07/12/2019
Bitcoin
The central bank of Nepal, Nepal Rastra Bank (“NRB”) publishing a notice pursuant to Nepal Rastra Bank Act 2001 (“NRB Act”) and Foreign Exchange (Regulation) Act 1962 (“FERA”) has explicitly prohibited the usage of bitcoin in Nepal. In the notice that was published on August 13, 2017, it has been ruled that NRB has not recognized bitcoin as a valid currency in Nepal. NRB hence by the effect of notice declared that transactions of bitcoin is illegal in Nepal. Apart from this notice, there is no any law that has explicitly prohibits the transaction related to bitcoin. Neither Nepal Rastra Bank Act 2001 (“NRB Act”) nor Foreign Exchange (Regulation) Act 1962 (“FERA”) has explicitly mentioned anything provision related to bitcoin. However the notice was issued giving reference to these Acts mentioning transaction of bitcoin is illegal in Nepal as per these Acts.
After the notice was published by NRB, dozens of Nepalese citizens have been arrested and case has been lodged against them. The people who were involved in bitcoin transaction or who held bitcoin before to the notice was issued by NRB were also arrested and case has been lodged against them. On October 6, 2017, CIB arrested seven suspects allegedly involved with running “bitcoin exchange” operations. Likewise, on October 26 two others were arrested for “allegedly operating a bitcoin racket in Kathmandu and Pokhara. Now the case against those involved in bitcoin transaction has been filed on Kathmandu District Court and still it has not been decided. Apart from these two case in district court, a writ petition has been filed in the Supreme Court of Nepal challenging the banking restriction on bitcoin imposed by the Nepal Rastra Bank.
In 2013, the Reserve Bank of India (RBI) in an advisory, cautioned users, holders, and traders of virtual currencies, including Bitcoins, about the potential financial, operational, legal, customer protection, and security-related risks that they were exposing themselves to. However, on April 6, 2018 RBI issued a circular prohibiting banks and financial institutions from providing services in relation to cryptocurrencies. This circular has been challenged by petitioners including Internet and Mobile Association of India (IAMAI) claiming that the RBI did not have the authority to place a ban when there was no legislative policy in place for virtual currencies. On the one hand the case relating to cryptocurrency is pending in the Supreme Court and on the other hand the law is the process of being drafted to regulate the cryptocurrencies in India.
Nepal has a narrow understanding about the virtual currency as the notice issued by NRB has only illegalize bitcoin. This shows how Nepalese monetary regulatory body has not understood the broader concept of crypto currency including block chain and hence limited its understanding about virtual currency up to the bitcoin only. Secondly, in India, bank and financial institution were regulating the bitcoin transaction but in Nepal individuals and private companies were involved in bitcoin transaction. Also in India, RBI before banning crypto currency in 2018 has issued cautious notice to users, holders, and traders of virtual currencies, including Bitcoins in 2013. However, there was no such notice that has been issued by NRB before it illegalize the bitcoin in 2017. Also in Nepal, CIB has arrested those involved in bitcoin transaction and case has been lodged against them using blanket approach. This means not only those who are involved in bitcoin transaction after the notice has been issued were arrested but also those who were involved before to the notice were also arrested. This has raised the question upon an intention of both CIB and NRB and also this has raised the legal question of retrospective application of law and colorable legislation.
The Future path of cryptocurrency both in Nepal and India, is now a matter of interpretation by the court. For the past two years, the case related to the bitcoin is pending in Nepal and various orders have been issued by the court. However, the court has not been able to reach a conclusion. The reason behind this delay in reaching a decision in cases related to bitcoin could be that the Nepalese judiciary might be in the mood of wait and see situation unfolding in other parts of the world regarding the regulations of bitcoins and also waiting for the final decision of the Supreme Court of India.
