Contributed by: Samvad Partners
It is hard to miss the recurrent cryptocurrency advertisements telecast while watching television. Besides television, several online portals, social media platforms and applications monetize their advertising spaces by running advertisements of cryptocurrency exchanges or cryptocurrency investment platforms. But are these advertisements permitted by law? Here, we analyse the legality and permissibility of advertising cryptocurrency.
Regulatory Framework for advertising in India:
India does not have a single comprehensive legislation which regulates advertising. Specific modes of advertising are regulated by specific legislations. By way of an example, the Cable Television Networks (Regulation) Act, 1955 and Cable Television Networks Rules, 1994 have incorporated the “Advertising Code” which formulates the dos and don’ts of advertising in cable services in India. Similarly, there are certain legislations prohibiting advertising particular types of activities, goods and services. For instance, Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003 prohibits advertising cigarettes and other tobacco products.
Additionally, advertisers have formulated a voluntary self-regulatory council called the Advertising Standards Council of India (“ASCI”) which has issued the “Code for Self-Regulation of Advertising Content in India” (“ASCI Code”). The ASCI Code imposes certain restrictions and regulates the content of advertisements. However, the codes/guidelines issued by the ASCI are binding on advertisers who are members of this council only.
The intent of the ASCI Code is primarily to provide general directions on advertising and acceptability of advertisements. Amongst other things, the ASCI Code specifies that advertisements should not propagate products, the use of which is banned under law, or contain/omit anything that is required by law. Further, as a general rule, advertisements should not be misleading to consumers and should be in compliance with the provisions of the Consumer Protection Act, 2019.
In order to analyse the legality of cryptocurrency advertisements, it is necessary to first analyse the regulatory regime around cryptocurrencies in general.
Legality of Cryptocurrency:
Before analyzing the legality of cryptocurrency, it would be important to understand what a cryptocurrency is. The Banning of Cryptocurrency & Regulating of Official Digital Currency Bill, 2019 (“2019 Bill”) defines Cryptocurrency as “Cryptocurrency, by whatever name called, means any information or code or number or token not being part of any Official Digital Currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment schemes.”
The law on virtual currency and cryptocurrency is still evolving in India and at this stage there is some level of ambiguity in the status of legality of virtual currency including cryptocurrency.
While several law enforcement authorities, government departments and organisations including Reserve Bank of India (“RBI”), FATF, Institute for Development and Research in Banking Technology (IDRBT) established by RBI, Inter-Disciplinary Committee constituted by Ministry of Finance, Government of India and Inter-Ministerial Committee constituted by Government of India (IMC) have analysed the legality, advantages, disadvantages and concerns surrounding cryptocurrency, there is no conclusive legislative ban on cryptocurrency in India, at present.
The Ministry of Finance, Government of India has clarified on multiple occasions that virtual currencies are not backed by the government fiat and are also not legal tender. RBI has clarified that it has not given any licence or authorization to any entity to operate cryptocurrencies or deal with bitcoin or any virtual currency and the Government of India has clarified that virtual currencies are not legal tender and do not have any regulatory permission or protection in India. (Ministry of Finance, Press Release dated December 29, 2017).
On April 6, 2018, the RBI issued a circular imposing a prohibition on dealing in virtual currencies. While the said circular did not ban virtual currencies per se, it prohibited RBI regulated entities from dealing in virtual currencies and providing services for facilitating any person or entity dealing with or settling virtual currencies. The circular also went a step further and directed RBI regulated entities to exit any existing relationship with individuals/entities, dealing with or settling virtual currencies. Thus, the trading in virtual currencies and the functioning of virtual currency exchanges were brought to a standstill as the circular disconnected their interface with the regular banking sector.
However, in March 2020, the Supreme Court of India set aside the said RBI circular on the grounds of disproportionality, as the RBI was unable to show semblance of any damage suffered by its regulated entities due to dealing with or providing services for settling virtual currencies. This judgment of the Supreme Court did not in itself contemplate whether cryptocurrency ought to be banned in India or not. (Internet and Mobile Association of India v. Reserve Bank of India (Writ Petition (Civil) No.528 and 373 of 2018))
Consequently, the IMC submitted, and the government placed before the Parliament, the 2019 Bill which intended to prohibit mining, holding, selling, trade, issuance, disposal or use of cryptocurrency in the country and which specified that the Central Government, in consultation with the RBI, may issue digital rupee as legal tender. The 2019 Bill included provisions to the effect of imposing a fine and/or up to 7 years imprisonment, to whoever directly or indirectly promotes or issues any advertisement involving the use of any cryptocurrency (excluding official digital currency) for any of the purposes or activities prohibited under the 2019 Bill.
Currently, the 2019 Bill has been replaced by a new bill titled ‘Cryptocurrency and Regulation of Official Digital Currency Bill, 2021’ (“2021 Bill”) which is tabled before the Parliament for approval. The 2021 Bill is reported to create a facilitative framework for creation of the official digital currency to be issued by the RBI. The 2021 Bill also seeks to prohibit all private cryptocurrencies in India, although, it is reported to allow for certain exceptions to promote the underlying technology of cryptocurrency and its uses. It is important to note that there is no clarity on the definition of private cryptocurrencies. Fundamentally, this 2021 Bill has not yet been notified and does not have the effect of law.
Additionally, the Ministry of Corporate Affairs has amended Schedule III of the Companies Act, 2013 and now requires companies to disclose their profits/loss, the amount of virtual currencies held and deposits or advances from any person for the purpose of trading or investing in cryptocurrency, in their financial statements.
Considering the nascent yet growing cryptocurrency market in India and the Central Government’s concerns regarding private cryptocurrencies, we can expect some regulatory developments with respect to cryptocurrency soon.
While there have been several concerns surrounding cryptocurrency, at this stage, there is no express legislative ban on cryptocurrency. Since there is no express legislative ban, it can be concluded that there is no express prohibition on advertising cryptocurrency or cryptocurrency exchanges, at present.
In 2021, a writ petition was filed in the Delhi High Court seeking issuance of directions to the Central Government and Securities and Exchange Board of India (“SEBI”) to issue guidelines or rules for advertising on televisions by domestic cryptocurrency exchanges. This is due to the fact that crypto-assets are riskier than traditional equity investment products. The Delhi High Court has issued notices to SEBI, the Ministry of Information and Broadcasting and some of India's prominent crypto exchanges like WasirX, CoinDCX and Coinswitch Kuber to respond to said plea. This matter is still pending before the Delhi High Court.
On this aspect, the finance minister of India, Ms. Nirmala Sitharaman, told the Rajya Sabha on December 01, 2021, that the ASCI’s guidelines are being studied by the Central Government to see what can be done to address and handle concerns over commercials promoting cryptocurrency.
Although there is no express guidance as regards advertisement of cryptocurrency it is essential to note that the general guidelines of advertising should continue to apply and the cryptocurrency advertisements should not fall under the ambit of misleading advertisements as defined in the Consumer Protection Act, 2019. Cryptocurrency advertisements must not contain statements which may mislead the consumer, falsely describe and/or provide false guarantee to the consumers.
More importantly, ASCI Code specifies that advertisements inviting the public to invest money ought to not contain statements which may mislead the consumer in respect of security offered, rates of return or terms of amortisation and where any of the foregoing elements are contingent upon the continuance or change in existing conditions or any other assumptions, such conditions and assumptions must be clearly indicated in the advertisement. Therefore, it should be ensured that the cryptocurrency advertisements do not contain misleading or unqualified statements including statements regarding the rates of return.
Nothing can detract from the fact that there have been several discussions by the various government departments and organisations on the legality of cryptocurrency and there are no binding legal regulations on cryptocurrency as of now. In the absence of an express legislative ban, it can be inferred that virtual currencies and cryptocurrencies can be advertised. Finally, like all other advertisements, cryptocurrency advertisements must ensure compliance with the consumer protection regulations and abide by the advertising standards in the country.
Contributed by Samvad Partners
The above article has been authored by Ms. Nivedita Nivargi(Partner) and Ms. Smrithi Surendranath Arya(Associate)