TABLE OF CONTENTS
- RBI and its role concerning Legal Tender
- Laws surrounding Legal tender
- Recent developments/news/ case
Legal tender is something which is acknowledged by the laws as a mechanism to settle a private or public debt or in order to meet a fiscal responsibility which includes paying taxes, abiding by contracts, and finally damages or fines. Almost every country uses its national currency as legal tender.
Creditors are lawfully responsible for accepting legal tender for the repayment of debt that they have availed. Legal tender is recognised by a law that specifies the object to be utilised as legal tender and the organisation that is commissioned to create and issue the same to the public such as the Reserve Bank of India.[i]
RBI AND ITS ROLE ITS CONNECTION WITH LEGAL TENDER:
In India, the authentic legal tender of the Reserve Bank of India consists of coins and notes. The creditors are supposed to accept them as a payment towards the debt. Nevertheless, apart from where the state laws prohibit, the private organisation can decline to accept the payment in some of the forms given that a transaction has not taken place and debt is not availed by the person.
By design and default, legal tender regulations alleviate the general implementation of something instead of the current legal tender as money in the economy. Cheques and credit card swipes are considered as legal tender. They just function as a substitute and merely depicts the means through which a holder of the check may go on to receive legal tender for the availed debt consequentially.[ii]
LAWS SURROUNDING LEGAL TENDER
Legal tender under the Coinage Act, 2011
- The legal tender (coins) used for the payment and means of a transaction should not be defaced or of less weight. The weight of the coin shall remain within the prescribed limit.
- The coins not below Re 1 should be legal tender for all sums up to Rs. 1000.
- The coin holding the value of 50 paise i.e. half a rupee shall not be used to pay the sums exceeding Rs. 10.
- However, if a person wishes to accept a sum of money as prescribed above, then he/she is free to do so and it is not prohibited by law. But nobody can be forced to accept money beyond the prescribed limits.
Legal tender under the RBI Act, 1934
- As per the norms of Section 22of the RBI Act, the Reserve Bank of India has the sole right to issue banknotes in India.
- Section 25of the Act describes the design, form, and material used for banknotes, which shall be approved by the Central Government after considering the recommendations made by the Central Board of RBI. As far as the coins are concerned, they are only distributed by the RBI when they are supplied by the Government of India. As per the Coinage Act, 2011, the Government of India is solely responsible for the designing and minting of coins in various denominations.
- As per the provisions of Section 24of the Reserve Bank of India Act, 1934, the banknotes shall be of the denominational value of Rs. 2, Rs. 5, Rs. 10, Rs.20, Rs.50, Rs. 100, Rs. 500, Rs. 1000, and Rs. 10,000. The value shall not exceed Rs. 10,000 as per the recommendations of the central board on this behalf.
- Section 26(2)of the RBI Act, 1934 covers the provision for the issuance of banknotes (Rs. 2, Rs. 5, Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 500, and Rs. 2000) by the Reserve Bank of India unless they are withdrawn from circulation and shall be accepted as legal tender all over India for the mode of payment. Re. 1 notes are also to be accepted as legal tender issued by the Indian government. The Rs. 500 and Rs. 1000 notes of the Mahatma Gandhi Series issued up to November 8th, 2016 cease to be used as legal tender with effect from midnight of November 8th, 2016.
- As defined in Section 33of the Reserve Bank of India Act, 1934, all banknotes issued by the Reserve Bank of India are backed by assets like gold, foreign currency assets, and government securities.
THE RECENT DEVELOPMENTS OF CONCERNING USE OF OTHER CURRENCY/PRODUCTS AS LEGAL TENDER- SPECIFICALLY FOCUSING ON CRYPTOCURRENCIES
A reference to Section 2 of FEMA can be made in the absence of a clear definition of currency under the RBI Act, which states that “currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, traveler’s cheques, letters of credit, Acts of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank”. Aside from that, currency issued by the RBI is accepted as legal tender. Legal tender is defined under Section 6 of the Coinage Act, which states that only coins struck in compliance with this Act are considered legal tender. Since they are not legal money, cryptocurrencies cannot be used as a medium of exchange. It is implied that additional instruments do not fall within the scope of the act if it explicitly names instruments. Because they don’t satisfy these criteria, virtual currencies aren’t really currencies at all.
The Securities Contract (Regulation) Act of 1956 does not recognize cryptocurrencies as securities because no such asset is displayed during bitcoin transactions.
There have always been debates and discussions around the legal status of cryptocurrencies in India. People hype around the growing era of digital currencies in the form of cryptocurrencies. The Government of India has cleared the air a bit on the topic and has talked about it in the session of Union Budget 2022-23. But moving back a bit into the procedures and chronology that happened before the presentation of the Union Budget, it began with a circular issued by the RBI. The circular restrained banks, NBFCs, and payment system providers from transacting in virtual currencies. They were also restrained from giving services to virtual currency exchanges. A writ petition was filed by several crypto exchange platforms in the Supreme Court of India. This resulted in a decision in favour of the platforms dealing with virtual currencies. The circular issued by the RBI was held unconstitutional in the case of the Internet and Mobile Association of India v. Reserve Bank of India (2020). The ban on organisations dealing with virtual currency exchanges was struck down by the Supreme Court in the present case. An amendment was made in Schedule III of the Companies Act 2013. The amendment was made on March 24th, 2021. The amendment said that all companies dealing in cryptocurrencies in the form of investments are required to disclose the amount for the new financial year. Also, the companies are required to mention the profit or loss that is involved in the transaction. The amendment made it compulsory for the companies to mention the number of holdings they have along with the details of deposits and advances they have taken from any person/authority for the purpose of trading or/and investing in cryptocurrency.
An announcement was made by the Finance Minister of India, Nirmala Sitharaman, in the Union Budget of 2022-23 that any form of income that occurs from the transfer of habitual digital assets shall be taxed at a rate of 30 per cent. It was further added that a 1 per cent tax deduction has been proposed for all the transactions involving cryptocurrencies in them. However, the taxation of virtual digital assets doesn’t make them legal tender or a recognised legal mode of transaction. It was made clear that this doesn’t imply the legal recognition of cryptocurrencies in India.
The Cyber Security Directions were issued on April 28th, 2022, regarding the Know Your Customer (KYC) database. The instructions read as, the virtual asset service providers, virtual asset exchange providers and custodian wallet providers are mandatorily required to maintain and save all information as a part of Know Your Customer (KYC) and a financial record shall also be maintained consisting of financial transactions for a minimum period of 5 years to ensure cyber security in the area of payments and financial markets for the citizens. This also protects their data and fundamental rights and gives them economic freedom to grow in the area of virtual assets. Maintenance of data for 5 years implies that the companies are required to exist for a minimum period of 5 years. This is proof on the part of the Government of India that they may have permitted de facto approval of cryptocurrencies and transactions in them.
The Finance secretary, TV Somanathan, has clarified a bit more on this topic in an interview with the Press Trust of India (PTI). He said that gold and diamonds are metals that are of great value but are not recognised as legal tender in India. Just like them, private cryptocurrencies will also never be legal tender in India. Legal tender is something that is accepted by law as a means of settlement of debts, and India will not be making any crypto assets as legal tender. He also said that only the Digital Rupee issued by the Reserve Bank of India will be legal tender in India. Cryptocurrencies will never be legal tender in India.
El Salvador is the first country that has made Bitcoin a legal tender. The Central African Republic (CAR) became the second country after El Salvador to adopt Bitcoin as their legal tender. However, India has been working on various laws that can be issued for the regulation of cryptocurrencies in India, but no solid draft has been issued yet or released publicly.
In the winter session of Parliament before the Union Budget 2022-23, the Cryptocurrency and Regulation of Official Digital Currency Bill were listed for introduction. It was listed for regulating cryptocurrencies. The Bill came out of concern for misleading claims for the investors. The investors were lured by the tricks, and there was no certain legislation that could protect their rights and safeguard them from fraud. Currently, there are no such regulations for the use of cryptocurrencies in the nation.
The Government of India has announced the introduction of the Digital Rupee to be issued by the RBI to keep up India’s pace with the global shift towards virtual financial instruments.
PENALTIES FOR USING OTHER CURRENCIES/THINGS AS LEGAL TENDERS–
Section 489E in The Indian Penal Code
1[489E. Making or using documents resembling currency-notes or bank-notes.
(1) Whoever makes, or causes to be made, or uses for any purpose whatsoever, or delivers to any person, any document purporting to be, or in any way resembling, or so nearly resembling as to be calculated to deceive, any currency-note or bank-note shall be punished with fine which may extend to one hundred rupees.
(2) If any person, whose name appears on a document the making of which is an offence under sub-section (1), refuses, without lawful excuse, to disclose to a police-officer on being so required the name and address of the person by whom it was printed or otherwise made, he shall be punished with fine which may extend to two hundred rupees.[iii]
(3) Where the name of any person appears on any document in respect of which any person is charged with an offence under sub-section (1) or on any other document used or distributed in connection with that document it may, until the contrary is proved, be presumed that person caused the document to be made.]
FOREIGN EXCHANGE AND MANAGEMENT ACT
Any forex trading on unauthorised trading platforms or outside of the purview of the recognised exchangeš is a penal offence under FEMA 1999. Exchanging currency to fofeign pairs not permitted is also a punishable offence. If the person has traded in an illegal manner, the individual will be fined up to Rs 10,000 for the day in which they have traded. For more number of days, apart from an initial Rs 10,000 followed by the same amount for each day of violation may be levied. As per the Act (under Section 13 (1C), a forex trader who has indulged in illegal activity may also be jailed for up to five years. [iv]
THE COINAGE ACT, 2011
Sec.12 of the above Act prohibits use of coins other than the ones issued by RBI while sec.13 provides Penalty for contravention of section 12 as-
However the above provision would not apply which means it would be validly considered as a legal tender in the below given conditions as sec.12(3) specifies that-
Nothing in this section shall apply-
- to any person who is found in possession of any metal or scraps or scissel, etc., of non-recyclable coinage metal, which he may so possess as a result of valid disposal by auctions by a Mint;
(ii) to the Mint, Reserve Bank of India and its authorised agents, and suppliers of coins or coin blanks to the extent of orders placed by or under the authority of the Government until their supply or completion of orders placed by the Government; (iii) to any prospective supplier who intends to supply coin or coin blanks as samples against a valid tender documents purchased by him provided that quantity is in reasonable agreement with quantity of samples to be supplied.
Whoever contravenes any provisions of section 12 shall be punishable with imprisonment which may extend to seven years and with fine.
While sec.14 specifies–
Prohibition and penalty for unlawful making, issue or possession of pieces of metal to be used as money –
(1) No person shall-
(a) make or issue or attempt to issue any metal piece except as provided under section 4 for the purpose of coin;
(b) possess, custody or control of any metal piece with the intent to issue the piece for use as money for a medium of exchange.
(2) Whoever contravenes the provisions of sub-section (1) shall be punishable with imprisonment which may extend to one year or with fine or with both: Provided that if any person convicted under this section is again convicted, he shall be punishable with imprisonment which may extend to three years or with fine or with both.
Sec.15 specifies- Prohibition and penalty for bringing metal piece for use as coin
(1) No person shall bring by sea or by land or by air into India of any piece of metal to be used as coin except with the authority or permission of the Government.
The concept of Legal Tender is evolving in nature. Since it is intercepted by numerous varied laws, there exist a need to have a systematic framework which meets fulfils the object of all the above discussed legislations. While the concept of cryptocurrency consists of ambiguity as to its recognition as legal tender.