Centre for Internet and Society

DNA Database for Missing Persons and Unidentified Dead Bodies

vipul — 2014-11-04T15:46:29Z

This blog discusses the possible implications of the public interest litigation that has been placed before the Supreme Court petitioning for the establishment of a DNA database in respect to unidentified bodies.

In the year 2012 Lokniti, a Non Governmental Organization filed a public interest litigation in the Supreme Court of India asking the government to establish a DNA database in respect of unidentified dead bodies as well as for those individuals for whom missing persons reports have been filed so that DNA of unidentified dead bodies can be matched against missing persons - arguing that the right to be identified is a part of the right to dignity, and that such systems have been adopted across the globe. The case has come up a few times since 2012 and parties have been given time to file their replies in these instances. Prior to the 2012 Public Interest Litigation filed by Lokniti, in 2009 a Public Interest Litigation was filed by a Haryana based doctor. The PIL petitioned for the DNA profiling of unidentified bodies to be made mandatory - arguing that thousands of individuals die with their identity being unknown. During the hearing the Bench asked a number of questions including why the Ministry of Health was not brought into the case, given the fact that a number of labs that conduct DNA profiling function under the ministry.

While the case is still pending, the Supreme Court on 22^nd September 2014 gave another interim order which was a little more detailed. On this date the Ministry of Science and Technology of the Government of India, through the Department of Biotechnology stated that they are piloting a DNA profiling Bill that would establish a DNA Profiling Board and a National DNA Data Bank. The National DNA Data Bank is envisaged to maintain the following indices for various categories of data:

I. a crime scene index;

II. a suspects' index;

III. an offenders' index;

IV. a missing persons' index;

V. unknown deceased persons' index

VI. a volunteers' index; and

VII. such other DNA indices as may be specified by regulations made by the Board.

One of the Ministry's plans under this Bill is to create DNA profiles of individuals whose relatives have gone missing, on a voluntary basis to help the relatives identify missing persons and unidentified dead bodies. They also stated that cross-matching of DNA profiling data in the database would require specialized software and the CDFB, Hyderabad is in the process of acquiring the same from the Federal Bureau of investigation, USA.

The advocate for Lokniti responded to this saying that the DNA profiling Bill has been pending for a long time and has not seen the light of day for the last seven years. To this the response of the government was that it was a complex Bill involving a number of issues which take a long time to resolve.

At this point the Supreme Court, without going into the details of the Bill asked the advocate for the Union of India to obtain instructions regarding the following two aspects:

(1) Whether pending the Bill coming into force the concerned Department can constitute a Data Bank in respect of dead persons who are not identifiable; and

(2) when there are missing reports in respect of persons to collect the DNA from the permissible sources like siblings or others so that in case any unidentified dead body is found to match the DNA to arrive at the conclusion about the missing persons who are dead; or as an ancillary the missing person who is a victim of the crime of kidnapping or where any child, who is not able to find out his parents, can be in a position to find out through the DNA.

Thus it seems that the Supreme Court, recognizing its limitations in directing the legislature to pass a law and the fact that the passing of the DNA profiling Bill may take a long time to become law, has tried to find a way out in which the concerns of the petitioner regarding a DNA Databank for missing persons and unidentified dead bodies could be addressed without the passage of the DNA profiling Bill. However since the case is still pending in the Supreme Court no final directions have been given in this regard. Thus, the Court has left the government with the responsibility to address the question of whether a DNA Databank can be established without the passing of a legislation providing legal basis for the collection, profiling, databasing, and use of DNA samples.

http://indianexpress.com/article/india/india-others/sc-wants-centre-to-create-dna-data-bank/#sthash.7zqU0Ill.dpuf

http://indianexpress.com/article/india/india-others/sc-seeks-govt-response-on-making-dna-profiling-mandatory/

The order dated September 22, 2014 can be found at http://courtnic.nic.in/supremecourt/temp/wc%2049112p.txt

For more details visit https://cis-india.org/internet-governance/blog/dna-database-for-missing-persons-and-unidentified-dead-bodies

The Gujarat High Court Judgment on the Snoopgate Issue

vipul — 2014-10-27T04:40:17Z

Pranlal N. Soni v. State of Gujarat, C/SCA/14389/2014

In the year 2013 the media widely reported that a female civil services officer was regularly spied upon in 2009 due to her acquaintance with the then Chief Minister of Gujarat (and current Prime Minister of India) Mr. Narendra Modi. It was reported that the surveillance was being supervised by the current president of the BJP, Mr. Amit Shah at the behest of Mr. Modi. The case took another twist when the officer and her father said that they had no problems with such surveillance, and had repeatedly conveyed to various statutory authorities including the National Commission for Women, the State Commission for Women, as also before the Hon’ble Supreme Court of India, that they never felt that their privacy was being interfered with by any of the actions of the State Authorities. Infact, para 3.5 of the petition indicated that it was at the behest of the father of the female officer that the State government had carried out the surveillance on his daughter as a security measure.

Inspite of the repeated claims of the subject of surveillance and her father, the Gujarat Government passed a Notification under the Commissions of Inquiry Act, 1952 appointing a two member Commission of Inquiry to enquire into this incident without jeopardizing the identity or interest of the female officer. This Notification was challenged in the Gujarat High Court by the very same female officer and her father on the ground that it violated their fundamental right to life and liberty. The petitioners claimed that they had to change their residential accommodation four times in the preceding few months due to the constant media glare. The print, electronic and social media, so called social workers and other busybodies constantly intruded into the private life of the petitioners and their family members. The petitioner's email accounts were hacked and scores of indecent calls were received from all over. Under the guise of protecting the petitioner's privacy, every action undertaken by the so called custodians for and on behalf of the petitioners resulted into a breach of privacy of the petitioners, making life impossible for them on a day to day basis.

After hearing the arguments of the petitioners, including arguments on technical points the Court struck down the Notification issued by the State government to enquire into the issue of the alleged illegal surveillance. However the Court also briefly touched upon the issue of violation of the privacy of the female officer in this whole episode. However, instead of enquiring into whether there was any breach of privacy in the facts of the case, the Court relied upon the statement made by the female officer that whatever surveillance was done did not cause any invasion into her privacy, rather it was the unwelcome media glare that followed the revelations regarding the surveillance which had caused an invasion of her privacy.

Thus we see that even though the whole snoopgate episode started out as one of “alleged” unwarranted and illegal surveillance this particular judgment is limited only to challenging the validity of the Inquiry Commission appointed by the State Government. In order to challenge the Notification in a PIL the female officer had to show that some fundamental right of hers was violated and in such circumstances privacy is the most obvious fundamental right which was violated.

Although this judgment talks about privacy, it does not have enough legal analysis of the right to privacy to have any significant ramifications for how privacy is interpreted in the Indian context. The only issue that could possibly be of some importance is that the we could interpret the Court’s reliance on the statement of the female officer that there was no breach of privacy rather than its own examination of facts to mean that in cases of breach of privacy, if the person whose privacy has been breached did not feel his or her privacy to have been invaded then the Courts would rely on the person’s statements rather than the facts. However this is only an interpretation from the facts and it does not seem that the Court has spent any significant amount of time to examine this issue, therefore it may not be prudent to consider this as establishing any legal principle.

Note: The details of the case as well as the judgment can be found at http://gujarathc-casestatus.nic.in/gujarathc/tabhome.jsp

For more details visit https://cis-india.org/internet-governance/blog/gujarat-high-court-judgment-on-snoopgate-issue

The Aadhaar Case

vipul — 2014-09-05T09:12:21Z

In 2012 a writ petition was filed by Justice K.S. Puttaswamy in the Supreme Court of India challenging the policy of the government in making an Aadhaar card for every person in India and its later plans to link various government benefit schemes to the same.

Over time a number of other cases have been filed in the Supreme Court challenging the Aadhaar mechanism and/or its procedure most of which have now been linked to the main petition filed by Justice Puttaswamy.[1] This means that the Supreme Court now hears all these cases together (i.e. at the same time) since they throw up similar questions and involve the same or similar issues. The court while hearing the case made an interim order on September 23, 2013 whereby it ordered that no person should suffer on account of not having an Aadhaar card and that Aadhaar cards should not be issued to any illegal immigrants. The relevant extract from the Order of the court is reproduced below:

"No person should suffer for not getting the Aadhaar card in spite of the fact that some authority had issued a circular making it mandatory and when any person applies to get the Aadhaar card voluntarily, it may be checked whether that person is entitled for it under the law and it should not be given to any illegal immigrant."[2]

It must be noted that the above order was only an interim measure taken by the Supreme Court till the time it finally decided all the issues involved in the case, which is still pending in the Supreme Court.

In November 2013 during one of the hearings of the matter, the Supreme Court came to the conclusion that it was an important enough matter for all the states and union territories to be impleaded as parties to the case and passed an order to this effect.[3] This was probably because the Aadhaar cards will be issued in the entire country and this is a national issue and therefore it is possible that the court thought that if any of the states have any concerns regarding the issue they should have the opportunity to present their case.

In another petition filed by the Unique Identification Authority of India (UIDAI), the Supreme Court on March 24, 2014 reiterated its earlier order and held that no person shall be deprived of any service just because such person lacked an aadhaar number if he/she was otherwise eligible for the service. A direction was issued to all government authorities and departments to modify their forms/circulars, etc., so as to not compulsorily require an aadhaar number. In the same order the Supreme Court also restrained the UIDAI from transferring any biometric data to any agency without the consent of the person in writing as an interim measure.[4] After passing these orders the Supreme Court linked this case as well to the petition filed by Justice Puttaswamy on which final arguments were being heard in February 2014 which so far do not seem to have concluded.

Note : Please note that the case is still being heard by the Supreme Court and the orders given so far and explained in this blog are all interim measures till the case is finally disposed off. The status of the cases can be seen on the following link:

http://courtnic.nic.in/supremecourt/casestatus_new/caseno_new_alt.asp

The names and number of the cases that have been covered in this blog are given below:

W.P(C) No. 439 of 2012 titled S. Raju v. Govt. of India and Others pending before the D.B. of the High Court of Judicature at Madras.
PIL No. 10 of 2012 titled Vickram Crishna and Others v. UIDAI and Others pending before the High Court of Judicature at Bombay.
W.P. No. 833 of 2013 titled Aruna Roy & Anr v. Union of India & Ors.
W.P. No. 829 of 2013 titled S.G. Vombatkere & Anr v. Union of India & Ors.
Petition(s) for Special Leave to Appeal (Crl) No(s).2524/2014 titled Unique Identification Authority of India & another v. Central Bureau of Investigation.

All the above cases have now been linked with the ongoing Supreme Court case of K. Puttaswamy v. Union of India.

[1] W.P(C) No. 439 of 2012 titled S. Raju v. Govt. of India and Others pending before the D.B. of the High Court of Judicature at Madras and PIL No. 10 of 2012 titled Vickram Crishna and Others v. UIDAI and Others pending before the High Court of Judicature at Bombay were transferred to the Supreme Court vide Order dated September 23, 2013. Also W.P. No. 833 of 2013 titled Aruna Roy & Anr Vs Union of India & Ors, W.P. No. 829 of 2013 titled S G Vombatkere & Anr Vs Union of India & Ors and Petition(s) for Special Leave to Appeal (Crl) No(s).2524/2014 titled Unique Identification Authority of India & another v. Central Bureau of Investigation.

[2] http://judis.nic.in/temp/494201232392013p.txt

[3] http://judis.nic.in/temp/4942012326112013p.txt

[4] http://courtnic.nic.in/supremecourt/temp/sr%20252414p.txt

For more details visit https://cis-india.org/internet-governance/blog/the-aadhaar-case

Can Bitcoin Be Banned by the Indian Government?

vipul — 2017-04-07T12:56:21Z

The paper analyses the laws and regulations that apply to Bitcoin in India, and comes to the conclusion that the government has wide powers that it can exercise, if it wishes, to regulate Bitcoin. Given the lack of existing legal and regulatory analysis on this issue in India, we greatly welcome comments on this issue.

Bitcoin: Legal Treatment under the Current Indian Legal and Regulatory Regime

This paper is an effort to examine the legal basis and treatment of Bitcoin under the current legal and regulatory regime in India. It seeks to explore whether Indian laws and regulations as they stand today would even consider Bitcoin as ‘currency’ and which regulations would govern different kinds of Bitcoin transactions. In this paper we shall first give a brief description of Bitcoin and then move on to what its legal treatment would most likely be which would then lead us to examine which regulations would most likely apply to various Bitcoin transactions.

What is Bitcoin?

Bitcoin is a cryptography based digital currency first described in a 2008 paper by a single or group of pseudonymous developer(s) by the name of Satoshi Nakamoto, who called it a “peer-to-peer, electronic cash system”. Bitcoin creation and transfer is based on an open source cryptographic protocol and is not managed by any central authority. Each Bitcoin is subdivided down to eight decimal places, forming 100,000,000 smaller units called satoshis. Bitcoins can be transferred through a computer or smartphone without an intermediate financial institution. The processing of Bitcoin transactions is secured by servers called Bitcoin “miners”. These servers communicate over an internet-based network and confirm transactions by adding them to a ledger which is updated and archived periodically using peer-to-peer filesharing technology, also known as the “blockchain”. The integrity and chronological order of the blockchain is enforced with cryptography. In addition to archiving transactions, each new ledger update creates some newly-minted Bitcoins. The number of new Bitcoins created in each update is halved every 4 years until the year 2140 when this number will round down to zero. At that time no more Bitcoins will be added into circulation and the total number of Bitcoins will have reached a maximum of 21 million Bitcoins.

Each user of Bitcoin gets a digital wallet and a Bitcoin address which is the address from and to which Bitcoins can be transferred once this address is given to another party for the transfer. A transaction or transfer of Bitcoins is simply a transfer of value between Bitcoin addresses that gets included in the block chain or the system log, which ensures that each transaction is valid and that nobody can use his or her Bitcoins more than once i.e. it avoids double spending.. Bitcoin wallets keep a secret piece of data called a “private key” for each Bitcoin address. Private keys are used to sign transactions, providing a mathematical proof that they have come from the owner of the addresses. The “signature” also prevents the transaction from being altered by anybody once it has been issued.

With this very basic and brief understanding of Bitcoin, we shall now try to examine whether Bitcoins should be treated under Indian law as (i) currency, (ii) security, (iii) derivative, (iv) negotiable instrument, (v) prepaid payment instrument, or (vi) movable property.

Can Bitcoins be Treated as Currency?

Indian laws do not define digital currency or virtual currency, so we will have to look at the traditional definition of currency to see if Bitcoin falls in that definition. The term currency is defined in section 2(h) of the Foreign Exchange Management Act, 1999 (“FEMA”) in the following words:

“currency” includes all currency notes, postal notes, postal orders, money orders, cheques, drafts, travellers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank;

It is notable here that this is an inclusive definition which means that it has a large scope for expansion. The legislature has consciously made the definition capable of further expansion by making it inclusive and also by giving the Reserve Bank of India (“RBI”) the authority to notify other similar instruments. This means that if any instrument which is being used as a currency is not covered by the definition as it stands, then the RBI is free to notify it and include it in the definition of currency. All “currency” other than Indian currency is considered by the FEMA as “foreign currency” which would have to then comply with various rules and regulations under FEMA. This means that if Bitcoin is classified as a “currency”, it would have to come under the definition of “foreign currency” and Bitcoin transactions would therefore have to comply with the entire foreign exchange regime under FEMA.

It is clear that Bitcoin is not really similar to any of the instruments mentioned in the definition, not least because none of them are digital or virtual in nature. On May 3, 2000 the RBI notified “debit cards, ATM cards or any other instrument that can be used to create a financial liability” as “currency” under the FEMA (by Notification No. FEMA 15/2000/RB dated May 3, 2001). Since Bitcoin is not really backed by any institution and has no backing by any central bank or institution and because most of the transactions involving acceptance of Bitcoin are voluntary in nature, therefore it does not seem that Bitcoin is an instrument that can be used to create a financial liability. This can be explained further with the help of two examples:

(i) If a person owns Indian rupee notes worth Rs. 500 and everyone stops accepting the currency, he can always go to the Governor of the RBI and claim Rs. 500 from him, however if I own Bitcoins then whether my Bitcoins can be used to buy any goods or services is entirely dependant upon the willingness of third parties to accept Bitcoin as a valuable item.

(ii) If I order a pair of shoes worth Rs. 500 from flipkart.com and pay for those shoes using Indian currency, then it does not matter if flipkart decides to not accept Indian currency (whether by means of cash, credit card, cheque, etc.) and accepts payment only in Bitcoins. As soon as I give flipkart currency notes or coins worth Rs. 500, my legal obligation to pay for the shoes is fulfilled. On the other hand if I pay for those shoes with Bitcoins then unless flipkart voluntarily accepts payment in Bitcoin, my liability to pay for the shoes will still legally exist till I pay flipkart Rs. 500 in Indian currency.

Therefore it is clear that Bitcoins do not fit into the plain vanilla definition of currency under Indian law. However this does not mean that the RBI cannot regulate Bitcoins or transactions involving Bitcoins. The RBI can very well notify Bitcoins as “currency” and then come out with rules and regulations for Bitcoin transactions. Cynics may argue that this is not possible due to the peer to peer nature of Bitcoins and the Bitcoin network and they would be right to the extent that it may not be physically feasible for the RBI to regulate every Bitcoin transaction, but it would be possible for them to target Bitcoin exchanges which is the entry point for most users of Bitcoin. To sum up, although Bitcoins may not be classified as a currency at present, this does not preclude the RBI from regulating them in the future.

Can Bitcoins be considered as Securities?

The term “securities” is defined in section 2 (h) of the Securities Contracts (Regulation) Act, 1955 in the following manner: “securities” include —

(i) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate;

(ia) derivative;

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes;

(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(id) units or any other such instrument issued to the investors under any mutual fund scheme;

(ii) Government securities;

(iia) such other instruments as may be declared by the Central Government to be securities; and

(iii) rights or interest in securities;”

It is clear from a bare reading of this definition that Bitcoin does not come within any of the parts of the definition of securities, other than possibly ‘derivative’ (which is something we shall examine in the next part of this paper). Apart from the term derivative, the only other way in which Bitcoins can be brought under the definition of ‘securities’ is if the Central Government notifies Bitcoins as such since the Central Government has the power to declare any instrument as a ‘security’. In such a scenario it will be the entire gamut of regulations governing securities including the various rules and regulations prescribed by the Securities and Exchange Board of India (SEBI). Another argument is that Bitcoin may fall under the definition of a “derivative”.

Can Bitcoins be considered as a Derivatives or a Negotiable Instruments?

The definition of “derivative” under the SCRA is

(ac) “derivative” includes— (A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; (B) a contract which derives its value from the prices, or index of prices, of underlying securities;

As discussed above, Bitcoin is not a security and therefore would not satisfy the first part of the definition of “derivative” within the SCRA. Further since Bitcoin is only a voluntary currency based on two parties deciding that the code itself has some value, therefore Bitcoin can also not be described as a contract which derives its value from the prices or index of prices of underlying securities. Therefore it is clear that Bitcoin would not satisfy the requirements of being a derivative under the SCRA. Under Indian law, another definition of the term derivative is provided under the Reserve Bank of India Act, 1934 which defines “derivative” in section 17(6A) to mean:

an instrument, to be settled at a future date, whose value is derived from change in one or a combination of more than one of the following underlyings, namely:--

(a) interest rate,

(b) price of securities of the Central Government or a State Government or of such securities of a local authority as may be specified in this behalf by the Central Government,

(c) price of foreign securities,

(d) foreign exchange rate,

(e) index of rates or prices,

(f) credit rating or credit index,

(g) price of gold or silver coins, or gold or silver bullion, or

(h) any other variable of similar nature.

Since Bitcoins are used as currency because Bitcoin users think it has inherent and not because its value is derived from any other underlying thing or object, therefore Bitcoin cannot be said to fall under the definition of “derivative” under the Reserve Bank of India Act, 1934 either.

The term negotiable instrument on the other hand is defined in the Negotiable Instruments Act, 1881 and defines a negotiable instrument as a “promissory note, bill of exchange or cheque payable either to order or to bearer”. Since the terms promissory note, bill of exchange or cheque are easily understood in trading parlance, there is no need to go into the definitions of these instruments as provided under the Negotiable Instruments Act, 1881, suffice it to say that Bitcoins do not fall under the definitions of any of these terms under the Act.

Can Bitcoin be Classified as a Prepaid Payment Instrument?

The enactment of the Payment and Settlement Systems Act, 2007 has brought the payment systems involved in the issuance of prepaid payment instruments under the regulatory jurisdiction of the RBI. In exercise of its powers under Section 18 of the Payment and Settlement Systems Act, 2007 the RBI on April 27, 2009 issued policy guidelines governing institutions issuing prepaid payment instruments such as mobile wallets, Paypal, etc. In these guidelines the term Prepaid Payment Instrument is defined in the following words:

Pre-paid payment instruments are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. The value stored on such instruments represents the value paid for by the holders by cash, by debit to a bank account, or by credit card…

Since Prepaid Payment Instruments have a definite value stored on them which is equal to the amount paid by the holders in cash or by debit or credit card, it seems that Bitcoins cannot be classified as Prepaid Payment Instruments since there is no static value stored in Bitcoins, rather they have an inherent value. In other words the amount of money that a person pays to buy Bitcoin does not represent the value of the Bitcoins that the person is buying, rather the value (or exchange rate) of Bitcoins keeps changing on a daily basis. Therefore Bitcoins cannot be classified as prepaid payment instruments because the value stored on prepaid instruments such as Paypal is always constant and is equal to the amount of money paid to the system to get a Paypal balance, but this is not the case with Bitcoins.

What can Bitcoins be Classified As?

As discussed above, Bitcoins cannot be classified as regular financial instruments such as ‘currency’, ‘security’, ‘derivative’ or ‘negotiable instruments’ as these instruments are currently defined under Indian law. What therefore, should be the legal treatment of Bitcoins under Indian law? Bitcoins are essentially lines of code which create the system of transfer of Bitcoin currency from one account to another. The Indian Copyright Act defines the term “computer programme” as “a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result”. Based on this definition as well as the generally understood meaning of computer programme it would be fairly safe to say that Bitcoins would fall under the definition of the term “computer programme”. Now the General Clauses Act, 1897 defines the term movable property as property of every description, except immovable property. Immovable property has been defined to include land, benefits arising out of land or things attached to the earth or permanently fastened to anything attached to the earth. Clearly a computer programme would not fit into the definition of immovable property and relying upon the broad definition of movable property in the General Clauses Act, 1897 it can be said that a computer programme and by logical extension Bitcoins should be considered as movable property. Further the Forward Contracts (Regulation) Act, 1952 also defines goods to mean “every kind of movable property other than actionable claims, money and securities”. It would seem that on a bare reading, Bitcoins would also fulfill this condition and be generally defined as goods under Indian law.

Now that we have determined that Bitcoins would in all likelihood be treated as goods or movable property under the current legal regime in India, it would be beneficial to discuss what laws would regulate the various Bitcoin transactions that occur in general practice, for the purposes of this paper we shall limit our discussion to the following transactions:

i) Mining of Bitcoins; ii) Transfer of Bitcoins from one person to another within the territory of India; iii) Exchange of Bitcoins for Indian Rupees, provided the entire transaction is based in India; iv) Transfer of Bitcoins from one person to another where the person sending the Bitcoins is not resident in India; v) Exchange of Bitcoins for Indian Rupees, where the exchange is based outside India.

Mining of Bitcoins

Since Bitcoins are essentially lines of code and therefore would fall within the definition of “computer programme”, the mining of Bitcoins is essentially the utilization of one’s own computing power and electricity to generate more computer programmes or an extension of an existing computer programme. Thus Bitcoin ‘mining’ would be like making your own computer programme and there is no law which prevents or prohibits a person from doing so, therefore it seems that mining Bitcoins in India would be a perfectly permissible and legal activity.

Transfer of Bitcoins from one person to another within the territory of India

Although we have determined above that Bitcoins would in all probability be treated as goods and therefore any sale of Bitcoins would be governed by the Sale of Goods Act, 1930 however it must be noted that the Sale of Goods Act does not regulate barter transactions. This is so because the sale of goods means a contract whereby the property in the goods is actually transferred by the seller to the buyer and according to section 4 of the Sale of Goods Act the transfer of the property in the goods is for a price, i.e., for money consideration. As price is an essential element of a contract of sale, barter is ruled out from a transaction of sale of goods. This means that any transaction whereby payment is made in Bitcoins would come within the category of a barter transaction, for example if flipkart.com starts accepting payment in Bitcoin then the transaction of paying for a pair of shoes through Bitcoin would infact be a barter transaction and would not be governed by the Sale of Goods Act.

Exchange of Bitcoins for Indian Rupees, provided the entire transaction is based in India

In case there is an online Bitcoin exchange where one can buy or sell Bitcoins using real currency (such as Mt.Gox) based in India which deals only with Indian residents and buys or sells Bitcoins for Indian Rupees, then as per our discussion above all the transactions of this online exchange would be governed by the Sale of Goods Act and all relevant laws regarding sale of goods on an exchange platform with regard to goods such as computer programmes would be applicable to such an online exchange including the Forward Contracts (Regulation) Act, 1952. (As noted above, Bitcoins would satisfy the definition of ‘goods’ within the Forward Contracts (Regulation) Act, 1952.) This would imply that as long as the online exchange does plain vanilla buying and selling of Bitcoins it would not be amenable to regulatory oversight but if it wants to offer Bitcoin derivatives such as Bitcoin futures then it would have to get itself registered as per the provisions of the Forward Contracts (Regulation) Act and also follow all the rules and regulations prescribed thereunder.

Transfer of Bitcoins from one person to another where the person sending the Bitcoins is not resident in India

If Bitcoins are transferred from a person residing outside India to a person resident within India then that would amount to import of computer programmes within India. If this transfer is done in return for the Indian party sending an item or rendering a service to the foreign party then this would be a barter transaction. It is useful to note that although the Indian import and customs regulations do not mention barter transactions, the guidance on the website of the Directorate General of Valuation, Central Board of Excise and Customs, Government of India seems to suggest that barter transactions for import of goods although are not prohibited but do present unique problems of valuation of the goods. However since software imported online does not attract any duty under Indian law, therefore it would be immaterial to discuss exactly how a barter transaction involving Bitcoins should be valued under the Indian customs regime. For the purposes of this discussion it is sufficient to note that a Bitcoin transaction entered into by an Indian with a party outside India is not prohibited as long as the item or service being exported out of India is itself legal and above board. For example, a transaction involving an Indian designing a website for a person sitting in Australia and being paid in Bitcoin would be legal whereas sending contraband substances to the same person while getting paid in Bitcoin would not be allowed. This would be the legal analysis for a general citizen but this analysis is subject to regulations governing specific instances, for example exchange or goods or items from certain countries may be declared illegal or the receipt of foreign articles by certain class of entities may be banned or otherwise regulated, such as political parties or Non Governmental Oorganisations (“NGOs”).

Can an NGO based in India receive donations in Bitcoin?

This is an interesting question because it would be perfectly legal for a regular citizen to receive Bitcoins from abroad as a gift or donation, etc. However if the entity receiving such Bitcoins is an NGO then there would be the added layer of regulation from the Foreign Contributions Regulation Act, 2010 (“FCRA”) which regulates all foreign contributions received by NGOs. Section 2(1)(h) of the FCRA defines foreign contribution to include the receipt of any article from a foreign source. This means that even if an NGO based in India receives contribution from a foreign source in Bitcoins, such a transaction would fall within the regulatory ambit of the FCRA and any such a transaction would have to be reported to the Ministry of Home Affairs in Form FC – 7 under Rule 17(3) of the Rules under the FCRA.

Exchange of Bitcoins for Indian Rupees, where the exchange is based outside India

If a person imports a computer programme into India he would have to pay the customs duty at the prevalent rates, however if this import of software is done via the internet and does not involve any physical shipments (e.g. downloading paid software from the internet) then no import duty is levied on the import of computer software in India. This would mean that any person buying a computer programme or software from a vendor abroad would not be liable to pay any customs duty or file any documentation with the customs authorities in India. This situation would also be applicable to any person buying Bitcoins from an online exchange based outside India. The only documentation that would be required for buying Bitcoins from an online exchange abroad would be that which the bank may insist upon for exchanging Indian rupees into a foreign currency and then transferring it to an overseas account. This documentation would involve filing of Form A-1 if the total value of the money being exchanged is greater than USD 5,000 however if the amount of money being exchanged is less than USD 5,000 then the person is only required to give a simple letter containing basic information viz. the name and the address of the applicant, name and address of the beneficiary, amount to be remitted and the purpose of remittance. If the transaction is done using a credit card then in most instances, banks would not be insist upon this letter since these transactions usually go through their automated channels.

Conclusion

Although Bitcoins can currently be classified only as movable property and more specifically as computer software, this position is not tested in a Court of law. Further it appears from the analysis of the definitions of ‘currency’ and ‘prepaid payment instrument’ that the government has the power to bring Bitcoins into the definition of either currency or prepaid payment instrument by just amending the regulations, which is not a very cumbersome process since financial regulations, by their very nature, are quite fluid and prone to changes. Even so it is worth noting that even as the legal regime stands now offering of derivative products in Bitcoins might require registration and approval under the Forward Contracts Regulation Act.

It is worth noting that unlike other digital currencies such as e-gold, liberty reserve, etc. Bitcoin is a peer to peer network based currency which does not have one centralized agency or institution regulating the entire system and therefore an argument is made that even if the agencies want to regulate or shut it down they will not physically be able to do so as there is no nodal institution that the authorities can go after. However this argument is fallacious to a certain extent in that the authorities can go after online exchanges which are websites or portals run by individuals or entities which have a physical manifestation. They would have names, addresses, bank accounts, etc. and the authorities could easily go after the major exchanges to cut off the supply or cash into the Bitcoin system by attacking the source where cash or ‘real currency’ enters or leaves the system thereby severely reducing the efficacy of Bitcoins.

Looking at the relatively small number of people who use Paypal or other e-wallets in India, it would not be entirely unlikely that the regulations to govern Bitcoin, whenever they come, would be a reaction to a particular event and whether these regulations are enabling or disabling in nature would probably depend upon the nature of the event to which they are reacting.

Note: Although not referred to here because of the limited context of this paper, a similar and much more thorough examination of the legality of Bitcoins done by Nokolei M. Kaplanov in the article titled Nerdy Money: Bitcoin, the Private Digital Currency, and the Case Against Its Regulation in the Temple Law Review.

For more details visit https://cis-india.org/internet-governance/bitcoin-legal-regulation-india

Are Indian Consumer Laws Ready for the Digital Age?

vipul — 2013-08-08T11:52:40Z

The Economic and Social Council of the United Nations, recognizing the need for protection of the rights of consumers, drafted a set of model guidelines on consumer protection which were adopted by the General Assembly in 1985. The United Nations Guidelines for Consumer Protection (UNGCP) act as an international reference point of the consumer movement, however since it has been over a quarter of a century since they were first drafted, there is a strong argument for revising them to bring them in line with new developments in technology and business practices.

It is for this reason that that United Nations Conference on Trade and Development has undertaken a revision of the UNGCP. Consumers International, an international consumer rights organization has along with CIS and other groups been trying to represent the voice of consumers at the negotiations for this revision. As part of this effort, Consumers International has produced a book titled "Updating the UN Guidelines for Consumer Protection for Consumers in the Digital Age". This blog has been produced through a filteration of the essence of some of the arguments and issues addressed in that book.

In December 2012 there was a news report that pegged the market for online commerce in India at roughly USD 14 billion,[1] which is why some of the poster children of online retail in India are getting stratospheric valuations even though they are yet to show any major profits, case in point, Flipkart had a valuation of around USD 800 million[2] in 2012 and is looking for an IPO in around three to four years. Such huge numbers give a sneak peek into the size and scope of the Indian e-commerce marketplace which begs the question, if there are so many transactions occurring in the online marketplace and since a large number of those transactions are between retailers and domestic consumers, then are there any specific laws out there protecting the interests of consumers in the online world.

Apart from the Information Technology Act, 2000 and various circulars by the Reserve Bank of India regarding online banking and money transfer activities which are more generic in nature trying to secure the online space as a whole, there are no specific laws that seek to protect consumers in the online space. However, that does not necessarily mean that the consumers are left without any recourse and in this post we shall examine whether it is possible to use the Consumer Protection Act, 1986 to protect consumer rights in the online environment as well.

The Consumer Protection Act, 1986 (“COPRA”) was enacted with the purpose of empowering consumers to take on the might of large corporations and preventing unscrupulous businessmen from taking undue advantage of the weak position which consumers are inherently placed in under the archaic Indian judicial system. It set up special tribunals, simpler procedures and enacted special provisions to help consumers get a better bargaining position vis-à-vis manufacturers and retailers, etc. However, since this law was enacted more than a quarter of a century ago and it is not entirely geared towards protecting consumer rights in the digital era. However, that does not mean it is entirely toothless in the online environment although it certainly needs some major provisions to come to grasp with the special circumstances and practices of the online marketplace, as the rest of the discussion will demonstrate.

For any transaction to come under the purview of COPRA, it should have the following three essential requirements:

There should be a ‘good’ or ‘service’ sold or provided to a consumer;
Such good or service must be ‘sold’ i.e. there must be a ‘sale’;
There should be a ‘defect’ in the good or ‘deficiency’ in the service;

We will now examine different types of e-commerce transactions and discuss whether they fulfill the requirements given above and therefore are amenable to the jurisdiction of COPRA.

There should be a ‘good’ or ‘service’
This is issue is not very complicated so far as digital purchases of physical items are concerned. Since a book or a mobile phone is considered as a ‘good’ then it will always be considered as a ‘good’ irrespective of whether it has been bought from a physical shop or an online retailer. However, the question does take on an air of some complexity when dealing with digital items such as mp3 files and software programmes. The General Clauses Act, 1897 states that all property which is not immovable property is considered as movable property. Since immovable property is defined as land and things attached to the land, therefore it is pretty clear that ‘computer software’ would in all likelihood be considered as movable property. Whether such movable property can be considered as a ‘good’ or not is a question which is yet to be tested in the courts of law in India, however it must be mentioned that in the context of the Sales Tax Act, the Supreme Court of India has held canned software to be a ‘good’. Laying down a test for determining whether a property is a ‘good’ or not, the Supreme Court in that case laid down the following test:

“A 'goods' may be a tangible property or an intangible one. It would become goods provided it has the attributes thereof having regard to (a) its utility; (b) capable of being bought and sold; and (c) capable of transmitted, transferred, delivered, stored and possessed. If a software whether customized or non-customized satisfies these attributes, the same would be goods.”[3]

It must be emphasized again that the Supreme Court’s ruling was given in the context of the Sales Tax Act and it may not be accepted by a court deciding a case on COPRA. This is one issue which could and should be addressed under Indian laws to ensure that the large numbers of Indian consumers who buy items in the online marketplace are not left in a lurch and without the protection of the COPRA.

There must be a “Sale” of the good or service
Just as the previous issue, this question again can be simple when asked in relation to sale of physical goods using the internet but may not be so when talking about digital goods. When a physical item is purchased using the internet, a sale may be said to have occurred when the ownership of the good passes from the seller (online retailer) to the buyer (consumer) and the payment and delivery are complete. However, the question whether sale of software (here we are using this generic term for all sorts of computer programmes and data because the reasoning and legal analysis can be applied to both types of data) in an online environment would actually constitute a ‘sale’ requires a little more analysis. A huge problem in labeling online software purchases as a ‘sale’ is that most of these ‘sales’ are made in the form of a license. The manufacturers or retailers would argue that such an online purchase is not really a sale since the consumer usually only gets a license to use the product under strict conditions and does not buy the product as an owner, further this is really the industry standard when it comes to software purchases. The argument on the other side is that most websites advertise these products as an outside sale, for example, if you go to the Quick Heal antivirus website today and go to the page for “Home Users”[4] the page clearly shows a “Buy Now” tab and indicates the price at Rs. 1549/-. In fact in a number of cases you can actually buy the file containing the software without ever being shown the contractual terms of the agreement. These terms usually specify that you are only getting a license to use the product and may not have the right to resell or lend the product to others, rights which a traditional buyer of a product enjoys under law.

This issue was also discussed by a Full Bench of the Supreme Court of India in the case of Tata Consultancy Services v. State of Andhra Pradesh,[5] which ultimately held that the ‘sale’ of canned software (the term the court used for non customized software which is sold off the shelf) would be a sale of goods and therefore liable to be taxed under the Sales Tax Act. As is evident this decision was given in the context of the Sales Tax Act, but it could be argued that since tax statues are anyways supposed to be interpreted strictly and beneficial statutes such as the COPRA are required to be interpreted broadly, as per the accepted rules of legal interpretation, therefore it is possible that such a ‘license’ for computer software bought by an ordinary consumer could be considered as a ‘sale’ so as to bring the item within the ambit of the COPRA.

Here again we see that although there might be arguments which could be made to justify such licences for computer software as a ‘sale’, however it is still an untested issue and the COPRA certainly needs to take these issues into account if we want to protect the rights of the ever growing number of online consumers.

There should be a “defect” in the goods
If I order a pair of shoes from flpikart.com and the shoes arrive with one of the soles torn off, it’s a pretty straightforward case of there being a defect. In such a scenario unless the retailer has a specified return policy (which incidentally flipkart has) the consumer would have a right to approach the consumer forum to lodge a compliant. Similarly, if I buy a software from a manufacturer for my personal use and the file has a bug in it, it can fairly easily be considered as a defect since any fault, imperfection or shortcoming in the quality, quantity, potency, purity or standard or the good can be considered as a defect.

This is where things get a little interesting. What if we argue that stringent Digital Rights Management techniques by some online retailers are actually a defect in the goods since they do give the consumer all the rights that a buyer of goods would traditionally have. For example, if I buy an e-book with DRMs which restrict lending and on-selling, then two of my rights as a traditional book buyer are straightaway rescinded. Let us now examine the issue in the traditional context of the term ‘defect’.

If an article bought has any fault, imperfection or shortcoming in the quality, etc., then it would be considered as a defective good. For example, if a person buys a generator which is creating excessive noise, then it can be said that there is a shortcoming in the quality or the standard which is required to be maintained. A generator may supply electricity perfectly well and there may not be any fault at the time of running the machine but while operating the machine if it is creating more noise than the prescribed level, it can be said that there is a defect in the manufacture. An e-book with DRMs may also let a consumer read its contents but that may not be the only criteria to determine whether an item is defective or not. Using the traditional definition of a ‘buyer’, we can argue that a traditional buyer commonly has rights such as the right to resale, the right to make copies for personal use, the right to lend, the right to gift, etc., which may not exist in a an e-book with DRMs. Thus, an argument could be made that such measures constitute a ‘defect’ in the goods under the COPRA.

Again, this is only an argument and it is entirely possible that a court of law may reject such an argument, especially in light of the fact that the consumer has entered into a license agreement while completing the transaction which specifically grants the consumer only specific and limited rights in regard to the item being purchased. A possible counter to this argument could be that the agreement is generally long and verbose and is only presented to the consumer towards the end of the transaction when the consumer generally does not have the time to read it. Further, there is hardly ever a situation where the consumer can negotiate the terms of the contract, it is usually a standard form of contract which is heavily tilted in favour of the seller and the consumer is given no real choice in this regard. This is why in common law jurisdictions the courts have laid down certain principles or extra conditions which a standard form of contract has to abide by for it to be enforceable viz.,:

Sufficient notice: This principle requires that the major and specially the unusual terms in a contract should be displayed in a sufficiently highlighted manner so that a reasonable consumer is not likely to miss these unusual terms.[6]
Fundamental breach of contract: If the contract is so drafted that it would impose additional obligations on the consumer or restrict the liability and obligations of the seller in such a way that it would result in breaching any of the fundamental or main terms or obligations that one expects in such a contract, then such a contract may not be enforceable.[7]
Exclusion of unreasonable terms: Another type of protection that is available to consumers is the principle which seeks to exclude unreasonable terms from a contract i.e. a term which would defeat the very purpose of the contract or if it is repugnant to the public policy.[8]

Relying on the above principles of standard form contracts, it is possible to at least argue that highly strict and limiting terms which are put into a long verbose standard form contract which backs the Technology Protection Measures on a protected software may not be entirely enforceable, in which case the alleged consent of the consumer for such DRMs gets negated and the software with all its DRM limitations could be considered as ‘defective’.

Conclusion
From the discussion above it is clear that the nature of online transactions and digital goods presents certain unique problems for the legal regime which seeks to protect consumer rights. The law needs to be amended to take into account the unique circumstances of this fledging marketplace that exists online and ensure that the legal regime is fully capable of facing the challenges thrown up by e-commerce. One of the initiatives in this regard is the effort by Consumers International to include amendments in the Model United Nations Guidelines for Consumer Protection to include various provisions which deal with the online marketplace and its unique challenges as well as issues relating to access to knowledge (A2K). Perhaps it is time for the establishment in India to also take this into account and bring our quarter of a century old consumer protection legislation in line with the digital age.

[1]. http://goo.gl/Mh74vB

[2]. http://goo.gl/By5x3i

[3]. Tata Consultancy Services v. State of Andhra Pradesh, 5 November, 2004, available at http://goo.gl/Bn7KRp

[4]. http://goo.gl/lMdoI

[5].http://goo.gl/Bn7KRp

[6]. Henderson & others v. Stevenson, 1875 2 R (HL) 71, Interfoto Picture Library Ltd v. Stiletto Visual Programmes Ltd. [1988] 1 All ER 348.

[7]. Harbutt's "Plasticine" Ltd. v. Wayne Tank and Pump Co Ltd [1970] 1 QB 447.

[8]. Lily White v. R. Mannuswami, AIR 1966 Mad.13.

For more details visit https://cis-india.org/a2k/blogs/are-indian-consumers-laws-ready-for-digital-age