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In a first, a Delhi Court ordered an investigation into a Crypto-currency fraud by an intermediary.The Tis Hazari District Court on Thursday, disposed of an application u/s 156(3) Cr.P.C. on behalf of the complainant who had prayed for giving directions to the police for registration of FIR and commencement of investigation, into the offence of Cheating alleged to have been committed by the accused.

According to the facts of the present case, the complainant was employed with one "SMC group" which is Global Securities financial service provider in India as a Quantitative Researcher, wherein his job portfolio required him to trade in alternative international markets, and lead a new desk with developing strategies in future and options. He also dealt in sale and purchase of bitcoins and always took a proof of identity before entering into any trade transactions. He also paid taxes on the gains that he made in such trade.

The complainant further stated, that on multiple occasions, the accused purchased bitcoins from the complainant. It is stated that the accused used to transfer funds to the bank account of the complainant, in return of which, the complainant used to transfer bitcoin into the accused's virtual wallet/ address on the online transaction portal “Binance”.

Court noted that 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.

"Even in the absence of any specific law regulating or banning, or monopolising cryptocurrency, only legitimate trade in the same, through legitimate intermediaries, may aspire for protection of Article 19 (i)(g) of the Constitution of India. Therefore, the aforementioned aspects have to be investigated in detail, and any negligence or complicity of the online VC transaction portal “BINANCE” in perpetration of hiding the proceeds of crime, and in the funding of any illegal activities through cryptocurrency has to be inquired into," the MM, Tis Hazari noted.

Factual Matrix:

The complainant submitted before the Bench that on July 5, 2020, he was informed that his bank accounts have been frozen, and his transaction in bitcoins were marked as illegal transactions. Thereafter, he   confronted the accused regarding the fact that source/ legality of money paid by the accused against the bitcoins, upon which the accused admitted that these payments were a 'scam', and that the accused also refused to return the bitcoins transferred to him by the complainant. Hence the present complaint.

The Bench of MM Abhinav Pandey, relied on Hon’ble Supreme Court’s Judgment in the case of Internet and Mobile Association Vs. U.O. I (dated 04.03.2020) and Lalita Devi Vs. State of U.P., 2007 and observed that,

“The Supreme Court has not adjudicated upon the legality of the virtual currency, and there is no specific legislation too, as on date, specifically dealing with the legality and regulation of cryptocurrency.”

He further observed that, “the Hon’ble Court has acknowledged the fact that many institutions are accepting virtual currency as valid payment for the purchase of goods and services, and therefore, there is no escape from the conclusion that the users and traders of VCs carry on an activity that falls squarely within the purview of RBI.”

It must be noted that, Court had sought an Action taken report from the police. The investigation officer submitted that the complainant has received the amounts from different accounts, and has been a beneficiary in the said transactions.

It is further stated by the IO that,
“out of the total sum of money paid by the accused to the complainant, against purchase of bitcoins, Rs. 6 Lakhs were credited from the account of a person residing at Nagpur, and she has got an FIR registered u/s 66 C and 67 of the Information & Technology Act, 2000 at PS Sitabardi, Nagpur, Maharashtra, for alleged commission of cyber offences/ cyber fraud. Similarly, out of the total sum, Rs. 3,00,000/- were credited into the account of the complainant, from the account of a person residing at Telangana, who has similarly got an FIR registered for commission of cyber fraud at PS Cyber Crime, Cyberabad Commissionerate, Telangana.”

To this the Bench observed that, “it is quite possible that apart from being involved in the aforesaid cyber offences, the accused may have hid the factum of illegality of money from the complainant, thereby inducing him to deliver bitcoins in exchange of money, while being aware of the fact that it may, sooner or later come under the radar of the banking system, and so it is better to get rid of the same, purchase bitcoins and multiply/ mix transactions to hide its source, and to encash it from ‘safe haven’ countries, where there is absence or lack of regulations.”

The learned counsel for the complainant Advocates Bharat Chugh & Sai Krishna Kumar relied primarily on the Judgment of Surender Kaushik, Babubhai Vs. State of Gujarat and Vinubhai Haribhai Vs. State of Gujarat in order to press upon the need for an FIR in light of the present facts as the Complainant was defrauded while being considered a part of a dubious transaction.

It was further submitted that since the complainant and his office are situated at Moti Nagar, Delhi from where all those transactions have been made, therefore, this Court had jurisdiction to entertain the present complaint u/s 200 Cr.P.C. alongwith the present application u/s 156(3) Cr.P.C.

Counsel further asserted that,

“As per the legal position as on today, dealing in bitcoins and other crypto currency is absolutely legal, and therefore, the complainant was carrying out a legitimate trade and profession, in the exercise of his fundamental right under Article 19(1)(g) of the Constitution of India, in course of which, he has been cheated by the accused, as he did not disclose to the complainant that the money transferred into his account did not belong to him, or came from dubious sources, and thereby induced the complainant to part with his bitcoins, in return of transfer of money into the accounts of the complainant, which ultimately got freezed, thereby ultimately depriving the complainant of his bitcoins, as well as his hard earned money.”

He also stated that in the absence of “Banning of Cryptocurrency and Regulation of Official Digital Currency Bill, 2019” being passed, there is no restriction on dealing in cryptocurrency, and the complainant himself, has not been at fault, and had a legitimate expectation of enjoying the fruits of a legitimate profession being carried out by him, as a reward for the business risk taken by him.

Court's observations:

Taking into account the factual matrix of the present case the Bench observed that 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.

“The RBI circular dated 06.04.2018 has been set aside by the Hon'ble Supreme Court only upon the ground of unreasonableness of restrictions imported upon the exercise of freedom guaranteed under Article 19 (i)(g) of the Constitution of India”
- Observed the Bench.

It must be noted that, the transactions in cryptocurrency still have to comply with the general law in force in India including PMLA, IPC, FERA, NDPS Act, Tax laws, and with the RBI regulations regarding KYC (know your customer), CFT (Combating of funding of terrorism) and AML (Anti-money laundering requirements).

The traceability of bitcoin transactions on the transaction portal “BINANCE” may even be managed through the Blockchain Analysis, but establishing their connection with the malicious actors is a complex issue, in case the transaction intermediary is not adhering to the KYC norms.

The Bench noted that there is a need for investigation by the police, as the investigation may be extremely technical, and true facts have to be necessarily brought before this Court. Also, registration of FIR does not mean that the accused is to be automatically arrested, and the concerned provisions of Cr.P.C., and directions of Hon'ble Supreme Court and Hon'ble High Court of Delhi have to be adhered to in this regard.

‘In case, apart from the aforesaid offences under the Indian Penal Code, the offences under the Prevention of Money Laundering Act, 2002 or under the Foreign Exchange Management Act,1999 are found to be made out, the police is at liberty to inform the concerned specialized agencies.”
- directed the bench.

On the culpability of accused the Bench observed that, “the screenshots of the conversation with the accused on Whatsapp, annexed by the complainant in his complaint, prima facie imply knowledge of the accused regarding the source of money. The accused in the present case, is also the accused in the two cybercrime FIRs registered at Telangana and Nagpur, as discussed above.”

Lastly the Bench noted that, “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. The complainant went ahead in accepting money from different accounts, which may not have been a mere lack of caution or due diligence.”

The Magistrate, directed to immediately lodge an FIR under the appropriate provisions of Indian Penal Code and to send compliance report to this Court, within 2 days from 1^st July, 2021.

The matter will be taken up next on 6^th August, 2021 to know the status of investigation.

Counsel for Complainant:  Advocate Bharat Chugh &  Sai Krishna Kumar, Senior Associate, Atharva Legal LLP

[Case Title: Hitesh Bhatia Vs. Mr. Kumar Vivekanand]