Criminal Proceedings

With respect to criminal actions, under Section 94 of the BNSS (Section 91 of the CrPC), a court or a police officer has wide powers to compel a person, through a written notice, to produce any “document or other thing” that is considered necessary or desirable in respect of the fraudulent act, during the stage of investigation, inquiry or trial. Notably, Section 94 has been amended to vest power with a law enforcement agency to seek production of communication devices containing digital evidence. The person may be compelled to disclose documents in relation to assets held by themselves as well as by nominees on their behalf. Omission to produce documents or electronic records before a public servant may be punishable with simple imprisonment for a term which may extend to one month and a fine of up to INR5,000. If such omission is to produce documents or electronic records before a court, this may be punishable with simple imprisonment of up to six months and a fine of up to INR10,000.

Civil Proceedings

In civil proceedings, a claimant may make an application to a court to seek discovery, inspection and admission of certain documents in the control of the opposite party. Furthermore, where the court is satisfied that, in the usual course of business, assets of the opposite party are held by a third party, the court may (following the submission of an application) direct the third party to disclose such assets. The opposite party may also be required to answer specific questions (termed “interrogatories”) served by the claimant. A failure to answer such interrogatories or to comply with an order of discovery may lead to dismissal of the defendant’s defence, as if they had not defended the suit at all, under Order XI Rule 21 of the CPC. Additionally, if the defendant is eventually found to have given false information, they may also be proceeded against for perjury. At the same time, the court may impose costs on any party if it believes that such party has issued interrogatories that are unreasonable, vexatious or exceedingly lengthy in any manner.

Cross-Undertakings

As explained in 1.7 Prevention of Defendants Dissipating or Secreting Assets, a party can be put to terms and be directed by the court to deposit a certain amount. Further, under Section 144 of the CPC, a court has the power to restore a party to its original position where an order against it is subsequently vacated or modified. This power includes the power of the court to order that a party be paid such costs as are properly consequential on such variation, reversal or modification.

Criminal Proceedings

Law enforcement agencies often have their own manuals or rules that provide for the preservation and storage of evidence. For example, the CBI manual provides that all documents and material objects seized during an investigation must be promptly sealed in a scientific manner and deposited in the designated property room. Furthermore, the details of such documents and material objects must be entered in the submodule of crimes, or in the register where the submodule is not operational. These documents/items can be issued to the investigating officer as and when required for the purpose of investigation, by proper receipt. Further, such documents/items should be returned as soon as they are not required by the investigating officer. The manual also states that every investigating officer shall be personally responsible for the safe custody of such documents/items at all stages of the investigation.

As mentioned in 1.3 Claims Against Parties Who Assist or Facilitate Fraudulent Acts, 1.5 Proprietary Claims Against Property and 1.7 Prevention of Defendants Dissipating or Secreting Assets, under the PMLA, the ED is entitled to attach any property that it reasonably suspects is a “proceed of crime”.

Attachment enables preservation of such proceeds of crime as may be used as evidence in the trial. Under the PMLA, specific rules have also been enacted under the Prevention of Money Laundering (Receipt and Management of Confiscated Properties) Rules, 2005, which provide for proper identification, maintenance and custody of confiscated properties. In the case of attachment of an asset that is of a depreciating nature, courts may order sale of the asset in order to realise its maximum value, even during the pendency of the trial.

Pursuant to the Financial Action Task Force (FATF) highlighting use of cryptocurrencies in money laundering activities, enforcement agencies in India have also begun to attach cryptocurrencies and assets of such exchanges as proceeds of crime. As a measure of statutory recognition, in March 2023 the government of India (for the first time) formally brought “cryptocurrency” and “virtual digital assets” under the regulatory ambit of the PMLA. It is now mandatory for anyone dealing with cryptocurrencies and/or virtual digital assets to comply with reporting requirements.

Moreover, the police and the courts are given the power to seize and attach any property that is governed by the procedure provided in the BNSS. Under these criminal statutes, “property” is defined extremely widely to include movable or immovable property, corporeal or incorporeal property, and the instruments relating to such assets (and includes bank accounts).

It may be noted that the BNS provides that any person who secretes or destroys any document to prevent its production in legal proceedings shall be punished with imprisonment of three years or a fine of INR5,000, or both. This acts as a deterrent to a party to not tamper with or destroy evidence.

Civil Proceedings

The CPC provides that a court may regulate and control the evidence placed before it. The High Courts in India have their own specific rules in relation to maintenance of evidence. For example, the rules formulated by the High Court of Delhi provide that old and delicate documents should be safeguarded from any damage, such as by using a protective covering, or by using a photocopy while keeping the original document sealed. The CPC also provides for the appointment of a receiver, under Order XL, to protect and preserve a property that is the subject matter of a suit for realisation, management or improvement of a property, or to collect rent and profits while the suit is pending. Additionally, under Order XXXIX Rule 7 of the CPC, a party can make an application to the court for the inspection, detention or preservation of any property that forms the subject matter of the suit. Even under the provisions of the A&C Act, both a court and an arbitral tribunal have the power to issue interim directions for preservation of evidence which may be in exclusive possession of a party, and which are necessary for protection of the subject matter of the arbitration.

Physical Search of Documents

The Bharatiya Sakshya Adhiniyam, 2023 (BSA) that replaced the Indian Evidence Act, 1872 from 1 July 2024 gives broad powers to the court to seek production of any document at any time, as the court may deem fit (unless this falls under a recognised privileged communication). However, under criminal law, the rights of the victim are limited and do not extend to conducting a physical search of documents at the defendant’s residence or place of business. However, it may be noted that the provisions relating to privileged communications have been retained under the BSA.

Under civil law, such a claimant would be able to seek discovery and inspection of the evidence upon making an application for this to the court. Such an inspection would usually take place at the office of the defendant’s pleader, or at the usual place of custody of such evidence. No undertaking is required to be given by the claimant in such cases, but the application is required to be made on oath to ensure that such documents are relevant for the purposes of the proceedings in question. However, the inspection is limited to documents referred to and/or relied on by the defendant in its pleadings, or to specific documents that the claimant affirms the defendant has, and does not take on the nature of a general search of the defendant’s premises.

The CPC also provides for the appointment of commissioners under Order XXVI, where the court finds the need for local investigation/inspection or for ascertaining the amount of any mesne profits or damages, or annual net profits. After such an investigation/inspection, the commissioner must reduce their evidence into writing and, together with their report, submit this to the court. Such commissioners also have the power to take evidence from a witness by examination on interrogatories or otherwise.

Criminal Proceedings

As stated in 2.1 Disclosure of Defendants’ Assets, under Section 94 BNSS a court or the police may summon any person to produce any document, communication device containing digital evidence or thing necessary for investigation or trial. The Section is not limited to obtaining disclosure from an accused person alone but can be used to seek a document or thing relevant for investigation from any person in whose possession or power such document or thing is believed to be.

Civil Proceedings

Further, under the CPC, a court has broad powers to seek production of any document or evidence from any party, either on its own or pursuant to an application filed by a claimant in this regard. One notable change regarding production of documents is that under the newly enacted BSA the definition of the word “document” has been expanded to include:

• electronic or digital records stored in emails;
• server logs;
• documents on a computer;
• messages;
• websites;
• the cloud;
• location evidence; and
• voicemail messages stored on digital devices.

Similarly, the definition of the word “evidence” has also been expanded to include any information given electronically. This is a major amendment introduced by the BSA.

Under the CPC, a claimant seeking a temporary injunction (such as to preserve any property or prevent any further injury) may be granted an ex parte injunction if the court believes that the delay in notifying the other party may defeat the purpose of the injunction sought. However, the claimant will be required to inform the opposite party of this and to send all documents forthwith. Such an injunction is also liable to be vacated upon an application filed by the opposite party if the claimant has knowingly made a false or misleading statement in its application for the purpose of obtaining such an injunction. The CPC also states that, once such an ex parte interim injunction is granted, the court is required to hear and dispose of the application of the claimant for injunction within 30 days of passing the interim order.

Victims of fraudulent acts or fraud have two avenues through which they can seek redress against perpetrators:

• initiation of criminal proceedings; or
• the filing of a civil suit.

The victim can also pursue both civil and criminal remedies simultaneously for the same cause of action. Such proceedings take place before different courts and hence do not impact on the speed at which they are disposed. However, to initiate criminal proceedings, the victim must ensure that criminal offences are sufficiently made out in the cause of action, as Indian courts have repeatedly warned against giving a criminal cloak to purely civil/contractual disputes.

In practice, the route chosen by victims depends on what form of redress they are seeking. In India, there are limited provisions for providing compensation to victims in criminal proceedings. The granting of such compensation is recoverable from the fine imposed by the court, and is subject to the discretion of the court. Hence, if the overarching goal of initiation of proceedings is recovery, a victim will be well advised to pursue civil proceedings; but, if the goal is to seek punishment for the perpetrator, criminal proceedings may be a better option.

The standard of proof required to hold against the perpetrator is different in both cases. In civil proceedings, it is sufficient for the victim to show on “preponderance of probabilities” that the perpetrator is at fault; whereas in criminal proceedings, it is the duty of the prosecution (for example, the State) to show that the perpetrator is liable “beyond reasonable doubt”.

While in theory both proceedings are independent and do not have a bearing on each other, in practice an adverse ruling in one may be prejudicial for the party in the second proceeding, depending on the facts dealt with and whether the conviction precedes the civil determination.

Criminal Proceedings

There are no provisions under the BNSS that allow for the obtaining of a judgment without a full trial being conducted. However, if an accused is absconding and there is no immediate prospect of arresting them, the BNSS provides for the recording of evidence against the accused in their absence. Such evidence may then be used against the accused when their trial can take place. The court may also dispense with the presence of the accused if it is satisfied that their presence is not necessary, or that the accused has persistently disturbed the court proceedings. In fact, the Supreme Court of India has noted that absconding persons cause undue delay in adjudication of trials and the CrPC needed to be amended to allow for “trial in absentia”.

In view of such suggestions, the BNSS has (for the first time) introduced provisions relating to conducting a trial of an accused person in absentia. Section 356 of the BNSS envisages trial in absentia if three conditions are satisfied, namely:

• the accused person is declared as a proclaimed offender under Section 84 of the BNSS;
• they have absconded to evade trial; and
• there is no immediate prospect of arresting them.

Consequently, the BNSS provides for pronouncement of judgment for an in absentia trial conducted regarding an accused, with the further stipulation that an appeal therefrom can only be preferred if the proclaimed offender presents themselves before the Court of Appeal.

Civil Proceedings

The courts can also issue an ex parte decree in a defendant’s absence, provided that sufficient opportunity has been provided to the defendant and despite which the defendant failed to appear before such court or has failed to file a written statement. However, in such cases also, a plaintiff is still required to prove his case to obtain an ex parte decree.

For civil cases, the CPC also provides for the claimant filing an application before the court seeking a summary judgment in certain commercial disputes. Under Order XIII-A of the CPC, read with the CC Act, the court may give a summary judgment if it considers that the defendant has no real prospect of successfully defending the claim, and that there is no other compelling reason for why the claim should not be disposed of without proceeding to trial. The CPC, read along with the CC Act, also empowers the court to pronounce judgment at the first hearing of the suit itself when it appears that the parties are not at issue on any question of law or fact.

Moreover, there is also a separate provision for institution of summary suits that involve the plaintiff seeking recovery from the defendant for an ascertainable amount. Such summary suits only allow the hearing of defence if the leave to participate is granted; and if such leave is refused by the court, the suit is decreed in favour of the plaintiff.

Courts in India have given an expansive and inclusive definition of fraud. The primary component that must be alleged and proved in claims pertaining to fraud is that the claimant was fraudulently or dishonestly induced to act in a certain manner by the perpetrator. While proving that a wrongful gain was caused to the perpetrator and a wrongful loss was caused to the claimant may not be necessary in every instance, the Supreme Court of India has repeatedly held that the party alleging fraud must set forth specific particulars of fraud, and that the case can only be decided on the basis of the particulars laid out. Mere bald allegations or pleadings of fraud by the claimant are not sufficient to proceed with a claim for fraud. Order VI Rule 4 of the CPC also states that, in all cases where a party’s pleadings rely on any misrepresentation, fraud, breach of trust, wilful default or undue influence, particulars (with dates and times if necessary) should be stated in the pleadings.

A claim against unknown fraudsters can be made in India, especially when seeking an ex parte interim injunction against an unknown party, in order to protect the claimant’s interests where there is an imminent threat to such interests, and where the identity of the fraudster is unknown. The courts in India have granted such “John Doe” orders (referred to as “Ashok Kumar” orders in India) frequently in cases involving fraudulent misrepresentations or frauds in relation to intellectual property claims.

Criminal Proceedings

As stated in 2.1 Disclosure of Defendants’ Assets and 2.3 Obtaining Disclosure of Documents and Evidence From Third Parties, Section 94 of the BNSS can be invoked by the police or a court to direct a person to produce certain specified documents in their possession as evidence. Further, courts in India generally have broad powers to summon a witness, either on their own motion or upon application by a claimant, and to compel production of any evidence or document.

Civil Proceedings

Even arbitral tribunals can seek court assistance in taking evidence under Section 27 of the A&C Act by exercising the stipulated powers. These powers have also been elucidated in the BSA. Powers have also been granted to courts under Order XXVI of the CPC to appoint a commission for deposing a witness or pursuing interrogatories in cases where:

• the witness is within local limits and cannot be compelled to appear before a court;
• there is apprehension of evading jurisdiction before such witness can be compelled to appear before a court; or
• such witness is incapable of attending evidentiary proceedings.

When a corporate entity has been used as a vehicle for fraud, and its separate identity has been misused to commit such frauds, the courts in India use the well-established common law doctrine of piercing the corporate veil to uncover the individuals who are the ultimate beneficial owners of the entity. In such circumstances, the courts will disregard the separate legal identity generally accorded to corporations in order to punish the actual perpetrators of the fraudulent conduct. The courts have frequently lifted the corporate veil where they suspect that the company itself is a sham entity created for an unlawful purpose or through unlawful means.

It is important to note that, in order to aid identification and regulation of such individuals, in 2018 the Ministry of Corporate Affairs in India introduced the Significant Beneficial Ownership Rules (the “SBO Rules”), which define the criteria for constituting a significant beneficial owner (SBO) in a company. The SBO Rules require the reporting company to submit specified information pertaining to SBOs to the ROC, thereby providing investigative and regulatory agencies with ready access to ultimate beneficiaries in complex ownership structures. Similar rules also exist under the PMLA, wherein banks and financial institutions are charged with the responsibility of maintaining records of their clients and their respective beneficial owners. The Securities and Exchange Board of India (SEBI) has also issued multiple guidelines and circulars for identifying ultimate beneficial ownership among companies listed on a stock exchange.

Under the Companies Act, shareholders may institute oppression and mismanagement proceedings against the company and its director(s) where, inter alia, the affairs of the company have been or are being conducted in a manner that is prejudicial to public interest or prejudicial to such shareholders’ interests. The requirement for initiating such proceedings has been provided for under the Companies Act as not less than 100 members or one tenth of the total members (whichever is less), or any member(s) holding one tenth of the paid-up share capital of the company, in the case of a company that has a share capital. For a company that does not have a share capital, not less than one fifth of the total members of such a company can initiate such proceedings.

It should be noted that the High Court of Delhi has held that provisions under the Companies Act, including Sections 241 and 242, allowing for initiation of proceedings and the relief of freezing assets and disgorgement of property as disgorgement, are civil actions in the nature of equitable relief.

The Companies Act also permits institution of a class action, where members can approach the National Company Law Tribunal to seek certain orders, such as to claim damages or to demand any other suitable action from or against the company or its directors for any fraudulent, unlawful or wrongful act or omission on their part. For a company that has a share capital, a “class” is defined as not less than 100 members or not less than 5% of the total members (whichever is less), or members holding not less than 5% of the share capital of a company in the case of an unlisted company, and not less than 2% of the issued share capital in the case of a listed company. For a company without a share capital, a “class” has been defined as not less than one fifth of the total members of such a company.

Criminal Proceedings

A right against self-incrimination is innate in Indian jurisprudence and has been guaranteed as a fundamental right by Article 20(3) of the Constitution of India. This fundamental right is echoed in various other statutes, including the BNSS and the BSA. The protection applies to all forms of testimonial evidence, extending both to oral testimony and to the production of documents. It is important to note that this constitutional protection is not only available at the pretrial stage but also during the trial, and a witness may refrain from giving evidence that may result in self-incrimination. In such cases, since the burden of proof is on the investigation agencies and the prosecution, negative inference cannot be drawn from exercising this fundamental right.

This right may be diluted in certain special statutes where the burden of proof is on an accused to prove that punitive actions should not be exercised against them. For example, the Supreme Court of India recently held that protection of the right against self-incrimination guaranteed under Article 20(3) is not available to a person whose statement is recorded under the PMLA, since the nature of proceedings conducted by the ED under the Act is that of “inquiry” and not investigation per se. However, such right will be available once a person is arrested for the offence of money laundering under the PMLA.

Civil Proceedings

Under the same principle, since civil disputes do not lead to “self-incrimination”, no right to silence is available in civil proceedings for adjudication of fraud, and a court may draw adverse inferences on issues wherein the defendant does not adduce evidence or refuses to give testimony to defend their case. This is in line with the principle enshrined in Section 119 of the BSA.

In India, privilege from disclosing communications between a lawyer and their client is statutorily recognised under Sections 132(1), 132(3) and 133 of the BSA, respectively, and under Section 227 of the Companies Act. This privilege from disclosing communication between a client and lawyer exists even after such a relationship has ended. However, there are few exceptions to this rule – ie, where:

• any such communication was made in furtherance of any illegal purpose; and
• any fact observed by any lawyer, in the course of their employment as such, shows that any crime or fraud has been committed since the commencement of their employment.

This privilege is also waived in cases where a client expressly waives their privilege or adduces evidence and offers themselves as a witness, in which case they may be compelled to disclose any communication, which, in the opinion of the court, is necessary in order to explain any evidence they have led, and no other. This has to be read in the context of Section 133 of the BSA wherein, by merely volunteering to give evidence, such a privilege is not waived. The Section also contemplates that, if a party calls in their lawyer as a witness, they may be deemed to have consented to such disclosure only if they question their lawyer on fact, which otherwise would have been protected from disclosure under Section 132(1) of BSA.

While Section 132(1) of the BSA provides for privilege in communication with a “barrister, attorney, pleader or vakil”, the same distinction is not visible in the Advocates Act, 1961 (the “Advocates Act”), wherein only an “advocate” is permitted to practise the “profession of law” in India. While the Advocates Act does not make a distinction between different types of legal professionals, the intent of the legislature is clear and intended to use an inclusive definition. Further, the language in Section 134 of the BSA uses an even wider connotation of “legal professional adviser”, which has not been defined in the Advocates Act.

However, it is to be noted that, under the Bar Council of India Rules (the “BCI Rules”), when a lawyer joins a company under full-time employment, they are under an obligation by such rules to surrender their registration as an advocate. This conundrum creates a complexity in recognising privilege of communication with “in-house” legal counsels in India.

There have been instances where the High Courts have considered the nature of advice or the scope of work of an in-house legal counsel to extend legal privilege to communications with in-house counsels or departmental lawyers engaged in government employment. However, some High Courts have taken the view that an in-house counsel cannot claim to be an “advocate” under the Advocates Act, and hence the legal privilege enshrined under the Evidence Act (now BSA) would not be available to such lawyers.

In Indian jurisprudence, punitive or exemplary damages may only be granted in certain cases, such as tortious claims, IPR matters or where the relevant statute so allows such damages to be imposed. Such damages are often awarded in cases where the party in breach of an agreement has behaved in an outrageous, reprehensible or objectionable manner. In general, however, the principles for granting general damages are enshrined under Sections 73 and 74 of the Contract Act, and do not provide for the granting of punitive or exemplary damages.

Section 73 of the Contract Act deals with compensation for breach of a contract which results in actual damage in the nature of unliquidated damages. Section 73 of the Contract Act itself provides that a party can claim compensation for any loss or damage caused to them which “naturally arose in the usual course of things”. Furthermore, Section 73 provides that compensation therein is not to be given for any remote and indirect loss or damage sustained by reason of the breach. The principles under Section 73 only allow for a party to be placed, as far as money can allow, in as good a situation as though the contract had been performed and a duty has been cast on the plaintiff to take all reasonable steps to mitigate the loss suffered by them. These principles do not allow the courts to grant exemplary or punitive damages in fraud claims.

Section 74 of the Contract Act provides that, if a sum is named in the contract as the amount to be paid in the case of such a breach, or “if the contract contains any other stipulation by way of penalty”, the party complaining of the breach is entitled (whether or not actual damage or loss is proved to have been caused thereby) to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or, as the case may be, the penalty stipulated.

While the principle enshrined under Section 74 of the Contract Act allows any amount stipulated in the contract, even by way of penalty, to be granted as damages to a plaintiff, the Indian courts have diluted the principle under Section 74 to reasonable compensation only if it is a “genuine pre-estimate of damages” fixed by both parties and is found to be such by the court. The courts have therefore held that the expression “whether or not actual damage or loss is proved to have been caused thereby” means that, where it is possible to prove actual damage or loss, such proof is not dispensed with. It is only in cases where damage or loss is difficult or impossible to prove that the liquidated amount named in the contract, if a genuine pre-estimate of damage or loss, can be awarded without proving the actual loss. However, amounts stipulated in contracts in terrorem cannot be granted under Indian law. This principle therefore limits the scope of exemplary or punitive damages under the Contract Act.

It should be noted that the aforementioned principles may not be applicable, stricto sensu, in cases involving fraud, as fraud unravels all, and any contract obtained by fraud would make it voidable. In such cases, the principles under Section 65 of the Contract Act apply, which provide that any person who has received any advantage under such an agreement or contract is bound to restore it, or to make compensation for it to the person from whom they received it. The term “received any advantage” provides for restitution of an innocent party to such position as though they had not entered into such a contract. This allows any undue gain received under such a contract to be restituted to an innocent party. This principle has been further diluted by Indian courts to the effect that the primary aim of awarding compensation is not to penalise the defaulting party but to put an innocent party in such same position as though it had not entered into such a contract. Therefore, where compensation can be determined based on principles of computing damages under the Contract Act, there may not be any need to award compensation by restitution.

It may be noted that provisions relating to disgorgement of unlawful gains typically obtained through wrongful means (which is inclusive of fraud) were introduced in the SEBI Act and subsequently introduced by Section 212(14A) of the Companies Act, which came into effect from 15 August 2019. As stated in 3.3 Shareholders’ Claims Against Fraudulent Directors, the Companies Act already allows for initiation of proceedings and for the relief of freezing assets and disgorgement of property, as disgorgement is a civil action in the nature of an equitable relief, and not a penal action. Therefore, the SFIO would also be bound by the same principle for disgorgement.

Similar principles have also been accepted by the Securities Appellate Tribunal for directing disgorgement under the SEBI Act. It was noted that a repayment of ill-gotten gains imposed on wrongdoers is a monetary equitable remedy designed to prevent a wrongdoer from unjustly enriching themselves as a result of their illegal conduct, and is not a punishment. Therefore, the principle applied under the statutes is caveated by the fact that the disgorgement has to be limited to the unlawful gains obtained, and should never exceed them.

It is now a settled principle that disgorgement of ill-gotten proceeds can be directed under various expropriatory statutes; however, this is limited to attachment/confiscation of property to the extent of monies that have been appropriated illegally. These provisions therefore do not allow for exemplary damages for illicit acts committed by a party.

Indian law statutorily imposes the duty of fidelity, confidentiality and secrecy upon various intermediaries such as banks, public financial institutions and credit information companies. However, these obligations are subject to certain exceptions. The obligation to maintain secrecy, fidelity and confidentiality applies to:

• banks under the Banking Regulation Act, 1949 (Section 34A);
• public financial institutions through the Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983;
• credit information companies through the Credit Information Companies (Regulation) Act, 2005; and
• intermediaries processing payments under the Payment and Settlement Systems Act, 2007.

These obligations are punishable through various regulatory, monetary and criminal sanctions. The Bankers’ Book Evidence Act, 1891 also protects any banker from being compelled to produce any bankers’ book, and from appearing as a witness to prove the matters, transactions and accounts recorded in such books, unless specifically mandated by the court for a special cause.

Furthermore, the Indian Information Technology Act, 2000 also recognises financial information to be sensitive personal data or information – ie, “financial information such as a bank account, credit card, debit card or other payment instrument detail” – and prohibits any disclosure thereof unless personally consented to by the entity/person to whom it belongs, or without consent when sought by investigating agencies in accordance with the law. These obligations have been further bolstered under the newly enacted Digital Personal Data Protection Act, 2023. However, the rules made therein are yet to be notified and brought into effect.

Lastly, the Companies Act also provides for a safeguard against disclosure of third-party sensitive financial information, where such information is sought by bankers of any company under investigation (other than the information of the company itself).

While the right to banking secrecy has been recognised, as indicated, this is not absolute. It is possible under law to compel a bank, through summons and processes issued in accordance with the law, to disclose such information as it has in its possession. This right is clearly recognised in favour of investigating agencies, either through periodic reporting requirements (such as those under the PMLA) or through a specific power to issue summons for disclosure of information vested with various authorities (such as the police, income tax authorities, ED, customs authorities, etc), who have been given power to compel a person to provide their books of accounts or face a penalty for non-compliance as specified under various statutes. Such statutes include:

• the Income Tax Act, 1961;
• the Foreign Exchange Management Act, 1999;
• the Customs Act, 1962; and
• the BNSS.

In addition to this, the police, income tax authorities, ED, custom authorities, etc, have the power to search for and seize documents from banks in the course of their investigation. Lastly, banks and intermediaries are also subject to limited disclosure under the Right to Information Act, 2005 where information held by them qualifies as public information.

There is no legislation in India that specifically deals with crypto-assets. While the government of India introduced the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 to prohibit private crypto-assets and create a framework for a digital currency issued by the Reserve Bank of India (RBI), this has not materialised into substantive legislation. The government of India has stated that any regulation on crypto-assets will be finalised only after international consultation.

The Finance Act, 2022 (the “Finance Act”) recognised, for the first time, taxation of certain virtual digital assets as a basis for recognising the income generated from such virtual digital assets. However, this has not expressly legitimised virtual digital assets. The Finance Act specifically refers to crypto-assets as “virtual digital assets” for the purposes of taxing any income from such assets at 30% and every transaction involving such “virtual digital assets” at 1% tax deducted at source.

Notably, the Finance Act introduced a new clause (47A) in Section 2 of the Income Tax Act defining a virtual digital asset as “any information, code, number or token (not being Indian currency or any foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value, or [which] functions as a store of value or a unit of account and [this] includes its use in any financial transaction or investment but [is] not limited to investment schemes, and [which] can be transferred, stored or traded electronically”. Non-fungible tokens and any other token of a similar nature are included in this definition.

The Finance Act recognised that the introduction of any cryptocurrency can only happen as a result of the Central Bank, namely the RBI, which alone has the power to issue a Central Bank digital currency as defined under the Finance Act. In light of this, cryptocurrencies are not recognised as legal tender under Indian law, and the Finance Act clearly identifies that the power to issue currency coins and notes rests only with the RBI.

The RBI has repeatedly cautioned parties from dealing with cryptocurrencies, and has through a circular dated 6 April 2018 (the “April 6 Circular”) asked banks and entities regulated by the RBI to not allow use of the banking system for trade in crypto-assets. However, in Internet and Mobile Association of India v RBI, the Supreme Court of India struck down the April 6 Circular. Therefore, banks are presently dealing with accounts that relate to entities/persons dealing in crypto-assets. Nevertheless, through its circular dated 31 May 2021, the RBI has also advised its regulated entities to continue to carry out customer due-diligence processes for transactions in “virtual digital assets”, in line with regulations governing standards for know-your-customer, anti-money laundering, and the combating of financing of terrorism obligations under the PMLA.

Nonetheless, in March 2023 the government of India formally brought “cryptocurrency” and “virtual digital assets” under the regulatory ambit of the PMLA. It is now mandatory for any person dealing with cryptocurrencies and/or virtual digital assets to comply with reporting requirements.

There are increasing incidents of law enforcement authorities freezing crypto-assets where they are suspected of being involved in the commission of crime.

This nuanced area is becoming a topic of debate, as by their very nature “asset tracing” of crypto-assets presents a challenge. “Blockchain” technology does not allow complete asset-tracing and, as recognised by the Supreme Court of India, every crypto-asset differs in nature, whether it is anonymous or pseudo-anonymous, and in light of the potential impact of attachment or confiscation of such property (given that a public ledger does not allow change of ownership in a traditional way).