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PIL in Bombay HC over lack of grievance redressal mechanism by crypto exchanges

The unregulated but rapidly growing crypto market in India has led to scams of varying proportions.

We missed this earlier: A public interest litigation (PIL) before the Bombay High Court argues that the unregulated crypto business infringes on the rights of the investors as there is no grievance redressal mechanism established under law, according to a copy of the document reviewed by MediaNama. The PIL was filed by lawyer Aditya Pradip Kadam who has been a crypto investor since 2018. 

It alleges that the government and “its functionaries have failed to enact appropriate regulations to protect the interests of the citizens”. 

“There is an imminent threat of rise in the number of Money Laundering Cases, Illicit trade of Drugs, Terror Financing by trade of crypto currency which the Respondents (Indian government) have failed to curtail,” reads the PIL. 

It also adds that the exchequer of the country faced huge losses due to a lack of clarity on crypto taxation. The PIL was filed on October 25 and is yet to be listed for a hearing, according to the Times of India

The Indian government has announced on multiple occasions that a bill to regulate the crypto space is on the verge of being tabled before Parliament. A favourable judgement by the Bombay High Court may expedite the process and impose increased scrutiny on the same.

Prayers of the PIL

The petitioner expects the High Court to direct the Union government to undertake the following steps:

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  • Draft legislation to govern the use and trading of cryptocurrency within India. 
  • Develop a mechanism for monitoring international transactions conducted within the country by establishing a separate organisation or by bringing cryptocurrencies under the scope of previously-established governmental bodies. 
  • Regulate the registration of cryptocurrency exchange platforms in India. 
  • Create a grievance redressal mechanism for investors to hold registered trading platforms accountable. 
  • Formulate a model of taxation for all crypto transactions made within or outside India. 

What are the grounds on which the PIL argues its case?

The petitioner revealed that he wrote to the Indian government urging it to formulate a plan for cryptocurrency in September this year but received no response. 

No legislation after the Supreme Court order: The PIL alleges that the Supreme Court’s order only dealt with the legality of RBI’s notification barring financial institutions from dealing with crypto exchanges. The government’s failure to enact new legislation to regulate these exchanges caused “suffering among citizens as they were held at the whims of the trading platforms and without any redressal forum had to run pillar to post to address their concerns and being largely victimised by the malpractices of these platforms”.

Inaction by RBI: “RBI was aware of the risk involved in these kind of cryptocurrency dealings way back in 2013, but it is important to note that till date they have not formulated any scheme or rules to govern the trading in “Virtual Currency” which clearly shows the inaction by the Respondents,” read the PIL. 

No checks and balances against scams: The petitioner alleged that he was a victim of a scam by Buyucoin— a cryptocurrency trading website. He said that a withdrawal of more than 20,000 dogecoins from his wallet was declined by the exchange. The coins were credited to his wallet but withholding the coins incurred him huge losses as he was not able to take advantage of the market’s bull run. The PIL asserts that Buyucoin resorted to unfair trade practices by forcing its customers to make small transactions and denying approval to larger transactions. 

Terms and Conditions of crypto exchanges: The PIL said that “a perusal of the terms of crypto exchanges demonstrates how they conduct business as per their whims and wishes and absolve themselves of any responsibility towards the user due to lack of any mechanism or regulatory authority overseeing these activities”. They exploit the gullibility of the users and are seldom brought to the authorities’ attention due to the public’s lack of understanding of the law or any mechanism, it added.

Loss of revenue: The PIL noted that a lack of a clear policy on cryptocurrency is resulting in enormous losses totaling hundreds of crores of revenue in taxes to the government. It argued that it has led to a proliferation of money laundering schemes that exploit these vulnerabilities and the government would be better off if it were to come up with a clear policy on the taxation of cryptocurrencies.

Terror financing: “The primary concern is embezzlement and terror financing from both within and outside the country. There are numerous cryptocurrencies available at the moment that enable users to transmit money. throughout the world without leaving a trail of their transactions; therefore these unchecked and unregularised transactions pose a concern since any anti-social element may exploit this loophole to send money to activate their sympathisers within the nation,” the PIL alleged. 

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Crypto scams unearthed in India

The Notorious Hacker: The Karnataka Police apprehended a 25-year-old hacker from Bengaluru who was in possession of ₹9 crore worth of Bitcoins. The hacker reportedly hacked three Bitcoin exchanges and 10 poker websites and also confessed to hacking government e-procurement sites, ANI reported. According to the Times of India, the hacker was also involved in illicit drug trade and hawala operations through which he converted Indian currency into Bitcoins.

An Obscure Trading Platform: The Saket District Court in New Delhi is hearing a plea containing grievances of investors who invested in cryptocurrencies through an online trading platform called IQ Option. The platform allegedly has duped many customers in India by restricting withdrawals. The investors were promised returns of up to 900% on investments, even with a $1 minimum investment, the petition said.

3-Year Old Ponzi Scheme: Umesh Verma, a greetings card maker and jeweler was arrested in January this year at Indira Gandhi International Airport by the Economic Offences Wing of the Delhi Police for duping around 45 people of ₹2.5 crore through a crypto-currency scheme promising returns of 20-30%. Verma along with his son created an app called Pluto Exchange through which they sold a crypto-token or coin called ‘COIN ZARUS’ since 2017. Verma was arrested after investors complained that he had issued them post-dated cheques and constantly shifted his address to avoid the investors, according to an ANI report.

Fake Crypto-Coins: In October last year, the Karnataka Police announced that it was investigating three companies that duped over a million customers from across the country to invest in a crypto-token called ‘Morris Coin’. The police said that through three entities, investors were lured into investing ₹15,000 each and in return, they would receive gains of ₹270 per day for the next 300 days. The scamsters offered 10 Morris coins to investors after the 300-day lock-in period and if they got more people to invest in the token investors could receive commissions of up 40%, The New Indian Express reported.

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