In 2018 India announced to the whole world its neglect towards all cryptocurrencies. That is why it seemed unbelievable for India to register an Indian crypto company until very recently. Many were convinced that the ban on the cryptocurrency trading was the country’s Central Bank’s “historic sentence”. Earlier the Central bank explained that their decision is supposed to protect India’s national interests because cryptocurrencies cannot be considered currencies and are dangerous since they do not have a material form and a government seal.
Nowadays, India’s attitude has changed drastically. A two-year ban on digital currencies was lifted by the Supreme Court of India in March. It is now allowed in India to hold an ICO as well as a full blockchain reboot.
Registration of ICO
Right now, it is common for ICOs targeting India to be registered elsewhere like in Switzerland, Singapore, basically in countries where the regulation is easier. However, from this year the ICO registration became more favorable, so many decided to use this opportunity.
Tokens that can be introduced by private market participants can be sold in two categories – securities and currencies.
Cryptocurrencies as securities
It is still not decided in India if ICOs can be viewed as securities transactions. There is the Securities Agreement Act that states completely what transactions can be included in securities:
- Government securities
- Rights and interests in securities
- Debt obligations (shares, bonds, etc.) or other marketable securities of a company registered in India
- Other instruments that authorities consider securities.
All the instruments noted above have a share capital. Yet not every token offer must be supported by an underlying asset. Despite not falling under the categories of “shares” or “debt obligations”, they might belong under the term “other marketable securities”. Thus, the cryptocurrency transfers offered via ICO in India should not be restricted in any way.
In order for cryptocurrencies to enter the sector of securities, they have to be issued by a company registered in India. Nonetheless, there are still instances when tokens are issued by non-corporate organizations and are not covered by securities.
Howie’s test
Before registering an instrument, it must be identified first. The Court uses Howie’s test to check whether an instrument is a “collective investment scheme”. Security tokens and utility tokens as well pass Howie’s test, and both are considered securities.
The final word
India is taking a more progressive approach towards the development of cryptocurrencies. Now the trading is allowed, and the country is issuing its own digital currency. Cryptocurrencies became a legal financial instrument in India. The third-largest economy is planning to join the digital asset market and play against other decentralized financial instruments.
Contact our advisors in COREDO and arrange a personal consultation about ICO regulation in India. We will inform you about the requirements of the Indian legislation and the registration of crypto companies in India.