By John Paul Alex 
The cryptocurrency regime in India has been gaining momentum over the past few years despite regulatory uncertainty and intense volatility. Reports have suggested that Indians have shifted from investing in gold to cryptocurrencies lately. The Covid-19 pandemic has popularised electronic contracts, which led to the increase in numerous cryptocurrency transactions. Furthermore, due to the lack of regulations in this domain, cybercrimes have substantially skyrocketed. The heavily unregulated cryptocurrency regime poses various transactional threats as it gains traction. Amid the chaos, the Indian judiciary, on multiple occasions, has taken a positive stance concerning virtual currency transactions.
In the case of Hitesh Bhatia v. Kumar Vivekanand, the Delhi Tiz Hazari Courts made extensive remarks about cryptocurrency transactions. Various laws prevalent in the Indian legal system were referred to in adjudging the issue at hand.
In a Circular (2018), the RBI forewarned the public about the perils of virtual currency dealings and gave orders to the banks and other financial institutions to stop facilitating virtual currency transactions, which include maintaining bank accounts, trading of cryptocurrencies, considering virtual currencies as collateral, etc.
However, this Circular was rendered unconstitutional by the Apex Court in the case of Internet and Mobile Association v. Union of India. In pursuance of this Judgment, the RBI issued a follow-up Circular titled ‘Customer Due diligence for transactions in virtual currencies,’ directing the banks to ignore the previous Circular of 2018 while advising the customers about the vulnerabilities of virtual currency transactions. This new Circular instructed banks and financial institutions to effectuate customer due diligence process based on the standards set by the RBI.
Furthermore, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, which aims to prohibit all private cryptocurrencies and establish a legal framework for introducing an “official digital currency,” is kept on hold as various deliberations are still in place.
In the case of Hitesh Bhatia, the complainant, a Quantitative Researcher by profession, had entered into various virtual currency transactions with the Accused, which involved the sale and purchase of Bitcoins. The complainant states that he took measures to ensure proof of identity and paid his taxes regularly. The complainant has alleged that he would deposit Bitcoins in the Accused’s virtual wallet (Binance) on receiving funds from the Accused in his bank account. Furthermore, the complainant claimed that his bank account froze since the Bitcoin transactions were flagged as illegal. The complainant allegedly questioned the Accused about the source of money, for which the Accused conceded that the payments were a ‘scam.’ It was contended by the complainant that he was cheated on since the Accused had refused to send back the Bitcoins.
In furtherance, the complainant approached the concerned Police authorities, and allegedly no action was taken. Hence, the complainant applied Section 153 (3) of the Code of Criminal Procedure (Cr.P.C.), praying the Court to order the Police authorities to register an FIR and initiate investigation. The Court directed the Police to draw up an Action-taken report to facilitate the investigation.
The Court took note of the financial activity in question. It evaluated the legality of the transaction entered into by the complainant. Relying on the Apex Court’s Judgment in Internet and Mobile Association v. Union of India, the Court observed no explicit prohibition on dealings in virtual currency as there were no explicit regulations.
In this regard, the Court’s decision is appropriate and tactful as it has shown its disinterest in arbitrarily prohibiting virtual currency transactions. The Court also dealt with constitutional aspects in the instant case. It shed light on the Right to Freedom guaranteed under Article 19(1)(g) of the Indian Constitution.
On recognition of virtual currencies as an acceptable payment option for purchasing goods and services, the Court brought the stakeholders dealing with virtual currencies within the ambit of RBI, thereby proving it to be a breakthrough in the growth of the virtual currency. This shows the intention of the Court to provide a green signal to virtual currency dealings and hints at establishing a regulatory framework in place to oversee these transactions in the future to come.
The Court acknowledged the threats posed by cryptocurrency transactions. It hence opined that RBI holds power to regulate the activities of such virtual transactions. This reasoning by the Court is in alignment with the Judgment mentioned above by the Supreme Court.
This decision highlights the ambiguity surrounding cryptocurrency dealings and the need for a regulatory system to influence law-making in this area. The Court has adequately justified its reasoning in acknowledging virtual currencies by observing that unless an activity is expressly prohibited by law, it cannot be deemed a reasonable restriction on individuals dealing with virtual currencies. Owing to the lack of regulations, the Court analysed the issue in line with other laws existing in force. It held that virtual currency transactions ought to comply with these laws dealing with money laundering, taxes, foreign exchange, and other regulations set forth by the RBI.
Furthermore, the Court is justified in establishing the responsibility on the intermediary to ensure the authenticity and legitimacy of the individuals and the money involved in such transactions. Holding the intermediary accountable for any illegal activity or malpractice ensures a safe and fool- proof system as the intermediaries can no longer turn a blind eye to suspicious transactions.
In the instant case, Binance, which managed the virtual wallet, was held responsible for deploying several measures to trace the source of money and prevent any other illegal activities.
On putting the intermediaries under the obligation of KYC, the Court brings about legitimacy in cryptocurrency transactions by ascertaining the identities of the individuals involved, the source of funds, and the destination. A commendable stand has been taken by the Court while declaring that the protection of the Right to Freedom guaranteed under Article 19(1)(g) can be sought only when the transactions are made through legitimate intermediaries. This inherently prevents defaulters and fraudsters from carrying out criminal activities in the crypto paradigm.
In adjudging the Accused’s culpability, the Court primarily relied on the conversation screenshots (WhatsApp) between two parties. On perusal of the same, the Court opined that it prima facie demonstrates the Accused’s knowledge about the source of funds. The Court, however, failed to provide a rationale for placing reliance on the WhatsApp screenshots, which has no evidentiary value, especially in business transactions. The Court has appropriately acknowledged the involvement of the Accused in two cybercrimes but at the same time does not let the complainant off the hook. Reference was made to the fact that the complainant had received money from different accounts, and a clear contact between the Accused and the complainant was not established. The Court, in this regard, had covered all the issues surrounding the transaction, including the possibility of negligence on behalf of the complainant.
Before making any concluding remarks about the case at hand, the Court had rightly asked for further investigation as the evidence put before the Court was not sufficient to hold the Accused liable. The Court ordered the filing of an FIR. It sought a report regarding the investigation owing to technical intricacies that require further examination. However, the Court failed to place any financial restrictions on the Accused’s bank account or virtual wallet.
The boom of cryptocurrencies is inevitable despite intense volatility and ambiguity surrounding the regulatory system. In the instant case, the Court has taken a positive stance concerning virtual currency dealings in India, shedding light on the importance of a clear regulatory framework. Despite certain negligible flaws, the Judgment draws a favourable paradigm from cryptocurrency transactions when viewed from a broader perspective. In keeping a tight rein on these transactions, the Court mandated the adherence to the general laws in force which prevents any regulatory or legal loopholes. Furthermore, by holding the intermediaries accountable for any default or malpractice, the Court vouches for establishing a technical system that is fool-proof and easily traceable. By ensuring this, the possibility of funds being used for illegal purposes such as narcotics, terrorism, and cross-border transactions can be curbed.
By giving the order to file an FIR, the Court has set a precedence for cases of similar nature. Owing to the recentness regarding virtual currencies’ activities, Police authorities, who initially were reluctant to file an FIR for a case dealing with cryptocurrency transactions, are now given the nod through this order.
A legal framework is the need of the hour to regulate cryptocurrency transactions as numerous global economies have taken several measures in adopting virtual currency dealings. A proper system must be maintained to trace the money in cryptocurrency trades and prevent fraud or embezzlement of funds. As there are no geographical boundaries, regulations and other measures should be put in place to monitor the source and destination of money and the identities of the parties. In conclusion, this Judgment creates room for further deliberations in the arena of crypto- transactions in India.
 Ninth Semester, National University of Advanced Legal Studies, Kochi.