A lawyer has filed a public interest litigation (PIL) with the Mumbai High Court, seeking instructions for the Union of India to formulate a comprehensive mechanism to rectify the risks involved in the largely unregulated cryptocurrency market in India. , including appropriate legislation and guidelines.
The petitioner, a practicing advocate and cryptocurrency investor, says he is aggrieved by the government's indifferent approach to regulating the cryptocurrency business that has proven detrimental to investors' rights, even after the Supreme Court ruling. on Mobile Internet Association vs. Reserve Bank of India (2020). In the Internet Mobile Association case, the high court annulled the RBI Circular imposing a complete ban on cryptocurrency trading by regulated financial institutions, on grounds of 'proportionality' and violation of rights under Article 19 (g) .
The petitioner has turned to the High Court to issue instructions to the defendant state to formulate laws / regulations governing the use of cryptocurrencies in India, prepare a robust mechanism to monitor international cryptocurrency transactions, supervise the registration of cryptocurrency exchange platforms, institute adequate claim redress. mechanism against trading platforms, and the implementation of an infallible tax scheme for such transactions.
The petitioner blames the government for the lack of initiative in the formulation of comprehensive legislation for the regulation of cryptocurrencies after the Supreme Court's ruling in 2020. Due to the absence of legislative intervention, unregulated cryptocurrency trading in the Via drug trafficking, terrorist financing, money laundering and other illegal activities are on the rise. The lack of clarity on taxes on cryptocurrency trading has resulted in huge cash losses, the petitioner says.
The petitioner claims that cryptocurrency investment has reached the threshold of $ 6.6 billion and will only increase further. Information on the number of online platforms providing cryptocurrency exchange services is not available even when the number of investors is increasing. Union of India, subordinate ministries and departments, and banking regulators are unaware of the vastness of the crypto technology market and startups in India today, the petition states.
There is no central authority to manage or control the value of cryptocurrencies, unlike normal currencies. The absence of laws / regulators in the crypto trading arena could result in a scam of the magnitude of the 2013 NSEL Case, the petition notes. The petitioner has also attached a cryptocurrency analytical study to the petition.
The petitioner draws on his personal experience with online cryptocurrency platforms to elucidate the need to protect the broader interests of Indian citizens who invest in virtual currencies.
The petitioner alleges that the cryptocurrency trading website 'Buyucoin' has committed fraud on him. According to him, the website only approves crypto transactions of a smaller number of coins from the Buyucoin wallet to maximize its flat transaction income and exchange fees from each of those processes. When the petitioner attempted to withdraw a substantial number of 'Doge' coins at a time from his wallet when the market value of said coin was at an all-time high, the transaction got stuck at the gateway and the platform itself illegally voided it. Furthermore, it alleges that Buyucoin illegally withheld its investments until the market was no longer favorable, despite repeated assurances that Buyucoin's support staff and officials had taken to solving the problem. The coins were later returned to his wallet, but holding onto the coins, without prior notice of the suspension of services, has caused him huge losses, says the defender.
According to the petitioner, when the deficiency in the services and the evasive attitude of the support staff were reported, the accused website transferred the blame to the petitioner's defender, stating that he had already accepted the website's 'Terms and Conditions'.
The petitioner contends that Buyucoin has indulged in unfair business practices by forcing its clients to make small transactions and denying approval to larger transactions. The petitioner claims that he has not implemented the website as a defendant / approached the consumer commission to obtain the compensation to which he is entitled.
The only underlying intention, according to the petitioner, is to make the surveyed authorities included in the definition of 'State' take note of the illegalities in the cryptocurrency trade and take the necessary measures for its strict regulation. He also mentions that the representation he made to the defendant authorities in which these issues were outlined has not been responded to.
In the case of the Internet Association, RBI has referred to some practical difficulties in regulating cryptocurrency markets, namely i) Lack of a structured mechanism to handle customer complaints, ii) its immense potential for be used for illegal activities due to the pseudo anonymity / anonymity offered, iii) ineffective KYC rules as the anonymity of VCs cannot be remedied, iv) Cross-border nature of VC trading and lack of liability
The Petition notes that the Reserve Bank of India has repeatedly warned virtual currency users and traders of the risks involved through public notices in 2013 and 2017. The petition also notes that the regulatory authority was well aware of the risks involved. risks involved in cryptocurrency transactions. if it is allowed to continue without any legal restrictions in place. Even then, beyond cautionary warnings, RBI has avoided issuing conclusive rules to regulate the crypto market, the petition says. After the SC ruling overturned the ban on virtual currencies (VC), the 2021 RBI circular to apply customer due diligence will not protect the interests of crypto investors, the petition is made by comparing the market with the platforms of NSE and BSE trading supervised by RBI.
"It is a widespread practice among these crypto exchanges to restrict services when the market price of the coins is high in order to benefit from price arbitrage using the coins on the clients' account for themselves and then restore the service when the price has dropped. ", The petition lists the bad practices that investor clients face.
The petition also compares the 'Terms and Conditions' of popular cryptocurrency exchanges to try to establish that the business is carried out according to the whims and fancies of each website due to the lack of regulations.
"Said terms of the agreement fall under the meaning of the Click-Wrap agreements that request consent through the buttons 'I accept' or 'I do not agree' ... In several of the cases, these electronic contracts agreed by the user they are often unilateral more advantage for e-commerce websites without any control. It is established by law that unilateral terms constitute an unfair commercial practice according to the Consumer Law. "
The petitioner also suggests that adopting a structure similar to that of equity trading can help investors and the government to track crypto transactions and their legality. The defense petitioner also comments on the loss of income on cryptocurrency exchanges worth millions due to lack of clarity in the Income Tax Law or the Goods and Services Tax Law. Anyone who benefits from crypto transactions will only pay taxes once the original money is transferred to the respective bank accounts. According to the general principle, these transactions can be taxed based on the purpose for which they are used to report the gains and losses on the Income Tax Return.
Regarding illicit activities perpetrated in the form of fraud, as well as drug financing and terrorism, the petitioner says:
"While it is easy to launch a trading platform and receive money from clients in exchange for cryptocurrencies, there is no guarantee that the amount paid to the exchange platform to acquire cryptocurrencies is actually purchased on behalf of the user or is just wishful thinking to divert money . "
The petitioner fears that uncontrolled and unregulated transactions that leave no trace facilitate embezzlement and money laundering. Due to the anonymity of the transactions and a network of shell companies, it is almost impossible to include such transactions within the scope of the Prevention of Money Laundering Act, although the non-recording of the transactions violates Section 12 of the PMLA.
The petition also references a news report on the cruise drug case, which says NCB suspected that the recovered drugs were brought in from the 'dark web' using cryptocurrency.
Even as India has the largest number of cryptocurrency investors in the world, the country has not enacted any legal provisions to regulate cryptocurrency trading, unlike other prominent countries, says the petitioner's defender.
