Understanding the LEGAL ANGLE on cryptocurrency with Supreme Court Senior Advocate Vivek Sood

In the backdrop of the conflict raging in Europe between Russia and Ukraine with many more countries being part of it from the outside, crypto as a mode of payment and transaction has again gained currency. But in India, the position remains the same as it was and looks like it will be for quite some time. As Supreme Court Senior Advocate Vivek Sood told me in this interview some weeks back, "The only legal tender in India at the moment is the Indian National Rupee (INR)."

Watch the interesting interview or if this works betters for you you may even read it here. Below is the full Interview Transcript.

KA: A few days back, the budget was presented. And in the budget speech, our finance Minister talked about the digital rupee and also about the taxation part and all.

A lot of people have invested money into that. So just trying to understand, sir, can you clear the air on this? You know, looking from a legal angle, is crypto investing legal in India as of today?

VS: Okay, first of all, I must say that cryptocurrency is a misnomer.

It is not a currency in the eyes of law. Now, by calling it currency, investors are being defrauded and brought into this crypto investment.

There is only one currency in India, the Indian rupee, as per the RBI act. Today, if I go to the market and if I tender a dollar, a US dollar for purchase of goods and services, it is not a legal tender. What to speak of crypto? Even a US dollar in India is not a legal tender by law. The only currency we have in India is the Indian rupee. So let us not call it cryptocurrency. At least legally, you cannot call it cryptocurrency. You can at the most an asset. An asset that has come into existence and as a brainchild of technology and some technocrats.

Because of this trading, because of the very, I would say, aggressive trading in crypto, the government in this budget has deemed it appropriate to impose capital gains tax on sale on the profit that is earned by selling crypto. I will not call it a cryptocurrency. Let us call it a crypto asset at the most. So, therefore, I come back to the question you raised. It is not a currency in the eyes of law. It is at the most a technological asset that has been created in the world of technology. And people have started trading in this crypto technological asset.

And, because a lot of money is changing hands, a lot of profit is being earned. Therefore, the government has deemed it appropriate to impose capital gains tax on the profit that is earned on the sale of crypto. The asset, the technical asset.

KA: Okay. Because a lot of people are very happy that government is taxing cryptocurrency. They see it as some sort of a tacit approval and in a long term, short-term government is preparing to give approval/acceptability to cryptocurrency. What according to you is legal angle on this?

As per my research, investors have put Rs 45,000 crores in private crypto currencies. What is your advice to Indian investors with regards to investment in cryptocurrency?

VS:In my view, I would call it a speculative asset. The crypto asset can be said to be, at the highest, in my view, a very speculative asset. And Ajay, I must say, in my view, it's a creation in the virtual world. It has no sovereign sanction. It has no government sanction. Merely because the government is imposing a tax on the profit on the sale of crypto, it does not imply that crypto has become a currency, crypto has become a lawful asset recognized by the government of India.

Now see, there are examples that we have tobacco, cigarettes, liquor.

They are taxed by the government. They are permitted by the government to be consumed and traded.

But still, there is no freedom of business and profession in these commodities, like liquor, like cigarettes. That's why you have prohibition laws that are imposed by different States on these commodities.

And these prohibitions are upheld constitutionally because it has been recognized that this cannot be claimed as a legitimate constitutional freedom to consume and trade liquor and cigarettes.

Similarly, just because capital gains tax has been imposed in this budget on crypto, it does not imply any form of legality to crypto as an asset. It is a speculative asset, like lotteries are there in the system, like speculation is permissible in stocks, in shares. So, this is also a speculative asset that has come into existence in the virtual world. And, because of the magnitude of trading in crypto, the government has deemed it appropriate and rightly so to impose taxes. But I repeat, there is only one currency in India, that is the Indian rupee.

Now, there is some misunderstanding which I must clear.

The honorable finance Minister, the RBI governor, they have been speaking about e-rupee. But let us not misunderstand e-rupee as a cryptocurrency.

No, it will only be the digitized version of the Indian rupee that is being talked about. So, no form of legitimacy or legality has been granted to crypto by virtue of just imposing a capital gains tax on this speculative virtual asset, if I may say so.

KA: Right, sir. It is being said that cryptocurrency is being used for criminal activities. What is your sense on this? So, what is your view on this? How do you see this?

VS: Yes, I would agree with this idea. I would agree with this thought because there is no sovereign backing, there is no regulatory mechanism, there is no central registry. So therefore, crypto is being misused as proceeds of crime or as a consideration in criminal activities and for money laundering, et cetera. For example, if I have to clandestinely pay somebody in a foreign land in the dark web, suppose I want to pay a hacker or some other criminal. I have to only give him the password.

And once he has the password, he becomes the owner or you may call he has control over that crypto, the crypto asset. And you bypass the entire legal system. You bypass the entire regulatory mechanism of the RBI.You bypass the entire government machinery. So therefore, crypto is being misused also for criminal activities. Now, having said that, I'm not saying that all crypto trading is a criminal activity. No.

When you say that 45000crores is being traded in crypto in India, so much of it is legitimate trading. Also, for example, Ajay, I must share with you. My wife has also bought crypto. She's a simple lady who runs a small boutique and looks after the home. But she's also attracted to this crypto trading. So, she's invested some savings. Now that's legitimate trading, much of the trading is legitimate.

I will not say crypto per se is criminal or some kind of a crypto is not Supari money only.

So, a lot of legitimate trading is also happening, but it is also being misused for criminal activities, especially in the dark web, as we call it.?

KA:I know you got to go to the court. You got several cases lined up. So very quickly, I would just ask you this last question. Should cryptocurrency be regulated by the government? That's right. Government of India.World over things are changing, what is your thought of this?

VS:See, in my view, it cannot become a currency. Please understand, therefore, to say that it is a currency, and the government should regulate this currency, it is an incorrect statement to make. I don't believe that it is a currency. Therefore, there is no question of government regulating it as a currency. No, but definitely government should regulate the trading in crypto.

And that will happen because see, by imposing capital gains tax on the profit on the sale of crypto. So, the tax Department has come into the picture. So tomorrow, when investors do not disclose capital gains on the sale of crypto, the Tax Department will come into the picture, has already come into the picture now. Therefore, crypto is being regulated to some extent from the tax perspective. In my view, it will be further regulated in future to protect vulnerable investors.

Now Ajay, you asked me the question, should people invest in crypto?

I would not invest in crypto.It is a virtual speculative asset. I would want to keep away from crypto. But each to his own. Every investor has his own sensibility, and he has the right to invest in whatever asset he wants to.

Now, Ajay, for example, if somebody was to start selling land on Jupiter or on the Sun, would you buy it? I would not. But if people want to buy land on the moon and Jupiter in the hope that someday something will happen and we will have some taxi service taking us to Jupiter and you can make millions and billions out of it, so that's the prerogative of every individual, every citizen is sovereign. So let him invest.

But I would like to keep away from the crypto because also when you talk of people multiplying their money by 10,000 times and 5000 times. It is highly unreal.

KA:Yes. In fact, I was reading this, and I guess it was a fact that I read that in 2010 the first crypto trading happened in USA for paying for two pizzas for which 10,000 Bitcoin were paid. Today, the value of that transaction is around $400 million. So, this is the amount of money people are expecting.

VS:That's the game plan of some of these companies.

Now I'll tell you, a friend of mine told me the other day that some new crypto assets have come into the market, and they are saying that we will give 1 million cryptos free to people whoever will click on that link. So, 1 million cryptos are distributed free and the company keeps 10 million with itself and then trading will start in that 1 million and because of the hype, the value of that 1 million will multiply. But you can imagine what will be the valuation of the promoters of that crypto who have withheld for themselves 10 million of those cryptos.

So, this is a game that is being played and I feel it is no better than the money that is used in the game called monopoly. Now, if you start calling the monopoly money as real money then God save you.

KA:You have explained things very well. So, my last question is, in the backdrop of the budget and the new reality that it may not be the right time to invest in Crypto, what is your revised advice to your wife at home?

VS: (laughs) I have told her that please don't use my hard-earned money, the money that I earn after all these hearings in the court, after trying to convince the judges for my client it's hard-earned money. Please don't use my money into crypto. So, you use your own money, your savings. And I've also advised that please do not expose yourself beyond 5% of your entire portfolio in this virtual fantasy called crypto.?