Transactions in Cryptocurrency
There is no law regulating Cryptocurrency In India. In an interesting case the Chief Metropolitan Magistrate , Tis Hazari court vide its order dated 1.7.2021 in Hitesh Bhatia vs. Mr. Kumar Vivekanand bearing Case No. 3207/2020 has dealt with a matter involving money transactions in buying bitcoins whereby the bank account of the person who received the money was freezed, this led to a complaint before the CMM which resulted in a direction for registration of FIR in a complaint filed under section 200 CrPC and application under 156(3) CrpC.
Brief Facts of the case -Cryptocurrency In India
Brief Facts of the aforementioned case is that the The accused purchased Bitcoins from the complainant ,Mr Hitesh Bhatia, from a virtual wallet from an online portal namely Binance. Surprisingly on one occasion the account was frozen , the Accused although accepted that the money transferred was illegal being a scam, however the accused refused to return the bitcoins to the complainant , in such a scenario the complainant approached the SHO and thereafter DCP however no FIR was registered. Thereafter the Complainant approached the Ld Magistrates Court, Tiz Hazari , Delhi whereupon directions were issued to police to register an FIR and to investigate suspicious activities have been carried out by this portal called Binance.
Jurisdiction of Court-Cryptocurrency In India
In view of the provisions of Section 179, 180 and 182 of Cr.P.C the Magistrate Court has jurisdiction to try the matter and directions were passed in the matter.
Court Observations dealing with Cryptocurrency In India
The observations of the court also followed with a few guidelines which are essential to find out about the source of money and establishing the identity of parties .The investigation order was to see whether there was fraud on the part of the accused and whether the complainant has acted legally and also the position irregularity of the online portal Binance .The Hon’ble Court laid stress that such online currency transactions would be governed by the general laws of India namely PMLA, IPC, FERA ,, NDPS Act, existing tax laws and abide by RBI regulations of KYC(know your customer) CFT which is combating of funding of terrorism and AML (Anti- Money laundering requirements).
KYC is very much the responsibility of the intermediary which is Binance in this case to ensure the identity of the parties.
The Hon’ble Court observed that protection under Article 19 (i)(g) of the constitution of India i.e. the freedom to practice any profession, or to carry on any occupation, trade or business can be availed although there is no specific law regulating or banning, or monopolising cryptocurrency, only legitimate trade through legitimate intermediaries.
The Ld Magistrate also was of the view that it is important and significant to investigate if there is any negligence or complicity on the part of the online portal Binance so as to hide the proceeds of crime or to fund any illegal activities through cryptocurrency, etc. In such a scenario the Ld Magistrate Court has passed directions to the Police station concerned to investigate and register the complaint under the relevant provisions of the Indian Penal Code, 1860, PMLA and FEMA. Significantly the Court also held that the registration of FIR does not mean that the Accused is to be automatically arrested.
Whether complainant himself was acting legally?
Hon’ble Supreme Court in the case of Internet and Mobile Association vs. Reserve Bank of India vide Judgment dated 04.03.2020 set aside a 2018 RBI Circular however it did not deal with the legality of virtual currencies , the Hon’ble Supreme Court observed that access to banking is the equivalent of supply of oxygen in any modern economy, and the total denial of such access to the persons who carry on a trade that is not prohibited by law cannot be said to be a reasonable restriction, and is extremely disproportionate. The RBI issued another Circular titled as ‘Customer Due diligence for transactions in virtual currencies’ which was in a form of advisory to banks and financial institutions not to rely upon the Circular dated 06.04.2018 which was earlier set aside by the Hon’ble Supreme Court.
It has further directed all entities regulated by the RBI to carry out customer due diligence process in line with regulations governing standards for policies such as ‘Know Your Customer’ (‘KYC’), ‘Anti-Money Laundering’ (‘AML’) and ‘Combating the Financing of Terrorism’ (‘CFT’). The transactions in virtual currencies must also carry out the obligations under the Prevention of Money Laundering Act, 2002 (‘PMLA’) in addition to ensuring compliance with relevant provisions under the Foreign Exchange Management Act, 1999 (‘FEMA’) for overseas remittances.
Hence, the Magistrate Court held that the transactions in cryptocurrency still have to comply with the general law in force in India and the RBI regulations regarding KYC, AML and CFT. It is the responsibility of an intermediary i.e., Binance to ensure adequate safeguards against activities such as ‘mixing’ and other random cryptocurrency exchanges, which change the identity of Bitcoins being held in a virtual wallet. The traceability of Bitcoin transactions may even be managed through the Blockchain Analysis, but establishing their connection with the malicious actors is a complex issue, in case the intermediary is not adhering to the KYC norms.
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