Dec 17, 2021

Cryptoassets & Blockchain 2022

This Practice Guide on Cryptoassets & Blockchain 2022 provides an insight into the meaning of ‘cryptocurrency’, the government approach to regulation of cryptoassets in India, related legal and policy issues, insight into the offences of cross-border implications, cryptocurrency mining, and a brief snapshot of existing trends.

Note to Contributors: ‘cryptoasset’ includes cryptocurrencies (eg. Bitcoin and Ether) and crypto-tokens (eg, security tokens and utility tokens), but excludes branded loyalty points (eg, frequent-flyer miles and hotel points) and points/currencies usable for purchases within a video game.

 

Legal framework

1. What legal framework governs cryptoassets? Is there specific legislation governing cryptoassets and businesses transacting with cryptoassets?

At present, there is no legal framework governing cryptoassets or cryptocurrencies. Despite the vacuum in legislation, regulators such as the Reserve Bank of India (RBI) have previously issued various cautionary circulars deterring individuals from dealing in cryptoassets. In 2018, under its circular of 6 April 2018 (the RBI Circular), the RBI banned all RBI-regulated entities (eg, banks, financing institutions and non-banking financial institutions) from dealing in cryptoassets. While this circular did not ban cryptoassets per se, it had blocked any financial dealing contemplated by a buyer, seller or trader of cryptoassets. In contrast, regulators such as the Securities Exchange Board of India (SEBI) have remained silent on regulating cryptoassets. The RBI Circular was set aside by the Supreme Court of India order of 4 March 2020 (see below).

Given the lack of certainty, market participants filed several petitions before the Supreme Court challenging the constitutionality of the RBI Circular and sought clarity on the government’s stance on the legality of cryptoassets and cryptocurrencies in India. In response, in July 2019, the government released draft legislation (the Banning of Cryptocurrency and Regulation of Official Digital Currency Act 2019)[1] (the Cryptocurrency Bill 2019), which seeks to ban any person from ‘mining, generating, holding, selling, dealing in, issuing, transferring, disposing of or using cryptocurrency in the territory of India’.

Under the Cryptocurrency Bill 2019, ‘cryptocurrency’ means any information, code, number or token generated through cryptographic means or otherwise:

  • that provides a digital representation of value that may be exchanged, with or without consideration, with the promise or representation of having an inherent value in a business activity which may involve the risk of loss or expectation of profits; or
  • that functions as a store of value or unit of account.

The only exception carved out regarding cryptocurrency is the use of its underlying technology for experimental, research or educational purposes, provided that the cryptocurrency is not used to make or receive payment. Violation of the draft legislation may result in up to 10 years’ imprisonment.

In response to the petitions filed by market participants, on 4 March 2020, the Supreme Court passed an order setting aside the RBI Circular on grounds of proportionality, including on account of lack of any factual damage to RBI regulated entities arising from the use of cryptocurrencies and in the absence of any express legislative prohibitions concerning cryptocurrencies in India.

Subsequently, on 25 May 2020, the RBI clarified (in response to an application filed under the Right to Information Act 2005) that presently there is no prohibition applicable to banks to provide bank accounts to crypto exchanges or crypto traders.

From public sources, we understand that the government had proposed to introduce the Cryptocurrency and Regulation of Official Digital Currency Bill 2021 (the Cryptocurrency Bill 2021) in the budget session of Parliament earlier this year. However, at the time of writing this bill is not publicly available and has not been tabled in Parliament.

On 31 May 2021, the RBI issued another circular to reiterate that the RBI Circular cannot be cited in light of the Supreme Court judgment of 4 March 2020. However, the RBI clarified that banks and financial institutions may continue to carry out customer due diligence processes in line with the relevant regulations and standards for know-your-customer (KYC), anti-money laundering (AML) and combating of financing of terrorism (CFT) obligations under the Prevention of Money Laundering Act 2002[2]; and ensure compliance with relevant provisions under Foreign Exchange Management Act[3] for overseas remittances.

Further, the Ministry of Corporate Affairs issued a notification in March 2021 to make it mandatory for companies to disclose any dealings in cryptocurrency or virtual currency in their balance sheets.

Given the absence of enacted legislation, coupled with the regulatory and judicial developments discussed above, any application of cryptoassets or cryptocurrency to undertake financial activities or operations in the payment ecosystem, while being current practice, may become subject to ongoing scrutiny from the regulatory authorities and result in legislative bans (ie, after the enactment of the Cryptocurrency Bill 2021, if the legislation is similar to the Cryptocurrency Bill 2019).

Presently, cryptoasset businesses are operating under self-regulatory codes, which include ensuring compliance with KYC, AML and CFT obligations. Such businesses will also subject themselves to a formal board led by the Blockchain and Crypto Assets Council, part of the Internet and Mobile Association of India, which will oversee the implementation of the self-regulatory code.

Government policy

2. How would you describe the government’s general approach to the regulation of cryptoassets in India?

Since the 2013 boom in cryptoasset trading on the open market, the RBI and the Income Tax Department have been swift to shut down business operations involving cryptoassets. However, for a brief period, the government switched between a negative and an agnostic approach. In his 2018 budget speech, the finance minister announced that: ‘The government does not consider cryptocurrencies as legal tender or coin, and will take all measures to eliminate the use of cryptoassets in financing illegitimate activities or as part of the payment system.’ This approach is also reflected in the Cryptocurrency Bill 2019, which explicitly bans the use of cryptoassets.

In contrast, in September 2019, a report released by an inter-ministerial committee set up by the Ministry of Finance (Department of Economic Affairs) on Fintech related issues, acknowledged that ‘blockchain and Initial Coin Offerings (ICOs), are revolutionising the global fintech landscape’ and distinguished categories of cryptocurrency, specifically utility and security tokens. Notably, the report made no policy recommendations on cryptocurrency or blockchain, unlike other aspects of fintech (eg, agritech and KYC).

The Cryptocurrency Bill 2021 was due to be introduced in the budget session of Parliament earlier this year, but is not currently available. It remains to be seen whether the proposed law will be similar to the Cryptocurrency Bill 2019 or whether it will move away from that bill’s blanket-ban position and instead provide a regulatory landscape for cryptocurrencies in India.

Publicly available information also indicates that in May 2021, the government was looking to set up a new panel to decide the fate of cryptocurrency regulation in India. However, details of whether this panel has been set up or any developments in cryptocurrency regulations continue to be unavailable. While certain news articles have suggested that the government may be looking at taking a more nuanced approach on cryptocurrency regulation, this has not been confirmed by the government.

Regulatory authorities

3. Which government authorities regulate cryptoassets and businesses transacting with cryptoassets?

No specific government authority regulates cryptoassets and businesses transacting in cryptoassets. However, the Ministry of Finance (Department of Economic Affairs), the Ministry of Electronics and Information Technology, SEBI and the RBI have been instrumental in drafting the Cryptocurrency Bill 2019.

Regulatory penalties

4. What penalties can regulators impose for violations relating to cryptoassets (eg, injunctions, fines or prison terms)?

Despite the vacuum in legislation, the Income Tax Department has in the past issued notice or initiated proceedings that have required businesses dealing in cryptoassets to close. Further, criminal proceedings may be initiated per the provisions of the Cryptocurrency Bill 2019, which could lead to a maximum of 10 years’ imprisonment or monetary penalties being imposed or both. Additionally, in June 2021, according to news reports, a cryptocurrency exchange in India received notices from the enforcement directorate in relation to alleged money laundering concerns and alleged violation of foreign exchange laws.

Court jurisdiction

5. Which courts have jurisdiction over disputes involving cryptoassets?

No special court or tribunal exercises jurisdiction over disputes involving cryptoassets. In the absence of an express or implied bar and depending on the financial and territorial nature of a dispute (ie, civil or criminal), lower courts and tribunals can exercise jurisdiction in addition to an appeal lying before the state high courts and Supreme Court.

Legal status of cryptocurrency

6. Is it legal to own or possess cryptocurrency, use cryptocurrency in commercial transactions and exchange cryptocurrency for local fiat currency in India? 

While there is ambiguity on the legality of cryptocurrencies, if the Cryptocurrency Bill 2021 is enforced in the same way as the Cryptocurrency Bill 2019, it will impose a ban on any person from holding cryptocurrencies unless the underlying technology or process is used for experimental, research or educational purposes, provided that the cryptocurrency will not be used to make or receive payment in this activity.

Fiat currencies

7. What fiat currencies are commonly used in India? 

The national currency of India is the Indian rupee issued by the RBI. There are restrictions under the extant foreign exchange laws in India concerning holding and usage of foreign currencies, and any foreign currency earned or acquired may be required to be converted into Indian rupees under the applicable foreign exchange laws.

In July 2021, the RBI announced its intent to issue a central bank digital currency (ie, legal tender issued by the RBI in digital form).

Industry associations

8. What are the leading industry associations addressing legal and policy issues relating to cryptoassets?

Several associations, including the Blockchain and Virtual Currency Association, the Blockchain Foundation of India, the Digital Asset and Blockchain Foundation of India and the Internet and Mobile Association of India, which include industry participants and government representatives, have committed to examining legal and policy issues relating to cryptoassets.

[1]https://dea.gov.in/sites/default/files/Approved%20and%20Signed%20Report%20and%20Bill%20of%20IMC%20on%20VCs%2028%20Feb%202019.pdf

[2] https://dea.gov.in/sites/default/files/moneylaunderingact.pdf

[3] https://legislative.gov.in/sites/default/files/A1999-42_0.pdf

Regulatory threshold

9. What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in India? 

The Cryptocurrency Bill 2019 bans any person from dealing in cryptoassets (agnostic of any specific attribute of that cryptoasset), including, among others, as a means for investment. In light of the proposed blanket ban on the use of cryptoassets, regulators have not sought to identify any attributes that would distinguish its various use cases, including as a security. However, recent public articles suggest that the government of India may classify cryptocurrency as an asset class to be regulated by the Securities Exchange Board of India (SEBI).

Investor classification

10. How are investors in cryptoassets classified and treated differently (eg, ordinary (retail), institutional, sophisticated, accredited)?

Investors in cryptoassets are not classified or treated differently.

Initial coin offerings

11. What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?

At present, there are no rules or restrictions on the conduct of and investment in ICOs. While the facets of an ICO remain untested in an Indian legal context, if funds are collected to obtain a ‘coin’ (ie, a representation of value or right) to be redeemed in the future, this collection of funds, being unregulated, could contravene the Banning of Unregulated Deposit Schemes Act 2019[1]. Such a contravention could result in imprisonment and a financial penalty. A report on Fintech related issues, released in September 2019 by an inter-ministerial committee set up by the Ministry of Finance (Department of Economic Affairs) and the Cryptocurrency Bill 2019 explicitly prohibit the use of cryptocurrency as a medium of exchange, store of value or unit of account or use as a means to raise funds.

Security token offerings

12. What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?

Irrespective of the nature of offerings, including a security token offering, a collection of funds for such a scheme could be deemed as an unregulated deposit and result in imprisonment and financial penalties under the Banning of Unregulated Deposit Schemes Act 2019. In light of the present legislative climate, it is unclear whether SEBI would equate a security token with a security in light of its role in drafting the proposed legislation banning cryptocurrency, including its use to raise funds or in financial transactions or investment schemes.

Stablecoins

13. What rules and restrictions govern the issue of, and investment in, stablecoins?

Stablecoins are akin to a hybrid cryptocurrency, created as a reaction to the unreliable nature of most cryptocurrencies, specifically bitcoin, the valuation of which is largely based on speculation. Unlike cryptocurrency, the value of stablecoins is based on an underlying asset, including fiat currencies. Irrespective of their underlying value, the issue of and investment in stablecoins would potentially be prohibited under the Cryptocurrency Bill 2019 and its definition of ‘cryptocurrency’.

Airdrops

14. Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?

The principle behind an airdrop is to increase demand and the value associated with cryptoassets by distributing the same to investors for free. Increasingly, cryptocurrency has been dispensed to the wallet addresses of potentially aware or unaware investors, who are deemed owners of those assets once they are aware of the airdrop. Indian regulators and legislatures have not yet examined the transfer of cryptoassets; however, under the current legislative scenario, when an investor becomes aware of having cryptoassets (ie, as their deemed owner), it would be subject to the proposed ban on holding or possessing cryptoassets. An airdrop could therefore inadvertently lead to the potential holder becoming liable for penalties, including imprisonment. Additionally, where such airdrop is viewed as promoting, inducing participation or advertising cryptocurrency under the Cryptocurrency Bill 2019, this will amount to a contravention of the Bill and may be subject to penalties or imprisonment or both as prescribed thereunder.

Advertising and marketing

15. What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?

Given the legislative proposal under the Cryptocurrency Bill 2019 to equate any activity involving cryptoassets with illegal activity, the advertising or marketing of cryptoassets could fall foul of generally accepted advertising standards and applicable criminal laws depending on the nature of loss suffered by viewers of that advertising. Such a violation could thereby lead to pecuniary penalties and imprisonment. Also, under the provisions of the Cryptocurrency Bill 2019, any person directly or indirectly promoting, issuing an advertisement, soliciting, abetting or inducing any participation in any activity involving cryptocurrency as specified under sections 6 and 7 of the Bill, shall be subject to penalties or imprisonment or both as prescribed thereunder.

In July 2021, subsequent to certain petitions filed before the Delhi High Court against cryptocurrency exchanges in relation to their failure to issue adequate standardised disclaimers (similar to disclaimers offered by securities market intermediaries), cryptocurrency exchanges (while not mandated under law) now provide similar disclaimers highlighting risks associated with trading and investing in cryptoassets.

Trading restrictions

16. Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?

Such activity could potentially be deemed illegal; however, at present, there are no regulations governing investors trading in initial offerings of cryptoassets.

Crowdfunding

17. How are crowdfunding and cryptoasset offerings treated differently under the law?

Crowdfunding is essentially the collection or pooling of funds through small financial contributions from multiple individuals for a specific project, venture or social cause. A subset of crowdfunding (ie, peer-to-peer lending of fiat currency) is a permitted legal activity regulated by the Reserve Bank of India. Given that an offering of cryptoassets may be a collection of fiat currencies for potentially illegal activity (ie, dealing in cryptocurrency), such an offering could fall foul of the Cryptocurrency Bill, and accordingly be deemed illegal.

Transfer agents and share registrars

18. What laws and regulations govern cryptoasset transfer agents and share registrars?

At present, there are no regulations applicable to cryptoasset transfer agents and share registrars.

Anti-money laundering and know-your-customer compliance

19. What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?

Any party that attempts to, or knowingly assists in, any process or activity connected with the proceeds of a crime, including its concealment, possession, acquisition or use, will be guilty of money laundering.

Typically, to prevent money laundering activities, regulated entities (eg, banks, stock exchanges, financial institutions or parties carrying out designated business) are mandated to comply with the requisite AML or KYC requirements under Indian laws (including conducting KYC checks on customers). Currently, while there are no AML or KYC requirements or guidelines prescribed regarding cryptoassets (given the Cryptocurrency Bill 2019), a key concern expressed by the authorities, concerning businesses offering cryptoassets, is the likelihood that they will act as a vehicle for money laundering activities in India. As a result, these businesses seek to undertake extensive KYC checks despite not being legally mandated to do so.

Sanctions and Financial Action Task Force compliance

20. What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force (FATF) standards?

Being a member of the Financial Action Task Force, India has set up the Financial Intelligence Unit – India (FIU-IND) to be the country’s central national agency responsible for receiving, processing, analysing and disseminating information relating to suspicious financial transactions.

Under anti-money laundering legislation, reporting entities must provide information regarding cash transactions exceeding permitted values, suspicious transactions and cross-border transactions exceeding specified thresholds. If a regulated entity (eg, a bank, financial institution or stock exchange) receives information regarding the suspicious transaction of cash that breaches prescribed thresholds, the FIU-IND may take appropriate action (including criminal proceedings) against the parties involved in that transaction irrespective of whether it concerns cryptoassets.

[1] https://egazette.nic.in/WriteReadData/2019/209476.pdf

Fiat currency transactions

21. What rules and restrictions govern the exchange of fiat currency and cryptoassets?

At present, no rules or restrictions govern the exchange of fiat currency and cryptoassets. However, if the Cryptocurrency Bill 2021 is enforced in the same way as the Cryptocurrency Bill 2019, this exchange would be prohibited and could attract penalties or imprisonment, or both as prescribed thereunder.

Exchanges and secondary markets

22. Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

In the absence of an exchange of fiat currency, investors can execute pure cryptoasset trades. Based on the Cryptocurrency Bill 2019, a cryptoasset exchange executing a pure cryptoasset trade could also result in penalties given that a ban has been proposed on any dealing of cryptoassets, including via an exchange.

Custody

23. How are cryptoasset custodians regulated?

At present, cryptoasset custodians are unregulated in India, although their operations could be deemed illegal if the final cryptocurrency legislation is enacted on the lines of the Cryptocurrency Bill 2019.

Broker-dealers

24. How are cryptoasset broker-dealers regulated?

While cryptoasset broker-dealers are not regulated at present, their operations could be deemed illegal if the Cryptocurrency Bill 2021 is enforced in the same way as the Cryptocurrency Bill 2019.

Decentralised exchanges

25. What is the legal status of decentralised cryptoasset exchanges?

At present, cryptoasset exchanges (centralised or decentralised) remain unregulated and this may affect the trade of cryptoassets for cryptoassets. However, if the Cryptocurrency Bill 2021 is enforced in the same way as the Cryptocurrency Bill 2019, this exchange could be deemed to be illegal and prohibited from affecting any cryptoasset trade.

Peer-to-peer exchanges

26. What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

A parallel is often drawn between cryptocurrency and prepaid instruments that facilitate the exchange of funds between peers. This activity is regulated under the Payment and Settlement Act 2007[1] and the Reserve Bank of India (RBI) Master Directions on Prepaid Payment Instruments of 27 August 2021[2]. However, prepaid instruments have intrinsic value and are ‘loaded or reloaded with cash’, unlike cryptocurrencies, which cannot have any intrinsic value per se, but their value is contingent on their demand and supply. Because cryptocurrencies do not fall under the above legislation, a peer-to-peer transfer of cryptoassets would arguably be permitted. However, this transfer could potentially be deemed illegal if the Cryptocurrency Bill 2021 is enforced in the same way as the Cryptocurrency Bill 2019, which seeks to prohibit the transfer of cryptoassets.

Trading with anonymous parties

27. Does the law permit trading cryptoassets with anonymous parties?

The trading of cryptoassets, irrespective of whether such party is identified or anonymous, may be potentially illegal, if the Cryptocurrency Bill 2021 is enforced in the same way as the Cryptocurrency Bill 2019. In light of cryptoassets being commonly viewed as a front to conduct suspicious transactions, a cryptoasset trade with anonymous parties could attract penal consequences if it falls under the radar of the Financial Intelligence Unit – India, set up under the Financial Action Task Force.

Foreign exchanges

28. Are foreign cryptocurrency exchanges subject to India’s laws and regulations governing cryptoasset exchanges?

At present, foreign cryptocurrency exchanges facilitating cryptocurrency-to-cryptocurrency trades are not subject to laws or regulations in India.

29. Under what circumstances may a citizen of India lawfully exchange cryptoassets on a foreign exchange?

At present, an Indian citizen can lawfully exchange cryptoassets for other cryptoassets on a foreign exchange only if it does not involve the exchange of fiat currency in light of prevailing foreign exchange norms that permit only cross-border remittances of permissible activities. Further, while the RBI Circular has been set aside by the Supreme Court, the lack of a clear directive from the RBI may also pose practical challenges in the remittance of fiat currency.

Taxes

30. Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?

Despite the Indian tax authorities being proactive in initiating action against businesses involved in the exchange of cryptoassets for other cryptoassets or fiat currencies, the basis for such action must be established. Since the finance minister’s budget speech of 2018–2019, which declared cryptocurrency to be illegal tender, the Indian tax authorities have issued notices to businesses failing to declare profit earned from cryptocurrencies. Given that the legal status of cryptoassets is yet to be determined, such an earning could arguably be deemed as recurring or non-recurring income earned from other sources, which would require the payment of income tax by the individual or organisation in question.

[1] https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/86706.pdf

[2] https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11142

Government-recognised assets

31. Has the government recognised any cryptoassets as a lawful form of payment or issued its own cryptoassets?

The government has not recognised cryptoassets as a lawful form of payment. Instead, the government and regulators have been vocal in their objection to the use of cryptoassets as a form of payment. In a push to eradicate the use of these assets, the Reserve Bank of India (RBI) announced its intent to issue a central bank digital currency (ie, legal tender issued by the RBI in digital form). Separately, the Cryptocurrency Bill 2019 also contains a provision concerning approval from central government of the digital rupee being legal tender.

Bitcoin

32. Does Bitcoin have any special status among cryptoassets?

No. At present, bitcoin has no special status among cryptoassets in India.

Banks and other financial institutions

33. Do any banks or other financial institutions allow cryptocurrency accounts?

Under the Supreme Court decision setting aside the RBI Circular, on 25 May 2020 the RBI clarified (in response to the application filed under the Right to Information Act 2005) that there is no restriction applicable to banks prohibiting opening bank accounts for crypto exchanges or crypto traders.

Legal status

34. What is the legal status of cryptocurrency mining activities?

The mining of cryptocurrency essentially requires the miner to solve puzzles and add transactions to distributed ledger technology. This activity is integral to the blockchain and rewards the miner ordinarily with cryptocurrency. Cryptocurrency mining is often viewed as akin to a regulator issuing fresh currency within the financial market. Unlike the significant discussion focused on the use of cryptocurrency, there is limited public discussion on mining. Although a report on Fintech related issues released in September 2019 by an inter-ministerial committee set up by the Ministry of Finance (Department of Economic Affairs) (the Inter-ministerial Committee Report) and the Cryptocurrency Bill 2019 seek to ban the mining of cryptocurrency, mining as an activity is yet to be legally evaluated.

Government views

35. What views have been expressed by government officials regarding cryptocurrency mining?

Government officials remain silent on cryptocurrency mining. In addition, despite public discussions on cryptocurrency mining, the Inter-ministerial Committee Report and the Cryptocurrency Bill 2019 explicitly prohibit cryptocurrency mining.

Cryptocurrency mining licences

36. Are any licences required to engage in cryptocurrency mining?

At present, licences are not required to engage in cryptocurrency mining.

Taxes

37. How is the acquisition of cryptocurrency by cryptocurrency mining taxed?

The acquisition of cryptocurrency by cryptocurrency mining is not currently taxed and will depend on the outcome of cryptocurrency legislation and whether it is considered a legal asset.

Node licensing

38. Are any licences required to operate a blockchain/DLT node?

At present, no licences are required in India to operate a blockchain/DLT node.

Restrictions on node operations

39. Is the operation of a blockchain/DLT node subject to any restrictions (eg, based on sanctions/AML/KYC/FATF rules and standards)?

The government has been proactive in its push for businesses to innovate using blockchain/DLT and has accordingly imposed no legal or regulatory restrictions on the operation of a blockchain/DLT node.

DAO liabilities

40. What legal liabilities do the participants in a decentralised autonomous organisation (DAO) have?

Decentralised autonomous organisations are organisations whose decisions are made electronically by written computer code or through the votes of members. It is a system wherein hard-coded rules define which actions an organisation will take. The organisation seeks to remove the human element behind decisions and base this on code. While the liabilities from these organisations remain untested in India; ultimately, the connection between the organisation and the ultimate creator or controller should be examined. For instance, companies in India are legal entities, and their directors or individuals vested with the responsibility to manage the company are deemed liable for a contravention of the law. The same parallel may be drawn to DAOs.

DAO assets

41. Who owns the assets of a DAO?

The lack of control by a human element is a cornerstone of DAOs, but ownership is based on the parties that have the ultimate influence over a DAO. For instance, if multiple parties contribute towards a DAO, each party could potentially have a right to its assets. Ordinarily, these parties would execute an agreement that identifies their contribution to the DAO and accordingly distribute the assets among them.

Open source

42. Is DLT based on open-source protocols or software treated differently under the law than private DLT?

The legislature has yet to address the legal and regulatory treatment and the distinction between different types of DLT.

Smart contracts

43. Are smart contracts legally enforceable?

Unlike digital agreements, smart contracts are a series of codes or functions that facilitate the execution of an agreement. Distinct from the terminology, a smart contract can be equated with any other computer program. In short, a smart contract facilitates the underlying activity that a legal contract seeks to enforce. Therefore, arguably, if an agreement is legally enforceable, the smart contract seeking to execute the legal agreement is also enforceable.

Patents

44. Can blockchain/DLT technology be patented?

The popularity of blockchain/DLT technology has grown exponentially in India, among not only government entities, but also burgeoning start-ups. In India, patents are obtained under the Patent Act 1970[1], which requires an invention (ie, a new product or process) to involve an inventive step and be capable of industrial application. An inventive step essentially requires the invention to involve technical advancement over existing knowledge or have economic significance, which is not obvious to an otherwise skilled person in the relevant field. At first glance, blockchain/DLT technology appears an unlikely candidate for patentability. However, a key roadblock to any technological invention obtaining a patent is the legislation’s exclusion of a per se computer program. Because blockchain/DLT technology is primarily a set of computer programs or codes, it may provide the author with copyright but prove difficult to obtain a patent.

[1] https://ipindia.gov.in/writereaddata/Portal/IPOAct/1_31_1_patent-act-1970-11march2015.pdf

Recent developments

45. Are there any emerging trends, notable rulings or hot topics related to cryptoassets or blockchain in India?

No updates at this time.

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