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Lex Witness in association with The Trade & Regulatory Compliance Practice Desk at Saikrishna & Associates brings to you a detailed analysis on select updates and notifications
The Department of Revenue (“DoR”) in the Ministry of Finance issued a notification on 7th March 2023, bringing specific activities related to virtual digital assets (“VDA”) under the purview of the Prevention of Money Laundering Act, 2002 (“PMLA”).
For the purposes of this notification, the term ‘VDA’ has the same meaning as given to it under the Income Tax Act, 1961 (“Income Tax Act”) i.e. “any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically.” This definition includes within its ambit a non-fungible token and any other digital assets as may be notified by the Central Government.
As per the DoR notification, the following activities will be subject to the provisions of the PMLA, when such activities are carried out in the course of business, for or on behalf of another person, including a legal person:
With the VDAs being brought under the purview of the PMLA, any person engaged in trade of VDAs and related financial activities as listed in DoR’s notification, will fall within the definition of “person carrying on designated business or profession” and in turn would be considered a “reporting entity” (“RE”). The obligations of an RE under the PMLA include, inter alia, verification of identity of its clients and beneficial owner, maintenance of records, and furnishing information related to such transactions to the Director, Financial Intelligence Unit-India.
The Indian Government has gradually been taking steps towards regulation of VDAs in the country. In 2022, the Government had introduced a tax on gains and income derived from VDAs.
Bringing VDA related activities within the purview of the PMLA is yet another significant step taken by the Government towards regulating the VDA sector in India.
Having said the above, the wording used in the DoR notification is too broad and comes with its own set of potential challenges. The immediate implementation of the notification may potentially bring operational challenges for exchanges and other stakeholders of the VDA sector to ensure compliance with the notification. Although the inclusion of VDA related activities within the purview of PMLA is being seen as positive step by stakeholders and crypto enthusiasts, it would be essential to get clarity on the specific compliances required.
On 30th January 2023, the Telecom Regulatory Authority of India (“TRAI”) released the Consultation Paper on Regulating Converged Digital Technologies and Services – Enabling Convergence of Carriage of Broadcasting and Telecommunication Services (“CP’”) inviting public consultation on the same.
TRAI issued the CP to discuss concerns pertaining to the convergence of the telecommunication and broadcasting sector due to technological advancements. It specifically highlights that the difference in policy structure and regulatory framework for the regulation of telecommunication and broadcasting sectors is causing governance challenges, such as the requirement to obtain multiple licenses for the same technology, regulatory ambiguity with respect to the outcomes of converged technologies, and demarcated administration of the converged digital services. The CP has also touched upon the overlap among the telecommunication, broadcasting, and IT sectors.
The CP is divided into four chapters. The first chapter provides context for the need to regulate converged technologies. Chapter 2 provides the broad legal and regulatory framework for providing telecommunication and broadcasting services and the potential ways for restructuring the legal and regulatory framework to regulate such converged technologies. Further, chapter 3 deals with the issue relating to the establishment of a unified policy framework and spectrum management mechanism for broadcasting and telecommunication services. Chapter 4 of the CP discusses the developments that have taken place in different jurisdictions to bring about convergence in the telecom and broadcasting sectors, one such development being the convergence of regulatory authorities into a unified authority to govern the two sectors.
The CP demonstrates the prevailing discrepancies among the IT, telecommunication, and broadcasting sectors at statutory, licensing, regulatory, and administrative levels.
The CP while addressing the issue of convergence between the telecommunication and broadcasting sectors notes that to provide channels through IPTV, the licensees need to obtain Internet Service authorization granted under DoT’s Unified License, however, the content itself is regulated by MIB under the Cable Television Network (Regulation) Act, 1995 (“Cable Network Act”) and its Allied Rules. The CP suggests that instead of granting different licenses/permissions for broadcasting, the carriage part (as governed by the DoT), and content regulation (as governed by MIB), such activities can be made available as authorizations under a unified license through a modified converged Act.
The CP also recommends developing a single code for governing all communication services such as – traditional telecommunication services, broadcasting and TV services, IPbased communication services, OTT/ Broadcasting services, Machine to Machine (“M2M”) communication services, and AR & VR communications. According to the CP, this converged code should govern the development, establishment, operation, and expansion of communication services, communication infrastructure, and for matters connected and incidental thereto. The CP observed that the convergence of these services at the statutory and administrative levels will help in the implementation of ease of doing business.
In the following chapter, the CP defines “telco cloudification” which refers to network functions being virtualized and optimized to be hosted in edge data centers. It states that this convergence of network and cloud computing will affect the manner in which telecommunication and broadcasting services are deployed. In this context, service delivery will be contingent upon the infrastructure deployed by both TSPs and Information Technology Enable Service (“ITeS”) providers. It further notes that in certain scenarios, ITeS providers and TSPs may not be two different entities. This would create serious challenges in achieving performance objectives or other regulatory provisions that are already in effect for telecom/ broadcasting users. Consequently, the CP concludes that it is necessary to view convergence not only from a telecom and broadcasting perspective but in a holistic manner which would include both ITeS and the space sector.
The issues on which the CP sought comments included, inter alia, any suggested alternative licensing and administrative framework/architecture/ establishment that facilitates the growth of telecom and broadcasting sectors while handling challenges being posed by convergence; whether there should be a separate comprehensive code to regulate the carriage of broadcasting and telecommunication services; whether issues of convergence (licensing, legal, and regulatory framework) should be addressed more holistically (which would include both ITeS and the space sector), etc.
In lieu of converging technologies, TRAI recommends introducing a unified code for regulating services related to telecommunication, broadcasting, and ITeS. It states that multiple administrative authorities and ministries for the same converged technologies pose governance challenges. Although the CP does not seek to receive comments on OTT regulation, it frequently alludes to governing such OTT-based services through a common code (which includes regulation of both telecom and broadcasting sectors).
The CP suggests regulating OTT technologies along with TSPs and broadcasting players considering that OTT-based technologies provide overlapping functions.
However, it disregards the fact that TSPs and OTTs function in different layers (with OTT services operating in the “Application Layer” which in turn utilizes the “Network Layer” of TSPs). Therefore, OTT service providers depend on TSPs to provide their services and consequently, should not be subjected to the same regulation as TSPs, especially on the basis of the similarity in the use case. The position taken by TRAI in its CP is opposite to TRAI’s previous position where it recommended against regulation of OTT services, specifically noting that there is no requirement for regulation. It recognized the exponential growth of data traffic and service providers and it further recommended allowing market forces to respond to the situation concerning OTT regulation without prescribing any regulatory intervention.
On 9th November 2022, the Ministry of Information & Broadcasting (“MIB”) issued the “Guidelines for Uplinking and Downlinking of Television Channels in India, 2022” (“Guidelines”). The Guidelines stated that private broadcasters may undertake public service broadcasting for 30 minutes every day. Accordingly, on 30th January 2023 the MIB has issued an “Advisory” outlining the manner in which private broadcasters may undertake the public service broadcasting through voluntary compliance and self-certification. The advisory further states that private satellite TV Channels are advised to report public service broadcasting in the manner prescribed with effect from 1st March 2023.
Themes: The themes for public service broadcasting include the following, namely
These themes are indicative and may be expanded to include similar subjects of national importance and social relevance such as water conservation, disaster management, etc.
Content: Broadcasters have the liberty to modulate their content. The relevant content embedded in the programmes may be accounted for public service broadcasting as long as it carried out in a manner that the overall objective of the public service broadcasting is achieved. The content can be shared between the Broadcasters and could be repeat telecast on one several TV channels and a common e-Platform can be developed as a repository of relevant videos or textual content from various sources for the purpose of public service broadcasting, which may be accessed and used by TV Channels.
Timing: The content need not be of 30 minutes at a stretch and could be over smaller time slots. On a monthly basis, the content must be broadcast for a total of 15 hours. Any transmission of the content from 12:00 AM to 6:00 AM shall not be considered under public service broadcasting.
Compliance: Broadcasters shall submit a monthly report on the Broadcast Seva Portal and include a compliance certificate in its Annual Report. The reporting compliance as per the advisory would be following the principles of voluntary compliance and self-certification.
Exemptions: Foreign channels, downlinking in India (in languages other than those specified under the 8th schedule of the Constitution) are exempt from the obligation of public service broadcasting. Further, channels broadcasting more than 12 hours of content relating to sports and devotional spiritual yoga content are exempt from furnishing monthly reports.
Reporting: The Broadcaster shall keep the record of the content telecast for a period of 90 days.
The Guidelines state that the airwaves/frequencies are public property and need to be used in the “best interest of the society”. However, the Guidelines do not consider that the broadcast of content on themes of national importance and social relevance by private broadcasters would negatively impact their commercial interests as they will have to incur hefty costs for producing and airing such content. The Guidelines do not make any provision for subsidising the cost of producing and airing content on themes of national importance and social relevance for private broadcasters. Furthermore, the Guidelines ought to have exempted private news channels from undertaking public service broadcasting and the associated compliances as they already broadcast and produce content in line with the themes of national interest and social relevance. Although the Guidelines rely on voluntary compliance and self-certification for implementation of public service broadcasting of content on themes of national importance and social relevance, the MIB retains the power to “issue general advisory to the channels for telecast of content in national interest” which will have to be mandatorily complied with.
On 10th March 2023, the Union Minister of State for Skill Development and Entrepreneurship and Electronics and Information Technology held public consultations with stakeholders on the architecture and framework of the proposed “Digital India Act 2023” (“DIA”) which is expected to replace the Information Technology Act, 2000 (“IT Act”). The Hon’ble Minister gave a presentation outlining the principles of the proposed DIA to the concerned stakeholders and subsequently published the same on the website of Ministry of Electronics and Information Technology (“MeitY”). Broadly, the proposed DIA is likely to adopt a ‘principles & rule-based approach’ and less prescriptive to rapidly create, modify, and enforce regulations. A principle-based regime, under the proposed DIA would provide a legislative framework to be governed by certain principles and effective measures would be prescribed for securing compliance with the ever-evolving rule of law.
The Hon’ble Minister outlined, in his presentation, the following lacunae in the extant law necessitating the introduction of the proposed DIA, namely:
Limitations of the IT Act: The IT Act lacks comprehensive provisions on user rights, trust & safety, emerging technology, high risk automateddecision decision making systems, a converged, coordinated & harmonized institutional regulatory body apart from having inadequate principles for data / privacy protection, etc. Lastly, the IT Act recognises harms and new forms of cybercrimes only to a limited extent.
Challenges in the cyberspace: Multiple types of intermediaries have emerged in new age sectors such eCommerce, digital media, social media, AI, OTT, gaming etc. post the enactment of the IT Act and the same are inadequately regulated under the extant regime. Additionally, the proliferation of the internet has spawned new complex forms of user harms such as catfishing, cyber stalking, online gaslighting, etc. apart from a proliferation of hate speech, misinformation, and fake news which need to be adequately addressed through legislative measures.
The Hon’ble Minister outlined the following features of the proposed DIA in his presentation before the stakeholders:
Principles governing DIA: The proposed DIA should evolve through rules that can be updated, and address the tenets of Digital India, such open internet, online safety and trust, accountability and quality of service, and new technologies. It will be modelled on global standard cyber laws in order to accelerate the growth of innovation and technology ecosystem and manage the complexities of the internet and rapid expansion of the types of intermediaries, thereby accelerating digitalization of Government, protecting citizens’ rights, addressing emerging technologies and risks and be future-proof and futureready.
Open Internet: The proposed DIA seeks to ensure an “open internet” consisting of choice, competition, online diversity, fair market access and ensures ease of doing business as its core tenets.
Safeguard Innovation: The proposed DIA seeks to safeguard innovation to enable emerging technologies like AI/ ML, Web 3.0.
Prevent anti-competitive practices: The proposed DIA should be able to ensure adherence to fair trade practices, prevent concentration of market power, regulate dominant Ad-tech platforms, app stores etc. However, there is also a recognition to amend the Competition Act, 2002 to address some of the above stated concerns.
Promote startups: The proposed DIA seeks to ensure that start-ups are promoted via non-discriminatory discriminatory access to digital services and interoperable platforms.
Digital governance: Ease of access to government, public utility services and delivery of public services through online and transparent platforms has also been proposed.
Curbing online specific harms and moderation of fake news: The proposed DIA seeks to curb online specific harms such as revenge porn, doxing, cyberbullying, cyber flashing, etc. and weaponization of disinformation in the name of free speech. It also seeks to critically examine the discretionary moderation of fake news by social media rights based on the constitutional right of freedom of speech and expression.
Ensuring safety and privacy of children: The proposed DIA seeks to ensure safety and privacy of children through age-gating through regulation of addictive tech and protection of minors’ data, prohibition on tracking of children as data subjects for ad targeting, etc.
Digital User Rights: The proposed DIA seeks to provide various digital user rights such as right to be forgotten, right to secured electronic means, right to redressal, right to digital inheritance, right against discrimination, rights against automated decision making, etc.
Safe and Secure Cyberspace: The proposed DIA seeks to empower agencies like CERT-In for cyber resilience apart from strengthening the penalty framework for non-compliance and issuing advisories on the information & data security practices, etc.
Regulation of Intermediaries: The proposed DIA is likely to introduce a new regime for intermediaries by categorizing them under different kinds based on their functionality and provide for differentiated obligations. It also seeks to generate a public debate on whether there should be a “safe harbour” for intermediaries or not. There are going to be obligations on “significant digital operators” through classification/ mandates. There would be disclosure norms for data collected by data intermediaries collecting data above a certain threshold along with standards for ownership of anonymized personal data collected by data intermediaries. Lastly, there will be accountability for not upholding Constitutional rights of the citizens, especially rights pertaining to equality before law (Article 14), protection of rights regarding freedom of speech, practicing any profession, trade etc. (Article 19) and protection of life and personal liberty (Article 21).
Algorithmic Transparency and regulation of Artificial Intelligence (“AI”): The proposed DIA may also require that Digital Entities will have to ensure algorithmic transparency and undergo periodic risk assessments. Hi-risk AI systems will be defined and regulated through legal, institutional quality testing framework, algorithmic accountability, vulnerability assessment, provision of deterrent, effective, proportionate, and dissuasive penalties, etc.
Governance and Adjudicatory Architecture: A responsive governance and adjudicatory architecture will be setup through a dedicated “inquiry agency” and a specialised “dispute resolution/adjudication framework” which would include an adjudicatory and appellate mechanisms for holding digital operators accountable. Such an adjudicatory mechanism for online civil and criminal offences should be easily accessible, deliver timely remedies to citizens, resolve cyber disputes, develop a unified cyber jurisprudence and enforce the rule of law online.
Responsible and Ethical Use of Online Technologies: The proposed DIA may require that privacy invasive devices such as spy camera glasses, wearable tech, etc. should be mandated under stringent regulation before market entry with strict KYC requirements for retail sales with appropriate criminal law sanctions.
Pre-Legislative Consultation Process: MeitY will first undertake a comparative study of all relevant global laws pertaining to internet and technology to draft the Draft Digital India Bill. Subsequently, it will hold public consultation with stakeholders to finalise the Draft Bill and then draft a cabinet note for seeking cabinet approval to introduce the finalised DIA in Parliament.
We welcome the public consultations being held under the aegis of MeitY even before the proposed DIA has been drafted. The presentation made by the Hon’ble Minister seems to be the first step in engaging various stakeholders in broad based consultations on the proposed DIA. This is a laudable initiative to generate public inputs on a law that is likely to govern the burgeoning digital sector in India.
The proposed DIA seeks to penalise online specific user harms like doxing, cyberbullying, cyber flashing, gaslighting, etc. Consequently, the proposed DIA will have to ensure that it provides reasonable standards to define guilt under these sections. Any provisions under the proposed DIA which are completely open ended, vague and undefined are likely to be open to challenge before courts.
The platform specific regulation of different types of intermediaries will also have to be carefully assessed and should ideally be modelled on a risk-based approach wherein regulation imposed on the relevant intermediaries is based on factors such as number of users, functionality of the platform, ability to cause harm to its users, etc. For e.g., enterprise software providers such as cloud service providers should not be subjected to the same set of regulations as that of significant social media intermediaries.
The proposed DIA does not provide any guidance with respect to its conflict or overlap with other laws and sectoral regulations. For e.g. The Draft Digital Personal Data Protection Bill 2022 mandates Data Fiduciaries to not undertake any processing of personal data that is likely to cause harm to a children addition to not undertake tracking or behavioural monitoring or targeted advertising directed at children. Similarly, the proposed DIA also talks about the need for imposing a prohibition on tracking of children as data subjects for ad targeting, etc. Although, it is trite law that provisions of new legislation will prevail over that of the extant law, it is recommended that in order to ensure regulatory clarity, the MeitY should clearly specify as to whether the provisions of the proposed DIA and rules/regulations made thereunder will prevail or override other laws or regulations currently in force.
The proposed DIA talks about the need to establish a specialised dispute resolution/adjudication framework which would include an adjudicatory and appellate mechanisms for holding digital operators accountable. It is worth noting that any such adjudicatory mechanism for dispute resolution, established under the DIA, must conform with the standards set by the Supreme Court where in the members of the tribunals discharging judicial functions could only be drawn from sources possessed of expertise in law, and competent to discharge judicial functions. Accordingly, the committee to appoint members of adjudicatory and appellate mechanism would have to include judicial members as well.
Lastly, the proposed DIA seeks to provide standards for ownership of anonymized personal data collected by data intermediaries. However, there should be no mandate for mandatory sharing of such anonymized personal data with the Government of India. In compliance with their requirements under extant laws, business enterprises share business confidential information, including information related to registrations under various acts, information sought through notices, etc. with relevant Government agencies. In view of the same, it would be important to ensure that that such proprietary data is not released in the public domain by Government departments/ministries/ agencies, in pursuance of any mandate under the proposed DIA.
The Uttar Pradesh (“UP”) Government has, reportedly, notified the Electric Vehicle Manufacturing & Mobility Policy 2022 (“EV Policy”) with retrospective effect from 14th October 2022, thereby exempting EVs from road tax and registration fees if purchased in the first three years of the implementation of this policy. The definition of an Electronic Vehicle (“EV”) includes all automobiles that use an electric motor driven either by batteries, ultra-capacitors, or fuel cells. It explicitly includes within its scope the following types of EVs – 2-wheeler, 3-wheeler, and 4-wheeler Strong Electric Vehicles, Plug-in Hybrid Electric Vehicles, Battery Electric Vehicles, and Fuel Cell Electric Vehicle.
The EV Policy is notified with the aim to promote the adoption of EVs and clean mobility solutions in the state of UP. Further, the EV Policy seeks to make UP a preferred investment jurisdiction at a global level to develop the EV ecosystem. To achieve the above-stated goals, the EV Policy seeks to stimulate both the demand (by encouraging rapid transition in the transportation system) and supply side (by promoting the manufacturing ecosystem for EVs, EV components, EV batteries/fuel cells, etc.). The EV Policy also addresses the need to create adequate infrastructure to promote the EV ecosystem.
It identifies the creation of charging infrastructure, faster EV adoption, and manufacture of EV/battery as the three pillars of the promoting EV industry in UP. The Infrastructure and Industrial Development Department (“IIDD”) will act as the nodal department under this policy for building charging facilities and for manufacturing EVs and EV components. The Transport Department under the UP Government shall be responsible for promoting the adoption of EVs in the state. The Electric Vehicle Manufacturing and Mobility Policy released in August 2019 stands repealed with the notification of the EV Policy
The exemptions/subsidies offered under the EV Policy are as follows:
The initiatives undertaken to promote the creation of charging infrastructure, inter alia, include the development of charging infrastructure every 25 km along expressways/highways, metros stations, petrol pumps, government public parking spaces, shopping malls, etc. It shall also provide a single platform for facilitating and ensuring inter-departmental coordination for processing applications for necessary approvals/NOC/clearances.
The EV Policy aims to establish at least 20 charging stations and 5 swapping stations in each district during the policy period. Amongst other financial incentives, the EV Policy also provides the following fiscal incentives to service providers for the establishment of charging infrastructure:
The EV Policy seeks to introduce initiatives to promote faster transition and adoption of EVs in the state which, amongst other things, include the introduction of e-routes for e-buses to operate on identified routes, adoption of EVs as government vehicles (for official use) by 2030, encouraging government employees to purchase EVs through “Vehicle Advances” provided to them.
Further, to catalyze the adoption of EVs in the state, the EV policy also introduces financial incentives which include among other such incentives – exemption from the registration fees and road tax for all EVs registered and purchased in UP over a period of three years from the notification of the EV Policy. Additionally, the tax exemption will continue to operate on EVs in the 4th and 5th years if the EV was manufactured, purchased, and registered in UP.
The EV Policy further proposes initiatives to promote the manufacturing of EVs, EV batteries, charging equipment, and other related components in the state of UP. These initiatives include the promotion of EV clusters, the promotion of manufacturing of both EVs and EV batteries to reduce costs, the preparation of a land bank in consultation with IIDD for the potential investors in the EV industry in UP, etc.
The EV Policy also introduces fiscal incentives which include, inter alia, providing capital subsidy at the rate of 30% of eligible fixed capital investment subject to a maximum of INR 1000 crores per project over a period of 20 years in equal annual installment to the first two Integrated EV project and to the first two Ultra-Mega Battery project.
The EV Policy seeks to catalyze the adoption of EVs in the state of UP. Additionally, it introduces fiscal incentives which will further transform UP into a preferred jurisdiction for manufacturing EVs, EV batteries, and other related components. The initiatives sought to be introduced shall further promote ease of doing business in the state which will make UP an attractive investment destination for the EV ecosystem.
Ameet Datta is a Partner at Saikrishna & Associates. He is an IP litigator and TMT lawyer with over 22 years of experience and wide ranging expertise across IP Law, Technology law, privacy and data protection law, white collar crime cases around data breaches, and, media & entertainment law specifically in relation to licensing, content aggregation & acquisition, film & music production, distribution/ licensing, format rights, defamation and right of publicity. Ameet has extensive experience with the creative sector in terms of multiple litigations including licensing disputes before the Courts & the Copyright Board. Ameet is closely involved with Copyright laws, Technology regulations and policy matters. In 2010, Ameet appeared as an expert witness before the Indian Parliamentary Standing Committee overseeing amendments to the Copyright Act, 1957. Ameet has been highly ranked as a recommended lawyer for IP Litigation, and, telecoms, media & entertainment by Chambers & Partners (Asia Pacific), WTR1000; as a recommended lawyer for IP litigation by Legal 500, and recommended as an IP Star by MIP
Suvarna Mandal is a Partner at Saikrishna & Associates. She has nearly a decade of experience in providing trade & regulatory compliance advice to domestic and international clients for understanding and complying with a wide range of national, state as well as sector-specific legislations and regulations in the spheres of telecommunications, technology law, consumer law, environmental law, product compliance and safety regulations (including packaging standards, labels and safety standards), data protection and privacy, media law, advertising regulations, etc. She provides end-to-end compliance counselling to clients across various industries and sectors such as software services, consumer electronics, technology, telecom, media, intermediaries, e-commerce, online value-added services sectors, consumer goods and medical devices. Suvarna also works closely with clients’ Government Affairs team to prepare strategic policy documents, representations and formal communications towards policy development and policy reform efforts with the Government.
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