Delhi court orders FIR on fraud allegations by Bitcoin seller

Panjak Bajpai

New Delhi, July 5, 2021: A Delhi Court has directed the Moti Nagar Police to register an FIR on the complaint of a Bitcoin seller, after bank accounts to which funds were transferred by the accused for Bitcoin purchase were frozen and the transactions marked as illegal.

Metropolitan Magistrate Abhinav Pandey opined that there is a need to probe the alleged fraud committed by the accused, as well as whether there was any wrongdoing on the part of the complainant-seller and the intermediary involved. 

In the instant case, the complainant was employed with one SMC group as a Quantitative Researcher and his job portfolio required him to trade in alternative international markets, and lead a new desk with developing strategies in future and options. 

The complainant stated that the accused used to transfer funds to his bank account, in return of which the complainant used to transfer bitcoins into the accused’s virtual wallet/ address on the online transaction portal “Binance”. One day, the complainant was informed that his bank accounts have been frozen, and his transaction in bitcoins were marked as illegal transactions. 

Upon confronting the accused regarding legality of the money paid by him against the bitcoins, the accused admitted these payments to be a ‘scam’, and also refused to return the bitcoins transferred to him by the complainant.

Quoting the decision given by Supreme Court in Internet and Mobile Association Vs. Union of India dated March 4, 2020, the Tis Hazari Court in Delhi said that transactions in cryptocurrency 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, CFT and AML. 

The Court reiterated that KYC is the responsibility of the intermediary and cannot be left to the individuals be it institutional transfer or person to person trade. With the intermediary shying away from the responsibility to ensure legitimacy of the source and destination of money, and establishment of the real identity of the parties, the Court expressed that the possibility of irregularities committed by the complainant or with his connivance or consent cannot be ruled out either. 

The Court added that the protection of Article 19 (1)(g) of the Constitution would only cover those engaging in legitimate trade through legitimate intermediaries, and thus, proceeded to hold that 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 Court also opined that the possibility of the complainant, accused and the online intermediary being hand in glove cannot be denied too. The accused may have been involved in hacking/cyber-crimes against unsuspecting persons, and transferring the same immediately to the complainant against bitcoins. The complainant,in turn, may have been mixing/ transferring the same in exchange for more bitcoins, thus creating a chain of transactions difficult to follow up, till the amount is invested in any illegal activity, or is withdrawn in a ‘safe haven’ jurisdiction, the Court said.

The Court therefore directed the Moti Nagar Police station to immediately lodge an FIR under the appropriate provisions of IPC and send the compliance report. 

The Tis Hazari court was hearing the case Hitesh Bhatia vs. Kumar Vivekanand