examples of a few cryptocurrencies are Bitcoin, Ether, Tokens, Tether, etc. Low government interference and easy accessibility are two major reasons companies are more inclined to incorporate cryptocurrencies into their day to day operations.

Download Now

Company Law : an overview

The Company Act of 2013 is the primary law that governs all the known aspects of any corporation or business in India. It was enacted in 2013 to replace the Companies Act of 1956, which had been in force for over 50 years. The new act is much more comprehensive and up-to-date, and it reflects the changing needs of the Indian business community.

The Company Act of 2013 covers a wide range of topics, including:

  • The formation of companies
  • The governance of companies
  • The financial reporting of companies
  • The auditing of companies
  • The liquidation of companies

The act also establishes a number of new regulatory bodies, including the National Company Law Tribunal (NCLT) and the Securities and Exchange Board of India (SEBI).

The Company Act of 2013 is a significant piece of legislation that has had a major impact on the Indian business landscape. It has helped to create a more transparent and accountable corporate environment, and it has made it easier for businesses to operate in India.

Here are some of the key provisions of the Company Act of 2013:

  • Simplified incorporation process: The new act makes it easier to incorporate a company, and it reduces the number of mandatory documents that need to be filed.
  • Enhanced corporate governance: The new act imposes stricter requirements on corporate governance, including requirements for independent directors and whistleblower protection.
  • Improved financial reporting: The new act requires companies to provide more detailed financial information, and it strengthens the auditor’s role in ensuring the accuracy of financial statements.
  • New regulatory bodies: The new act establishes two new regulatory bodies, the NCLT and SEBI, to oversee the corporate sector.

The Company Act of 2013 is a comprehensive and far-reaching piece of legislation that has had a major impact on the Indian business landscape. It is a testament to the Indian government’s commitment to creating a more transparent and accountable corporate environment. Over the past few decades, this Act has gone through substantial changes because of the introduction of many new technologies and developments in global trade. Company law provides a legal structure for a company, which includes incorporation of the company, issuing of shares, prospectus, day to day management, appointment of directors, termination and merger of companies, etc. Before the Companies Act 2013, the act that governed companies in India was the Company Act, 1956, which had so many issues that were later solved by the new Act of 2013. A company has various characteristics, including being a separate legal entity, the transferability of shares, a common seal and limited liability.

Legal landscape of cryptocurrency in India

Cryptocurrency is more than a decade old technology that has rapidly grown in India in the last few years after the internet became accessible to every household in India. It’s a new way of transacting, which is much safer and faster as compared to previous methods. In India, rules and regulations regarding cryptocurrency are not governed by any statute, but the Reserve Bank of India (RBI) has released several notifications regarding the petition filed in the Supreme Court against a ban on one virtual currency as a  violation of Article 19(1)(g) of the Indian Constitution, which specifies the freedom to practice any profession or to carry out any occupation. In the verdict, the Apex Court ordered that the circular was unconstitutional, and the ban was struck down. In 2021, the Government of India announced a new Crypto Bill, which will provide rules and regulations regarding RBI issued virtual currencies, ban all private cryptocurrencies and impose several penalties on organisations engaged in their mining, ownership and trading. As of now, the use of cryptocurrencies in India is not illegal but there are no specific laws that provide a proper legal framework for their operation in the Indian market. Thus, the current legal situation regarding cryptocurrencies in India is unclear.

Embodying cryptocurrencies into company

Companies always want to increase their share value and market share beyond their current state, and technologies like blockchain are very helpful in providing such growth to them. Companies use cryptocurrencies for better and more efficient operations with their customers and to allow access to a whole new group of investors. 

For example, cryptocurrencies can be used to make payments for goods and services, which can be faster and more secure than traditional payment methods. Additionally, cryptocurrencies can be used to store value, which can be beneficial for businesses that need to manage their cash flow.

Companies also use cryptocurrencies to allow access to a whole new group of investors. Cryptocurrencies are often traded on decentralised exchanges, which means that anyone can participate, regardless of their location or nationality. This can be a major advantage for companies that want to reach a wider audience of investors.

Overall, cryptocurrencies offer a number of benefits for businesses, including improved efficiency, security, and access to new markets. As a result, we can expect to see more and more companies using cryptocurrencies in the future.

Companies  accept virtual currency, open international transactions and provide extra customer privacy. In early 2021, the newest amendment to Schedule III of the Companies Act, 2013, states that all the companies that are incorporated in India have to disclose their profit or loss on transactions and investments involving cryptocurrencies to the Government of India. The amount of holding, assets, and deposits from any person regarding trading and mining of cryptocurrencies must be disclosed to officials. Incorporating cryptocurrencies into company operations is needed for future expansion for any corporation, and as the times move, the use of virtual currency will exponentially increase in the global market.

Legal challenges and regulations for cryptocurrencies

Companies face multifaceted issues with regard to the  use of cryptocurrencies, and regulation depends on current laws on the subject of cryptocurrencies that are not satisfactory. These issues include taxation of virtual currency, digital lending, classification of different virtual assets, and compliance with money transmission and anti-money laundering laws in India. 

Companies face a number of complex issues with regard to the use of cryptocurrencies. These issues include:

  • Taxation of virtual currency: The taxation of virtual currency is a complex issue, as there is no clear consensus on how it should be taxed. Some countries have classified virtual currency as a commodity, while others have classified it as a currency. The way that virtual currency is taxed can have a significant impact on the profitability of cryptocurrency transactions.
  • Digital lending: Digital lending is a new and emerging form of lending that uses blockchain technology to facilitate peer-to-peer lending. This type of lending can be faster and more efficient than traditional lending, but it also poses a number of risks, such as the risk of fraud and the risk of cyber attacks.
  • Classification of different virtual assets: There are a variety of different types of virtual assets, each with its own unique characteristics. Some virtual assets are considered to be securities, while others are not. The classification of a virtual asset can have a significant impact on the regulatory framework that applies to it.
  • Compliance with money transmission and anti-money laundering laws: Cryptocurrency transactions can be used to facilitate money laundering and other illegal activities. As a result, cryptocurrency companies must comply with a variety of money transmission and anti-money laundering laws. These laws can be complex and burdensome, and they can pose a significant compliance risk for cryptocurrency companies.

The regulation of cryptocurrencies is still in its early stages, and there is a lack of clarity on many of the issues that surround cryptocurrency use. This lack of clarity can make it difficult for companies to comply with the law, and it can also create uncertainty for investors. As the use of cryptocurrencies continues to grow, it is important for regulators to develop a clear and comprehensive regulatory framework for cryptocurrency use.

Cryptocurrencies invite illegal activity for which laws in India are either silent or not properly defined. This is a major problem for users of cryptocurrencies. The crypto exchange provides a pathway through which investors can step into the global crypto market. The regulatory body with regard to crypto exchange is the Central Board of Direct Tax (CBDT), which defines and passes circulation on crypto exchange and cross border transactions. Private Virtual currency can be used as a money laundering method, which creates a loss of faith for investors in cryptocurrencies. Hackers and malicious users can create as much as they want from virtual currency if they break the system and know the method of virtual currency creation. This will lead to the ability to create fake virtual currency or steal virtual currency by just changing the account balances. Another issue with cryptocurrencies is that there is no central regulating body or issuing authority,, which makes its users unsafe. It is a decentralised network  over the internet, which makes it more open to fraud and scams. Transactions, by nature, are irreversible here. Although governments from various nations across the world have been trying to step in and get hold of the network in several ways, they have failed to make an impact. Interference from a central authority can have legal implications. Virtual currencies are fully controlled by market forces and may get devalued based on market sentiments. This is more prevalent in closed virtual communities.           

Future ahead for cryptocurrencies in India

Cryptocurrencies are a very recent technology for Indian people and companies. The use and popularity of cryptocurrencies have been rapidly increasing among investors. The virtual currency provides various benefits to  its customers on a global scale and also provides faster and more secure methods of transactions. The value of crypto-currencies does not decline over time; it remains the same. Countries like the USA, Canada, Germany, Singapore, and the Netherlands have allowed the use and expansion of cryptocurrencies in their markets, but other countries like China and Saudi Arabia have put a complete ban on the use and ownership of cryptocurrencies. In India, a statute related to cryptocurrencies has been introduced, but the legislation has announced the new crypto bill, 2021, which will completely restrict the use of private cryptocurrencies and only government issued cryptocurrencies are allowed in India. This will allow Indian start-ups and companies to operate virtual currencies under the regulations of the government. The new era of the internet will bring pros and cons related to cryptocurrencies in India. India is a developing country, which means that involving new technology like blockchain and cryptocurrency would be a major pathway for the development and welfare of the people of the nation. After the verdict of the Apex Court of India on the legality of cryptocurrencies, which gives people the right to use and own virtual currency for their companies and businesses, this opens new markets and encourages investors to come to the Indian market. The verdict has been met with a positive response from the cryptocurrency community, with many believing that it will help to legitimise the industry and attract more investment.

The verdict is also expected to have a positive impact on the Indian economy, as it could create new jobs and boost innovation. The cryptocurrency industry is still in its early stages, but it has the potential to grow into a major economic force. The verdict is a significant step forward for the industry, and it is likely to have a positive impact on the Indian economy in the years to come.

In addition to the economic benefits, the verdict is also expected to have a positive impact on the financial inclusion of Indians. Cryptocurrencies can provide a way for people who do not have access to traditional banking services to participate in the financial system. This could help to reduce poverty and inequality in India.

The verdict is a major step forward for the cryptocurrency industry in India. It is a positive sign for the future of the industry, and it is likely to have a positive impact on the Indian economy and financial inclusion.

Conclusion

As we discussed above in the article, cryptocurrencies are becoming the most prominent and crucial part of governments, companies and businesses around the world. Cryptocurrency offers a new, effective and attractive model of payment methods that can boost companies and operator’s revenues. The Indian government has been enthusiastic about exploring the possibilities of blockchain technology. In order to shape the cryptocurrency environment in India, it would be necessary to maintain a harmonious balance between innovation and regulation. A properly regulated cryptocurrency sector can seem to boost the Indian financial sector. The virtual currency also gives a number of advantages to its users but also attaches unpredicted dangers and hurdles. The use of trading platforms like WazirX, CoinDCX, Zebpay, etc., has increased in India, which increases the risk factor that has not been regulated by any government authorities”,” but  the new Cryptocurrency Bill of 2021 was an important milestone and the first step in attempting to regulate the flourishing Indian cryptocurrency market. This bill sets the guidelines for creating the official digital currency from the Reserve Bank of India that will secure blockchain while stopping illegal activities
like money laundering”,” corruption and virtual identity theft. Analysis indicates that cryptocurrency is very likely to be the next currency platform due to the large volume of cryptocurrency that is flowing in different systems, the huge expansion and growth of using and implementing cryptocurrencies and the opportunities that cryptocurrency systems offer.

References

RELATED ARTICLESMORE FROM AUTHOR

LEAVE A REPLY

Please enter your comment!
Please enter your name here