Authored By: Rituraj Kanwar Chundawat
NIMS University, NIMS School of Law
I. Introduction
Suppose an Indian gaming platform in March 2023, claims NFTs worth over 2 crore rupees were stolen from user wallets. It had already revealed a tremendous loophole in the country’s law. The users whose assets were stolen tried to seek legal representation, but were met with a system that was not able to clearly answer a seemingly simple question: When one wishes to seek their legal rights for recovery of asset after it has been stolen, can one call it property? This argument is based on the premise that digital assets should be considered as property under Indian law and that confiscation of digital assets should be monetary punishment. However, given the lack of clear laws, it is challenging for people to receive effective legal solutions.
The legislation that is in place in India and the world, such as the Transfer of Property Act (1882)[1], the Indian Penal Code (1860)[2] and Information Technology Act (2000)[3], were created well before blockchain and virtual goods were invented. This article will provide three answers: (1) whether digital assets can be treated as ‘property’ under Indian law; (2) why the current law does not provide for the protection of stolen digital assets; and (3) how a new law can help address this issue.
II. Are Digital Assets a property under the Indian laws?
Indian law has a broad definition of property. The Supreme Court has ruled that the constitutional rights that people have to enjoy and use their property applies to objects with economic value.[4] It has three properties: (1) It should be clearly distinguishable; (2) It should be the sole property of one and should be owned or controlled by him; (3) It should have some economic value, it should be transferable or it should be sellable by the owner.
Any digital item, such as cryptocurrencies, NFTs, in-game items, or virtual goods, which are stored on a blockchain, meet all of these requirements. For one, each asset has a code (cryptographic hash) affixed to a common digital record which makes it easier to identify than many physical assets with documents. Secondly, private cryptographic keys enable only the owner to control those assets, in the same manner as a key would be used to control physical property. Thirdly, they are of economic value; the government passed a legislation to define ‘virtual digital asset’ and tax 30 per cent of the profits generated from trading in it in 2022.[5] [6]
Since the government taxes digital assets as if they’re valuable items, it strongly suggests they are a type of property. Of course no one would want a government to give them taxes if they sold them a house and then deny them the rights of ownership. The Supreme Court also noted that the constitutional right to ownership shall be interpreted so as to reflect the change in the economic environment.[7] For this reason, the word property is a good choice since in our legal system, it means to say that digital assets are property.
III. The reasons why the current laws do not provide much help if assets are stolen as digital assets.
Although the argument for digital assets being considered property is convincing, there are still legal issues that are fuzzy. There are three sets of laws that may apply to virtual goods theft, but each only applies to virtual goods to a certain degree.
The Information Technology Act, 2000, Section 43 provides for damages that may be awarded if they are allowed to break into another’s data on a computer and cause harm. The law has been intended to cover the instance of corrupt data, however, certainly not the instance of valuable digital items being stolen. In most cases, the courts have demanded proof of damage to the computer as well as the asset, pursuant to Section 43. If the digital assets aren’t affected, this legal hurdle may make it impossible for those who have gone missing the assets in their virtual world to win their case.
Theft under the Bharatiya Nyaya Sanhita (BNS) (Section 303) is defined as dishonestly taking the property of another person, which is in some manner capable of being moved, by another person, which is a person from whom the property has been taken, or a person to whom the property has been entrusted. The concept of whether digital asset is a ‘moveable property’ or not remains unanswered by any court in India. There has never been a direct application to blockchain assets, although there are some situations where it may be applicable, such as with electricity as held in Avatar Singh v State of Punjab. If such ruling doesn’t occur, the charges for digital theft will be tenuous and technicalities could very well get accused individuals off the hook.
In theory, it is possible to bring a civil action for torts (wrongful acts) or unjust enrichment (unjustified enrichment) but these are difficult to pursue. It’s difficult to estimate the value of a volatile cryptocurrencies if it’s stolen and Indian civil courts are not capable of addressing such complex valuation issues, for now. Second, with blockchain transactions being anonymous, it is difficult to trace the thieves. The Prevention of Money Laundering Act 2002 is designed to assist with dealing with money from crime; it does not go so far as to seek to recover the property of the original owner.[8] In its revolutionary ruling regarding cryptocurrencies, the Supreme Court gave it the green light as a medium of exchange of values but left the details of who owns it and what it will mean in the field of law to future legislation.[9]
IV. To conclude and what steps do we need to take next?
In this article, it was contended that digital assets have the characteristics of property as per Indian law and the theft of such assets should be liable to financial punishment, just as in case of any other valuable asset stolen. The government’s treatment of virtual digital assets as taxable assets is a good indicator of this. The current laws, however, are a collage of laws enacted for the sake of older technologies, and don’t provide people who lost digital assets with speedy, reliable remedies. The 2023 report by the Law Commission acknowledged that there was a gap in the law, and recommended a new comprehensive piece of legislation.[10] Contingent on this, we feel that Parliament should enact a dedicated Digital Property and Liability Act having three aims. First, it needs to officially define digital assets as a definite category of moveable property, which would eliminate the confusion in civil and criminal cases. Second, it should create a legal avenue to sue the theft of digital property, where the value of the loss is equivalent to market value of the property at the time of the theft. Third, it should enable the order to be issued by the specific civil courts against blockchain addresses to track digital assets, in a manner adapted to the digital age of a traditional legal order.
Until such a law is passed, Indian courts should adopt a constitutional interpretation of existing property laws that would be consistent with the constitutional right to property and the fact that digital assets are already taxed. The other option, that there is a legal void in which more than 2 crore rupees in virtual asset transactions can go missing without any tangible remedy in an economy with more than 6 lakh crore rupees in virtual asset transactions in 2022-23, as estimated by the Reserve Bank of India, is simply unacceptable and unsustainable.[11]
Bibliography
Legislation
Finance Act, 2022 (Act 6 of 2022)
Income Tax Act, 1961 (Act 43 of 1961)
Bharatiya Nyaya Sanhita, 2023 (Act 45 of 2023)
Information Technology Act, 2000 (Act 21 of 2000)
Prevention of Money Laundering Act, 2002 (Act 15 of 2003)
Transfer of Property Act, 1882 (Act 4 of 1882)
Cases
Internet and Mobile Association of India v Reserve Bank of India (2020) 10 SCC 274
Ratan Tata v Union of India (2014) 8 SCC 410
Shreya Singhal v Union of India AIR 2015 SC 1523
Official Reports
Law Commission of India, ‘Report on Virtual Currencies’ (Report No 277, 2023)
Reserve Bank of India, ‘Report on Currency and Finance 2022-23’ (RBI, 2023)
[1]Transfer of Property Act, 1882 (Act 4 of 1882), s 6.
[2] Indian Penal Code, 1860 (Act 45 of 1860), s 378
[3] Information Technology Act, 2000 (Act 21 of 2000), s 43.
[4] Shreya Singhal v Union of India AIR 2015 SC 1523.
[5]Finance Act, 2022 (Act 6 of 2022), s 2(47A) (inserting definition of ‘virtual digital asset’ into the Income Tax Act, 1961).
[6]Income Tax Act, 1961 (Act 43 of 1961), s 115BBH
[7]Ratan Tata v Union of India (2014) 8 SCC 410 (discussing constitutional protection of property)
[8] Prevention of Money Laundering Act, 2002 (Act 15 of 2003)
[9]Internet and Mobile Association of India v Reserve Bank of India (2020) 10 SCC 274
[10]Law Commission of India, ‘Report on Virtual Currencies’ (Report No 277, 2023)
[11]Reserve Bank of India, ‘Report on Currency and Finance 2022-23’ (RBI, 2023)
