Cryptocurrency fraud: Delhi Court orders Police to lodge FIR on fraud allegations by Bitcoin seller [Read Order]

A Delhi court on Thursday directed the Moti Nagar Police to register a First Information Report (FIR) on the complaint of a Bitcoin seller after bank accounts to which funds were transferred by the accused for Bitcoin purchase were frozen and the transactions marked as illegal ( Hitesh Bhatia vs. Mr. Kumar Vivekanand ).

. Metropolitan Magistrate Abhinav Pandey ordered the investigation on a complaint by a person dealing with the sale and purchase of bitcoins through the online transaction portal “Binance”.

. The Court opined that there is a need to probe the alleged fraud committed by the accused, as well as whether there was any wrongdoing on the part of the complainant-seller as well as the intermediary through which the bitcoin sales were completed, i.e. Binance.

. The Judge noted that while cryptocurrency has not been prohibited in India as on today, such virtual currency transactions would still have to comply with general laws such as " PMLA, IPC, FERA, NDPS Act, Tax laws, and RBI regulations regarding KYC (know your customer), CFT (Combating of funding of terrorism) and AML (Anti-money laundering requirements).”

.The Cryptocurrency Judgment: A contrarian view . The Magistrate went on to observe that it is the responsibility of intermediaries such as Binance to safeguard against activities that make tracing of illegal proceeds difficult, and that any negligence or complicity of the intermediary has to be inquired into.

. “It is the responsibility of such an intermediary as “BINANCE” to ensure adequate safeguards against activities such as 'mixing', and other random cryptocurrency exchanges, which change the identity of bitcoins being held by a virtual wallet, making tracing of any illegal proceeds and any bitcoins, purchased through it, extremely difficult" , the order stated.

. The Court added the protection of Article 19 (1)(g) of the Constitution (right to practice trade, business, occupation, etc.) would only cover those engaging in legitimate trade through legitimate intermediaries.

. “ Opportunistic activities, aimed at exploiting the lack of legal regulation, with utter disregard to the identity of parties, sources and destination of funds, and illegal purposes e.g. terrorism, narcotics, illegal arms, cross-border illegal transactions for which it may be used, still do not enjoy any route for legal and regulatory escape", the Court said.

. The Magistrate expressed that the possibility of irregularities committed by the complainant or with his connivance or consent cannot be ruled out either.

. " There is a possibility that the complainant was unaware of these designs of the accused, and fell into his trap, thereby suffering wrongful loss. At the same time, it seems that the complainant has not disclosed the complete facts before this Court, and therefore, the possibility of his consent/ connivance in the entire gamut of activities, cannot be ruled out at this stage ", he observed.

. The court proceeded to hold that all of this " highlights the need for investigation by the police, more so, as the investigation may be extremely technical, and true facts have to be necessarily brought before this Court."

. Case background . In the instant case, the accused is stated to have purchased bitcoins from the complainant on several occasions and transferred funds into his bank account against the purchase. The Binance portal was used to complete these transactions.

. After the complainant’s bank accounts were frozen and his bitcoin transactions marked illegal, the accused admitted that the payments made to the complainant were part of a scam.

. The complainant alleged that the accused had cheated him and sought the court's intervention after no action was taken by the police in the matter. He urged the Court to issue directions to the police for the registration of a criminal case and thorough investigation, invoking powers under Section 156 (3), Code of Criminal Procedure (CrPC).

. The Investigation officer informed the court that the accused already had two cybercrime FIRs registered against them in Telangana and Nagpur and that no cause of action was made out for the initiation of an investigation in Delhi.

. The counsel for the complainant, advocate Bharat Chugh, however, asserted that since the complainant and his office were in Delhi, where the transactions were carried out, the investigation can be done by the Delhi Police.

. He submitted further that the complainant was exercising his fundamental rights under Article 19 (1)(g) of the Constitution while dealing in cryptocurrency. In the absence of any law prohibiting the same, bitcoin trade is absolutely legal as on today, he pointed out.

. He added that the complainant had always accepted payment through RTGS/IMPS and that misappropriation of proceeds was never his intention. In this regard, the complainant also informed the court that he always took proof of identity before entering trade transactions.

. Since cryptocurrency is not a Fiat currency, it does not come within the purview of the Reserve Bank of India Regulations, it was submitted further.

. The Court, however, noted that the complainant's insistence of Aadhar card as ID proof before conducting Bitcoin sales may not be sufficient to comply with KYC requirements. The Judge added that the intermediary would also have role to play in ensuring that such KYC requirements are complied with.

. " KYC is the responsibility of the intermediary, and cannot be left to the individuals, be it institutional transfer or person to person trade, with the intermediary shying away from the responsibility to ensure legitimacy of the source and destination of money, and establishment of the real identity of the parties ", the Court observed.

. While the Supreme Court in Internet and Mobile Association v. Union of India has set aside the RBI's ban on dealing with virtual currencies (on grounds of it being an unreasonable restriction on Article 19 (1)(g)), the Magistrate noted that the RBI has since directed all entities regulated by it to carry out customer due diligence in line with governing standards for KYC, AML and CFT.

.Cryptocurrency: RBI has the power to regulate virtual currency, but move to ban financial services from trading in it disproportionate, SC. As far as the jurisidction of the Delhi police was concerned, the court observed:

" On the basis of the facts mentioned in the complaint and the supporting documents, this Court is of the opinion that its jurisdiction is made out in view of the provisions of Section 179, 180 and 182 of Cr.P.C., and due to the absence of any material filed by the police to suggest to the contrary. "

. After ordering the police to file an FIR in the case within two days, the court adjourned the matter till August 6 for the police to report on the status of investigation.

. [Read Order]

Cryptocurrency fraud: Delhi Court orders Police to lodge FIR on fraud allegations by Bitcoin seller [Read Order]

Shagun Suryam

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