Negotiable Instruments Act

Summary of Bitcoin as per Indian constitution

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Definition of ‘currency’ and ‘prepaid payment instrument’ can be and has been in past changed overnight to include bitcoin. Currently bitcoin is to be treated as ‘computer program’ or ‘software imported online’ depending on where they were mined.

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  • Point of View : “As a Currency”
    Relevant Document : The term currency is defined in section 2(h) of the Foreign Exchange Management Act, 1999 (“FEMA”)
    Relevant Conclusion : 1. Bitcoin is not a currency as per the definition
    2. The definition is prone to easy expansion by RBI, so RBI might change it in future.
  • “As Digital Money”
    Document : Notification No. FEMA 15/2000/RB dated May 3, 2001
    Conclusion : 1. Any instrument that can be used to create a “financial liability” is also a currency.
    2. Bitcoin is NOT such an instrument since it is not backed by any institution and only at the consent of participating parties.
  • “As Securities & derivatives”
    Document : Section 2 (h) of the Securities Contracts (Regulation) Act, 1955
    Conclusion : 1. Bitcoin is not a security or a derivative.
  • “As Derivatives & Negotiable Instruments”
    Document : Section 17(6A) of the Reserve Bank of India Act, 1934 & Negotiable Instruments Act, 1881
    Conclusion : 1. Bitcoin is not a derivative or negotiable instrument.
  • “As Prepaid Payment Instruments”
    Document : Payment and Settlement Systems Act, 2007
    Conclusion : 1. Bitcoin is not a prepaid payment instrument since the value is not constant.
  • “As Computer program”
    Document : Indian Copyright Act
    Conclusion : 1. Bitcoin is a computer program.
  • “As goods and property”
    Document : The General Clauses Act, 1897 & the Forward Contracts (Regulation) Act, 1952
    Conclusion : 1. Bitcoin is ‘goods’ and ‘movable property’.
  • “Using bitcoins”
    Document : The Sale of Goods Act, 1930
    Conclusion : 1. Bitcoin is a form of ‘barter’ and thus not governed by this act.
  • “Buying/Selling bitcoins”
    Document : The Sale of Goods Act, 1930 and Customs (http://www.dov.gov.in/newsite3/section7.asp)
    Conclusion : 1. Customs on barter transaction is an unsolved problem in our law, thus unclear on buying bitcoins from abroad.
    2. Software imported online does not attract any duty under Indian law.
    3. Bitcoin is legal barter if the good it is being exchanged for is legal and the bitcoins were obtained by legal means. (Eg: No silk road coins allowed)

Overall conclusions :
Definition of ‘currency’ and ‘prepaid payment instrument’ can be and has been in past changed overnight to include bitcoin.
Currently bitcoin is to be treated as ‘computer program’ or ‘software imported online’ depending on where they were mined.

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