Case Review: Hitesh Bhatia v. Kumar Vivekanand – A Step in The Right Direction to Navigate Crypto Fraud Cases 

by Aileen Aditi Sundardas

Introduction

Blockchain and cryptocurrency play an integral role in the technology market, and with the onset of the COVID -19 pandemic, there has been a massive boom in cryptocurrency trading in India. It is clear that there is an increasing appeal and interest in the crypto-assets market, however, due to the lack of regulatory frameworks to govern the same, it could have detrimental effects on the market. The lack of regulatory frameworks stems from the fact that crypto assets are extremely complex in nature thereby making them very difficult to classify. Although the Indian Government has endorsed blockchain technology, currently, there is no regulatory framework that governs the crypto assets market. Therefore, this leads to a multiplicity of issues like the lack of regulation in this sector poses a threat to the stability of the market and leaves investors susceptible to fraud which in turn affects the appeal of the market and user demand.

Tracing the discourse regarding crypto assets in India it can be observed that there is a major lack of clarity. In 2018, the Reserve Bank of India (“RBI”) released a circular (2018 RBI circular)[1] which prohibited all entities regulated by the RBI from dealing in virtual currencies or providing services to facilitate any transaction involving virtual currencies. In response, various cases were filed against this notification issues by the RBI in the Supreme Court of India. Following this, in 2019 the Inter-Ministerial Committee (“IMC”) released a report which noted that there was no underlying intrinsic value attributable to private cryptocurrencies and so they should not be allowed. It included ‘Banning of Cryptocurrencies and Regulation of Official Digital Currency Act, 2019’ (Draft Crypto Bill) with its report which prohibits any person from mining, generating, holding, selling, dealing in, issuing, transferring, disposing of or using cryptocurrencies in the territory of India. In 2020 the Supreme Court decided that the apprehensions of the RBI were unfounded and therefore quashed the 2018 RBI circular in the case of Internet and Mobile Association of India v. Reserve Bank of India.[2] Further, the RBI on May 2021 issued a clarification circular[3] which stipulated that the 2018 RBI circular is no longer valid to be relied upon as the Supreme Court had also struck down its validity.

As the legal discourse on regulating cryptocurrency gains momentum, a case Hitesh Bhatia v. Kumar Vivekanand,[4] regarding fraud of sale and purchase of cryptocurrency had been brought to the Tiz Hazari District Court, Delhi. In the case, Hitesh Bhatia (the “Complainant”) approached the Court and prayed for directions to the police for registration of an FIR and commencement of investigation into the alleged offence of cheating. In this post I will be discussing the case in detail in order to breakdown and comprehend the seminal observations made by the Delhi Court.

Facts

The Complainant deals in the sale and purchase of bitcoins, and it was submitted that he always takes identity proof prior to the commencement of any trade transactions. It was alleged that Mr. Kumar Vivekanand (the “Accused”) purchased bitcoins from the Complainant by transferring funds to the Complainant’s bank account in return for bitcoin being transferred into the Accused’s virtual wallet on the online transaction portal ‘Binance’. Further, the Complainant submitted that on July 5, 2020, his bank accounts had been frozen and that his bitcoin transactions were marked as illegal transactions. Following this, the Complainant stated that he confronted the Accused regarding the source/legality of the money paid for the bitcoin and the Accused admitted that these payments were a ‘scam’ and even refused to return the bitcoins transferred to him by the Complainant which according to the Complainant amounted to cheating. The Complainant had allegedly already approached the Station House Officer and Data Protection Officer but there was no action taken by the police. It is in this context that the Complainant filed an application under Section 156 (3) of the Code of Criminal Procedure (“CrPC”).[5]

The investigation officer submitted that the Complainant had received amounts from different accounts and had been the beneficiary in the said transactions. It was submitted that out of the total sum of money paid to the Complainant by the Accused, Rs. 6,00,000 was credited from an account in Nagpur. Further, the person who owned the account got an FIR registered under Section 66C[6] and Section 67[7] of the Information & Technology Act, 2000 at Police Station Sitabardi, Nagpur, Maharashtra for cyber fraud. Additionally, Rs. 3,00,000 out of the total sum of money paid to the Complainant by the Accused was credited from an account of a person residing in Telangana who had also similarly registered an FIR by alleging the commission of cyber fraud at Police Station Cyber Crime, Cyberabad Commissionerate, Telangana. It was stated that the remaining amount was transferred prima facie from an account belonging to the Accused.

The counsel appearing for the Complainant submitted that the Court has jurisdiction in this case as the Complainant and his office are situated in Moti Nagar, Delhi and it is from there all the transactions took place. It was also submitted that dealing in bitcoins and various other cryptocurrency is legal and therefore it falls under the purview of Article 19 (g) of the Constitution of India[8], as the Complainant is carrying out a legitimate trade and profession. The Counsel also submitted and emphasised that the Complainant took payment for the sale of bitcoins through a recorded medium i.e., RTGS/IMPS, and misappropriation of proceeds of crime was never his intention and at most what can be attributed to the Complainant is lack of due diligence. It was submitted that since Draft Crypto Bill had not been passed it is clear that there is no restriction on dealing in cryptocurrency.

Analysis & Decision

The Bench noted in view of Sections 179,[9] 180[10] and 182[11] of the CrPC, and due to the fact that the police did not find any material to suggest the contrary, it can assume jurisdiction. The Court then went on to first determine whether the Complainant himself was carrying out a lawful activity and whether the Complainant has come to court with clean hands. The Court noted that in the case of Internet and Mobile Association of India v. Reserve Bank of India,[12] the 2018 Reserve Bank of India’s (RBI) circular had been set aside by the Supreme Court and while doing so it did not adjudicate upon the legality of virtual currencies itself. The Supreme Court acknowledged that that many institutions are accepting the 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 virtual currencies carry on an activity that falls squarely within the purview of RBI. Further, it also recognised that cryptocurrency has the potential of creating a parallel monetary system, which is perceived as a threat to the existence of a central authority-regulated monetary system, and therefore it stated that the RBI has the power to regulate such activities. The Court also acknowledged the power of RBI to frame policies on such matters, and to issue instructions to the banks who are “system participants” under the Payments and Settlements Systems Act, 2007. Therefore, it was observed that transactions in cryptocurrency still have to comply with the general laws in force in India including PMLA, IPC, FERA, NDPS Act, Tax laws, and with the RBI regulations regarding Know Your Customer (“KYC”), Combating of funding of terrorism (“CFT”) and Anti-money laundering requirements (“AML”). It acknowledged that traceability of bitcoin transactions on a portal such as ‘Binance’ could be managed by Blockchain Analysis, however, establishing their connection with the malicious actors is a complex issue in case the transaction intermediary is not adhering to the KYC norms.

The Court emphasised that KYC is the responsibility of the intermediary not that of an individual irrespective of whether the transaction is an institutional transfer or between person to person. Additionally, the Court added that it is the responsibility of an intermediary such 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 the tracing of any illegal proceeds and any bitcoins, purchased through it, extremely difficult.

With regards to the culpability of the Accused the Court stipulated 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. It was observed that the Accused could have hidden the factum of the illegality for money from the Complainant, and by doing so inducing him to deliver bitcoins in exchange of money, while being aware of the fact that at some point it may come under the radar of the banking system,  thereby leading to him thinking that it is better to get rid of the same, purchase bitcoins and multiply/mix transactions in order to hide its source, and to encash it from ‘safe haven’ countries, where there is an absence or lack of regulations. The Court noted that it was possible that Complainant could have suffered a wrongful loss due to this, however, the Complainant himself did not disclose the complete facts of the case. Therefore, the Court cannot rule out the possibility of consent/connivance of the Complainant as in one of the annexed WhatsApp conversations, the Accused advised the Complainant to clear his bank account on receipt of any consideration against the sale of bitcoins. The Complainant also never stated how the Accused got his WhatsApp contact details.

The Hon’ble Court, therefore, held that the complaint under Section 200 CrPC,[13] the application under Section 156(3) CrPC, the other material on record, and the action taken report of the police, it made out that cognizable offences under Sections 403, 411, 420 of Indian Penal Code have been prima facie committed.

Conclusion

The digital market in India is flourishing and growing and it is of utmost importance that the government not only takes cognisance of it but also provides safeguards for the market. Cryptocurrencies are dynamic and volatile; therefore, it is of utmost importance that India has in place a regulatory regime to govern the use of cryptocurrencies. The observations made in the case are crucial for the Indian digital regime as it not only acknowledges the increasing use of virtual currencies but also it lays down a path to try and navigate through such complex technology in order to curtail fraudulent activity. In my opinion this case can be instrumental in finding a starting point for understanding the importance and need for having a regulatory regime that protects the Indian market from pertinent issues such as fraud, taxation, etc. While the Court did not adjudicate upon the legality of cryptocurrencies itself, the fact that the discourse around the use of cryptocurrencies in the span of 3 – 4 years has shown a massive shift shows that it is a global phenomenon that is gaining traction and if India wants to be a part of the digital future, it must also start seriously considering the issue from a regulatory framework.


[1] RBI/2017-18/154 DBR No.BP.BC.104/08.13.102/2017-18

[2] Internet and Mobile Association of India v. Reserve Bank of India (2020) 10 SCC 274

[3] RBI/2021-22/45 DOR AML REC 18/14.01.001/2021-22

[4] Hitesh Bhatia v. Kumar Vivekanand (2020) Case No. 3207

[5] The Code of Criminal Procedure, 1973, Section 156(3)

[6] Information Technology Act, 2000, Section 66C

[7] Information Technology Act, 2000, Section 67

[8] Constitution of India, Article 19(g)

[9] Code of Criminal Procedure, 1973, Section 179

[10] Code of Criminal Procedure, 1973, Section 180

[11] Code of Criminal Procedure, 1973, Section 182

[12] Internet and Mobile Association of India v. Reserve Bank of India (2020) 10 SCC 274

[13] Code of Criminal Procedure, 1973, Section 200

About the Author

Aileen is a final year student at Jindal Global Law School, pursuing B.A. L.L.B (Hons.). She is also an in-house researcher with The Digital Future.


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