Draft of the (PIL) Writ Petition against Virtual Currencies - Crypto currencies like Bitcoins etc. - Filed in Supreme Court of India

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Draft of Writ Petition (PIL) No. 1071/2017

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) NO. ______ OF 2017

(UNDER ARTICLE 32 OF THE CONSTITUTION OF INDIA)

 

PUBLIC INTEREST LITIGATION

 

IN THE MATTER OF:

1. SIDDHARTH DALMIA

S/O SHRI VIJAY PAL DALMIA

FLAT NO. 2101, OLYMPIA TOWER-II,

ELDECO UTOPIA, SECTOR-93A,

NOIDA, U.P.-201304

Email: dalmiasiddharth1994@gmail.com

 

 

2.   VIJAY PAL DALMIA

S/O LATE BANWARI LAL DALMIA

FLAT NO. 2101, OLYMPIA TOWER-II,

ELDECO UTOPIA, SECTOR-93A,

NOIDA, U.P.-201304

Email: vpdalmia@gmail.com.                              ...PETITIONERS

 

VERSUS

 

1.    UNION OF INDIA

THROUGH THE CABINET SECRETARY

CABINET SECRETARIAT

RASHTRAPATI BHAWAN,
NEW DELHI – 110001

Email id: cabinetsy@nic.in

 

2.    MINISTRYOF HOME AFFAIRS,

THROUGH ITS SECRETARY

DEPARTMENT OF HOME

NORTH BLOCK, CENTRAL SECRETARIAT

NEW DELHI – 110001

Email: jscpg-mha@nic.in

 

 

3.    MINISTRY OF FINANCE
THROUGH ITS SECRETARY
DEPARTMENT OF ECONOMIC AFFAIRS

NORTH BLOCK, NEW DELHI - 110001 (INDIA)
Email id: secy-dea@nic.in

 

4.    RESERVE BANK OF INDIA

THROUGH ITS GOVERNOR

18TH FLOOR, CENTRAL OFFICE BUILDING
SHAHID BHAGATSINGH MARG
MUMBAI - 400 001

EMAIL:  cgmdpss@rbi.org.in                       …. RESPONDENTS

 

 

WRIT PETITION UNDER ARTICLE 32 OF

THE CONSTITUTION OF INDIA

 

TO

THE HON’BLE THE CHIEF JUSTICE OF INDIA AND HIS OTHER COMPANION JUSTICES OF THE HON’BLE THE SUPREME COURT OF INDIA.

 

THE HUMBLE PETITION OF THE  PETITIONERS ABOVENAMED

 

THE MOST RESPECTFULLY SHOWETH:

 

1.     This Writ Petition is in Public Interest under Article 32 of the Constitution of India for issuance of Writ of Mandamus or any other appropriate Writ, order or direction to the Respondents to ban the sale and purchase of illegal cryptocurrencies orDecentralised Digital Currency or “Virtual Currency” (VCs), such as, Bitcoins, Litecoin (LTC), Dash, Bbqcoins, Dogecoins, Ripple etc. (hereinafter collectively referred as “illegal Virtual Currency likeBitcoins”),which are traded openly and extensively within the knowledge and domain of the Respondents for a host of anti-national and illegal activities, such as funding of terrorism and insurgency, illicit trade of arms and drugs, recruitment of terrorists, bribery, corruption, money laundering, tax evasion, generation of black money, payment of ransom, human trafficking, hawala trade, illicit investments, avoidance of banking channels and surveillance of funds, online gambling,resulting in catastrophic impact on Indian currency, inflation, loss of control of Government on financial discipline, resulting in damage to country's sovereignty and integrity, and illegal diversion of money. All this is happening without any border restrictions or geographical constraints, in complete violation of Indian laws, resulting in danger to the integrity and sovereignty of India, and causing harm and danger to the peace and tranquility of the society,  the security of the state and the residents of India, friendly relations with Foreign States, public order and morality.

 

2.     The 1st Petitioner-in-person is a citizen of India. He is aged about 23 years, presently studying law at Jindal Global Law School, Sonipat, and is an EngineeringGraduate [B.Tech. (Information and Communication Technology)] from Dhirubhai Institute of Information and Communication Technology (DAIICT), Gandhi Nagar, Gujarat, and a resident of NOIDA, U.P. The Petitioner no. 1, because of his technical education and now as a law student, is aware of the technology behind the working of Virtual Currencies like Bitcoin. The Petitioner no. 1, for more than last 1 ½ years, has been researching in technologies, methodologies and business of virtual currencies like Bitcoins, and their impact on India as well as globally, and found out their impact to be catastrophic on India and other countries. Accordingly, the Petitioner no. 1 is concerned, and being a responsible Indian Citizen, considers himself to have the locus standi as well as a duty to bring all the facts and issues raised in this petition to the kind attention of this Hon’ble Court, for the reasons that the Respondents have failed to take any concrete legal action to regulate, control or legalize Virtual Currencies like BitCoins etc., and have become a part of the illegalities being perpetrated on Citizens of India.The Petitioner No. 1 has no Civil, criminal or revenue litigation involving the Petition, which could have a legal nexus with the issues involved in the present Writ Petition (PIL). The Petitioner in person has no personal or private interest in the matter. The PAN Number of the Petitioner is BJKPD4679J and UID Number is 911540229099. The Petitioner’s annual income in last AY is Rs.3 Lac. (approx.). The Petitioner’s e-mail address is dalmiasiddharth1994@gmail.comand Mob. No. is 9971799250.

 

2(a)The 2nd Petitioner-in-person is a citizen of India. He is an advocate by profession, practicing for the last about 31 years. The Petitioner No. 1 has a keen interest in internet and cyber laws. During the course of his legal research on issues involved in the present writ, he, to his astonishment, found a totally unconcerned, indecisive and inactive Respondents, who have failed to take a decisive stand on the grave issues associated with Virtual Currency like Bitcoin, including its illegality and action thereon. Being a concerned citizen of India, and particularly having a background of law, the petitioner no. 2 feels that it is a duty cast upon him to bring all the issues raised in this writ before this Hon’ble Court in the interest of India and its people. The Petitioner No. 2 has no civil, criminal or revenue litigation involving the Petition, which could have a legal nexus with the issues involved in the present Writ Petition (PIL). The Petitioner has no personal or private interest in the matter. The PAN Number of the Petitioner is AAPPD9699H and UID Number is 786938175364. The Petitioner’s annual income in last AY is Rs. 35 Lac. (approx.) Petitioner email is vpdalmia@gmail.comand Mob.No. is 9810081079.

 

3.     That factsleading to the present Writ Petition are set out hereinafter:

 

A.    That the Petitioners, in June 2017, had filed a Public Interest Litigation on the instant subject by way of a Writ Petition (Civil) No.000406/2017 in which the Hon’ble Court, while disposing of the petition, was pleased to pass the Order dated 14.07.2017, the relevant portion of which is reproduced as under:

Petitioner No.1, who has appeared in person, has invited our attention to two communications, issued by the Reserve Bank of India, dated 24.12.2013 and 01.02.2017 (Annexures P-1 and P-5 respectively of the writ petition). He has also invited the attention of this Court to the question posed in the Rajya Sabha, which came to be answered on the issue in hand, on 28.03.2017. We are prima facie satisfied, that the Reserve Bank of India is conscious of  the issue  raised and  pointed out  by the petitioner-in-person.  Be that as it may, we grant liberty to the petitioner-in-person to communicate the instant writ petition along with its annexures to the Reserve Bank of India, within two weeks from today. The Reserve Bank of India shall examine the issue posed by the petitioner-in-person, and take a conscious decision on the same, one way or the other.  The decision taken by the Reserve Bank of India, shall be communicated to the petitioner-in-person, within four weeks from the date of receipt of a copy of the writ petition.”

B.    By way of this Order dated 14.07.2017, the Hon’ble Court gave a specific direction to the Reserve Bank of India, the Respondent No. 4 herein, to examine the issue posed by the petitioner-in-person, and take a conscious decision on the same, one way or the other, within four weeks from the date of receipt of a copy of the writ petition.

C.    That in terms of the Order dated 14.07.2017 of the Hon’ble Court, on 19.07.2017, the Petitioners sent the copy of the writ petition along with its annexures and the copy of the Order dated 14.07.2017 to the Reserve Bank of India by Speed Post POD and Email.

D.    That in order to also apprise the Respondent Nos. 1, 2 and 3, about the Order dated 14.07.2017 of this Hon’ble Court, and also to bring to the notice of the Respondent Nos. 1, 2 and 3 the issues raised in the above Writ Petition (Civil) No.000406/2017, and to put them on notice and give them an opportunity to redress the issues raised in the above PIL, a letter along with the copy of the aforesaid writ petition along with its annexures and the copy of the Order dated 14.07.2017, was also served to the Respondent Nos 1, 2 and 3 by Speed Post POD and email.However, the Petitioners have not till date received any response from the Respondent Nos. 1, 2 and 3.

E.    In response to the directions of the Hon’ble Court given in the Order dated 14.07.2017, the Petitioners received a reply for and on behalf of the Respondent No. 4, by email and Post vide letter no. DPSS.CO.EPPD.No. 634/ 04.11.02/2017-18 from Mr. P Vasudevan, Chief General Manager of the Respondent No. 4. The reply received for and on behalf of the Respondent No. 4, failed to comply with the directions of the Hon’ble Court given in its Order dated 14.07.2017 that the Respondent No. 4 shall examine the issue posed by the petitioner-in-person, and take a conscious decision on the same, one way or the other.  The relevant portion of the evasive and indecisive reply of the Respondent No. 4, a portion of which has been copied from the Writ itself is reproduced herein below:

Please refer to your e-mail dated July 19, 2017 forwarding a copy of your Writ Petition No.  000406 of 2017 together with its annexures and the Orders of the Hon'ble Supreme Court of India thereon dated July 14, 2017. We have examined the issues raised in the Writ Petition and would like to respond as under -

As mentioned in the Writ Petition, Reserve Bank of India (RBI), has issued  a cautionary advice to users,  holders and traders of Virtual  Currencies  (VCs), vide, Press Release dated December 24, 2013. The Advisory has –

cautioned users, holders and traders of VCs about the potential  financial, operational, legal, customer protection and security related risks that they are exposing themselves to.

highlightedthat there is no underlying or backing of any asset for VCs; as such, their value seems to be a matter of speculation.  Huge volatility in the value of VCs has been noticed in  the recent  past.  Thus, the users are exposed to potential losses on account of such volatility in value.

 

alertedof the several media reports of the usage of VCs,  including  Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous I pseudonymous systems could subject the  users to  unintentional breaches  of Anti-Money  Laundering and Combating the Financing of Terrorism (AML I CFT) laws.

 

2. Further, as also elaborated in the Writ Petition, RBI, vide,  Press Release dated February 01, 2017,  has advised that it has not given any license/authorization to any entity/company to operate such schemes or deal with  Bitcoin or any VC. As such, any user, holder,  investor,  trader,  etc.,  dealing with  VCs will  be doing so at their own risk.

 

3. In this regard, we would like to inform you that the Government of India, Ministry of Finance has constituted an Inter-Disciplinary Committee under the Chairmanship of Special Secretary (Economic  Affairs)  to examine  the regulatory framework with regard to Virtual  Currencies.  Thus, the issues raised in the captioned Writ  Petition are already under examination by the said Committee. The Committee, inter-alia, comprises of representatives from different Government  Departments,  SEBI, SBI, including RBI. As part of its deliberations, the Committee has  had interactions with major stakeholders,  including calling for comments  from members  of the public through the MyGov website.  The Committee is in the process of finalizing its report and making its recommendations.  Since, RBI has  communicated its views to the Committee on the issues  involved,  further  course  of action  of RBI is  dependent on the extent to and the manner in which the recommendations are accepted by the Government and the roles and responsibilities of various regulatory and enforcement agencies are delineated.”

 

F.    From the above reply of the Respondent No. 4, it is evident that the Respondent No. 4 has failed to comply with the orders of the Hon’ble Court to conclusively decide the issue raised in the Writ Petition (Civil) No. 406 of 2017 within 4 weeks of the receipt of the writ petition, i.e., either by accepting or rejecting the grievances of the Petitioners raised in the said writ petition. The cause of action to file the present writ survives as the Respondent no. 4 has failed to comply with the orders of the Hon’ble Court. It is submitted that the cause of action to file the present writ continues to suvive till the Respondents taka a decisive decision on the issue of the writ.

 

G.    The Respondent No. 4 has shrugged aside its duty to conclusively take a stand either in favor or against the illegal Virtual Currencies like Bitcoins, in the interest of people of India. The Respondent No. 4 has again taken an indecisive and non-committal stand by which the people of the country have been left in lurch, and any further delay in deciding the issue of legality of illegal Virtual Currencies like Bitcoins, have exposed the vulnerable citizens of India to fall into the trap of anti-national activities and unscrupulous persons, and thereby exposing them to criminal prosecutions and liabilities. Because of an indecisive stand of the Respondent No. 4 as well as Respondent nos. 1, 2 and 3, the lure of illegal Virtual Currencies like Bitcoins, are being used by some unscrupulous people and anti-nationals to indulge in cheating and fleecing the innocent and gullible public as well as indulging in the anti-national activities, as explained hereinafter. From the reply of the Respondent no. 4, it is clear that it has absolved itself of any duty to exercise its control over the monetary system in India as per law.

 

H.                The Respondents have miserably failed to take any action for stopping the open trade of illegal Virtual Currencies like Bitcoins, which are detrimental to the integrity, safety and sovereignty of India as well as causing harm and danger to the peace and tranquility of the society, the security of the state and the residents of India, friendly relations with Foreign States, public order and morality, thereby failing in establishing and implementing the Rule of Law, as well as failing to protect various rights of people of India under the Constitution of India, including the rights under Article 21 of the Constitution of India.

 

I.                   The people of India have become a victim of inaction and indecisiveness on the part of the Respondents, despite having the laws which ipso-facto prohibits any currency which is not sanctioned by or created under the laws of India. 

 

J.                 Because of the illegal Virtual Currencies like Bitcoins, the people of Indiaare falling prey to the anti-national, illegal and nefarious activities being committed utilizing illegal Virtual Currencies like Bitcoins, and all this is happening without any border restrictions or geographical constraints.

 

K.                The sovereignty and security of India have been put on stake because no legal or decisive administrative action is being taken by the Respondents, despite all the powers in their hands, thereby exposing public at large, knowingly or unknowingly, to commit various grave criminal offenses under Indian laws.

 

L.                 The Respondents, who are jointly and severally duty bound for enforcingIndian laws, which ipso-facto prohibits any currency which is not sanctioned by or created under the laws of India, are acquiescing in the promotion of illegal Virtual Currencies like Bitcoins, thereby resulting in mass-level confusion amongst general public. Considering such illegal Virtual Currencies like Bitcoins as legal, the general public is investing their hard earned money in such illegal Virtual Currencies like Bitcoins, without realizing the impact of such illegal transactions.

 

M.               Illegal Virtual Currencies like Bitcoinsare dubious nomenclature for various “computer algorithms”, which are being used to generate codes by private parties and traded over the internet through dark untraceable internet channels. The price of such currencies is arbitrary, without any backing of any government and geographical restrictions, thereby making such Virtual Currencies like Bitcoins State Free, Border Free and Control Free.  Illegal Virtual Currencies like Bitcoinsare not legal currencies or fiat currency, issued by Government of India, and in fact, these are not a currency at all.

 

N.                That the present petition under Article 32 of the Constitution of India is preferred because the Virtual Currency like Bitcoin is being traded all over India over internet, and the traders/ dealers/ website owners/ service providers in this regard are operating from all over India, impacting all the States and Union Territories of India, affecting the sovereignty, integrity and safety of India, as well as for various other reasons as enumerated in this writ petition having impact all over India and on its people.

 

O.                That, the Petitioners have even sent the copy of the earlier writ petition along with the order of the Hon’ble Court to the Respondents, who are the concerned authorities in the instant matter, and despite the lapse of around 3 months, no action has been taken till date and as the issue relates to an emergent situation of national importance requiring intervention of this Hon’ble Court, and is, therefore, being placed before this Hon’ble Court for urgent hearing.

 

P.                 That the Petitioners have no personal interest in the litigation and is not guided by self-gain or for gain of any person/institution/body and there is no motive other than public interest and is bringing the instant issues to the attention of this Hon’ble Court in the wider interest of people in India at large, that is, in bonafide public interest, which is clear from the facts of the Petition.

 

Q.                That the Annexure P-1 to P-10 submitted along with the Petition are true copies of their respective originals derived and downloaded from the internet.

 

R.                That, no other writ petition arising out of the same cause of action has been filed by the Petitioners before this Hon’ble Court, any High Court or any other Court, except as mentioned earlier, i.e., the Writ Petition (Civil) No.  406 of 2017, which was disposed of on 14.07.2017.

 

S.                 That the cause of action to file the present writ petition still exists and survives as the Respondent no. 4 has failed to comply with the directions of the Hon’ble Court passed vide its order dated 14.07.2017 in Writ Petition No.  000406 of 2017.

 

T.                 That most of the currencies in the world including the currency of Indiai.e. rupee, are Fiat currencies.Fiat money is the currency that a government has declared to be legal tender, but which may not be backed by any physical commodity like Gold.

 

U.                AVirtual Currency like Bitcoin,is a stateless digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank like the Reserve Bank of India, rendering it immune from government interference.

 

V.                 The decentralizedand illegal Virtual Currencies likeBitcoins, provide an outlet for personal wealth that is beyond restriction, control and confiscation, and removes the need of a trusted third party such as a governmental agency, bank, etc.

 

W.               The anonymous nature of illegal Virtual Currencies like Bitcoins, makes them well-suited for a host of nefarious activities, such as funding of terrorism and insurgency, illicit trade of arms and drugs, recruitment of terrorists, bribery, corruption, money laundering, tax evasion, generation of black money, payment of ransom, human trafficking,  hawala trade, illicit investments, avoidance of banking channels and surveillance of funds, online gambling, inflation, loss of control of Government on financial discipline and illegal diversion of money, and all this happening without any border restrictions or geographical constraints.

 

X.                 That some of the laws which are being violated and have a direct bearing on the legal aspects relating to illegal Virtual Currencies likeBitcoins, are as under:

 

                                            i.          The Constitution of India, 1950;

                                           ii.          Reserve Bank of India Act, 1934,

                                         iii.          The Foreign Exchange Management Act, 1999 (“FEMA”);

                                        iv.          The Reserve Bank of India Act, 1934 (“RBI Act”);

                                          v.          The Coinage Act, 1906 (“Coinage Act”);

                                        vi.          The Securities Contracts (Regulation) Act, 1956 (“SCRA”);

                                       vii.          The Sale of Goods Act, 1930 (“Sale of Goods Act”);

                                     viii.          The Payment and Settlement Systems Act, 2007 (“Payment Act”).

                                        ix.          Indian Contract Act, 1872 (“Contract Act”).

 

Y.                 Entry 36 and 46 of List I of the Seventh Schedule of the Constitution states that the Central Government shall have the power to legislate in respect of currency, coinage, legal tender, foreign exchange and bills of exchange, cheques, promissory notes and other like instruments respectively, however, the Government of India has shut its eyes on illegal Virtual Currency likeBitcoin, thereby allowing the anti-national activities to thrive without any control or regulation to the detriment of the people of the Republic of India and interest of India, which is a victim of constant onslaught of trans-border terrorism, internal security risks like the problem of Naxalism leading to attack on security forces and civilians, generation of black money because of uncontrolled exchange of money without any scrutiny by law enforcement authorities with impunity without any fear or liability.

 

Z.                 The Reserve Bank of India (RBI), which was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934, and since its nationalization in 1949, the Reserve Bank is fully owned by the Government of India. The prime purpose of the establishment of the Reserve Bank of India as per its Preamble was to regulate the issue of Bank Notes and keeping of reserves with a view to secure monetary stability in India and generally to operate the currency and credit system of the country to its advantage. Accordingly, if the autonomy of RBI is allowed to be damaged by unauthorized monetary transactions through Virtual Currency like Bitcoin, and the Respondents fail to act for establishing the Rule of Law, anarchy is likely to happen destroying the structure of India.

 

AA.            The term ‘Currency’ has been defined under Section 2(h) of the Foreign Exchange Management Act, 1999 to include all currency notes, postal notes, postal orders, money orders, cheques, drafts, travelers cheques, letters of credit, bills of exchange and promissory notes, credit cards or such other similar instruments, as may be notified by the Reserve Bank.It is clear that Bitcoin is not similar to any of the instruments mentioned in the definition, especially digital or virtual currencies. Section 2(m) of The Foreign Exchange Management Act, 1999, ‘foreign currency’ has been defined as any currency other than Indian currency. Under Section 2 (q) of FEMA, “Indian currency” means currency which is expressed or drawn in Indian rupees but does not include special bank notes and special one rupee notes issued under section 28A of the Reserve Bank of India Act, 1934 (2 of 1934). It is submitted that illegal Virtual Currency likeBitcoinhas notbeen designated by the government to be a legal tender, hence the same does not fall into the definition of currency.

 

BB.            Under Section 2(i) of The Foreign Exchange Management Act, 1999 (FEMA),“currency notes” means and includes cash in the form of coins and banknotes, and this definition does not include Crypto Currencylike Bitcoin, which are not issued either under the Coinage Act or Reserve Bank of India Act, 1934.

 

CC.            Section 22 of the Reserve Bank of India Act, 1934mandates that the RBI shall have the sole right to issue bank notes in India, and may, issue currency notes of the Government of India, and the provisions of this Act shall be applicable to bank notes, unless a contrary intention appears, and apply to all currency notes of the Government of India issued either by the Central Government or by the RBI in like manner as if such currency notes were bank notes.Accordingly, Virtual Currency like Bitcoin are not bank notes, as such is not legal tender in India and further, no such Virtual Currency like Bitcoin has not been notified by the RBI.

 

DD.            Under Section 18 of The Payment and Settlement Systems Act, 2007, RBI  may, if it is satisfied that for the purpose of enabling it to regulate the payment systems or in the interest of management or operation of any of the payment systems or in public interest, it is necessary so to do, lay down policies relating to the regulation of payment systems including electronic, non-electronic, domestic and international payment systems affecting domestic transactions and give such directions in writing as it may consider necessary to system providers or the system participants or any other person either generally or to any such agency and in particular, pertaining to the conduct of business relating to payment systems.Under Section 19 of the Payment and Settlement Systems Act, 2007, every person to whom a direction has been issued by the Reserve Bank under this Act shall comply with such direction without any delay. Accordingly, Reserve Bank of India has a wide power to lay down a policy regarding the usage of Virtual Currency like Bitcoin and issue any directions to any person, including Bitcoin Operators (websites) to ban or control the operation of Bitcoins in India. However, Reserve Bank of India has failed to control the growing menace of Virtual Currency like Bitcoin in India.

 

EE.            The term “securities” has been defined under Section 2(h) of the Securities Contracts (Regulation) Act, 1956 to include:

                                i.          shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or another body corporate;

                              ii.          derivative;

                            iii.          units or any other instrument issued by any collective investment scheme to the investors in such schemes;

                            iv.          security receipt as defined in clause (zg) of section 2 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

                             v.          units or any other such instrument issued to the investors under any mutual fund scheme;

                            vi.          any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to such entity, and acknowledging beneficial interest of such investor in such debt or receivable, including mortgage debt, as the case may be;

 

                          vii.          Government securities;

                        viii.          such other instruments as may be declared by the Central Government to be securities; and

                            ix.          rights or interest in securities.

 

It is submitted that all of the above instruments have an underlying capital asset, however there is no underlying asset in relation to illegal Virtual Currencieslike Bitcoins. Further, illegal Cryptocurrencieslike Bitcoins are not “issued” by anybody but are created from the activity of mining and are guided by the principles of the block-chain mechanism.

 

FF.             Section 23 of the Indian Contract Act, 1872, defines what consideration and objects are lawful, and what is not. The consideration or object of an agreement is lawful, unless, it is forbidden by law, or is of such nature that, if permitted it would defeat the provisions of any law or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases, the consideration or object of an agreement is said to be unlawful. Accordingly, illegal Virtual Currencies like Bitcoins prevailing in the market and over the internet, are nothing but a bundle of deceit, fraud, cheating, illegality, which openly declares that it is illegal, immoral and opposed to the public policy and laws of India.

 

GG.          Obligations of Banking Companies, Financial Institutions and Intermediaries under Section 12 of the Prevention of Money Laundering Act, 2002 (PMLA) for anti-money laundering actions for reporting the transactions listed therein are also being violated because of the inaction of the Respondents.

 

HH.            Under Section 3 of The Foreign Exchange Management Act, 1999, no person shall:

                           i.          deal in or transfer any foreign exchange or foreign security to any person not being an authorized person;

                         ii.          make any payment to or for the credit of any person resident outside India in any manner;

                       iii.          receiveotherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner. Explanation. For the purpose of the above, where any person in, or resident in, India receives any payment by order or on behalf of any person resident outside India through any other person (including an authorized person) without a corresponding inward remittance from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorized person;

                       iv.          enterinto any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person. Explanation. - For the purpose of this clause, “financial transaction” means making any payment to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or negotiating any bill of exchange or promissory note, or transferring any security or acknowledging any debt. deal in or transfer any foreign exchange or foreign security to any person not being an authorizedperson;

 

II.                 It is submitted that the sale and purchase of illegal Virtual Currencies like Bitcoins, by a non-resident person to a resident Indian will be in violation of the provisions of FEMA.  With illegal Virtual Currencies like Bitcoins,it is very convenient to send and receive money anywhere in the world at any given point of time, bypassing all exchange control laws. The person, who is in control of an illegal Virtual Currency like Bitcoin, is entitled to receive money anywhere in the world in any currency or kind.  There are ample of players who are willing to take illegal Virtual Currencies like Bitcoins bypaying cash or kind, and such holder of the illegal Virtual Currencies likeBitcoins, remain in sole and complete control of such virtual currencies, as there is no central authority in the network of Cryptocurrencies likeBitcoins.

 

JJ.              That the Respondents, for the reasons known to them, are failing in their constitutional and legal duties, which they are obliged to uphold and perform, despite the fact that under the existing Indian laws Virtual Currencies like Bitcoins are illegal and the Respondents have enough powers to prevent the menace of Virtual Currencies like Bitcoins.

 

Unlike a dollar or rupee, Virtual Currencies like Bitcoins have no physical form, and are not a legal tender, and are not backed by any government or any other legal entity, and their supply is not determined by a central bank. The Virtual Currencies like Bitcoins, are private, and there are no traditional financial institutions involved in transactions. The networks of illegal Virtual Currencies like Bitcoins, are completely decentralized, with all parts of transactions performed by the users of the system.

 

KK.            Unlike fiat currencies, whose value is derived from regulation or law and underwritten by the state, illegal Virtual Currencies like Bitcoins, derive their value from the simple principles of supply and demand, as these have no intrinsic value or backing, and their value depends entirely on what people are willing to trade for them. Unlike usual forms of currency, it is in virtual form and may be used to transact in physical as well as online transactions.

 

LL.             That Virtual Currencies like Bitcoins,are being illegally traded openly and extensively, within the knowledge and domain of the Respondents, without any border restrictions or geographical constraints, by avoiding and violating law, resulting in endangering the integrity and sovereignty of India, thereby causing harm and danger to the peace and tranquility of the society, the security of the state and the residents of India, friendly relations with Foreign States, public order and morality.

 

MM.          It is a known fact in the public domain that people have started hoarding their black money in illegal Virtual Currencies like Bitcoins, without any reporting and boundations to alienate the same in India, and it has becomevery easy and convenient for such unscrupulous people to go out of India and en-cash illegal Virtual Currencies like Bitcoins foreign currency thereby perpetuating all sort of criminal and anti-national activities.

 

NN.            Bitcoin first appeared in January 2009, the creation of a computer programmer using the pseudonym Satoshi Nakamoto. His invention is an open source (its controlling computer code is open to public view), peer to peer (transactions do not require a third-party intermediary such as PayPal or Visa), digital currency (being electronic with no physical manifestation). Bitcoin has become the de facto currency of the Dark Web – the 'hidden' Internet accessible only by Tor – since the pioneering marketplace Silk Road, the 'eBay of drugs', arrived in 2011.

 

OO.          That the Respondents are not taking any legal or administrative actions to prevent and regulate the menace created by these anti-national illegal Virtual Currencies like Bitcoins which are in clear violation of even the existing laws of India, and by their inaction the sovereignty and integrity of India is being compromised. The inaction of the Respondents is actually promoting the creation and trade of illegal Virtual Currencies like Bitcoins, exposing the general public of India to the risks associated with such illegal modules of financial transactions.

 

PP.            In its Press Release no. 2013-2014/1261 dated 24th December, 2013, the Reserve Bank of India itself admittedly the dangers of Virtual Currencies like Bitcoins and stated the following about the virtual currencies, including but not limited to, Bitcoins:

 

a.    The Reserve Bank has mentioned that it has been looking at the developments relating to certain electronic records claimed to be “Decentralised Digital Currency” or “Virtual Currency” (VCs), such as, Bitcoins, litecoins, bbqcoins, dogecoins etc., their usage or trading in the country and the various media reports in this regard.

 

b.    The creation, trading or usage of VCs including Bitcoins, as a medium for payment are not authorized by any central bank or monetary authority.

 

c.    No regulatory approvals, registration or authorization is stated to have been obtained by the entities concerned for carrying on such activities.

 

d.    As such, they may pose several risks to their users, including the following:

 

                                          i.     VCs being in digital form are stored in digital/electronic media that are called electronic wallets. Therefore, they are prone to losses arising out of hacking, loss of password, compromise of access credentials, malware attack etc. Since they are not created by or traded through any authorized central registry or agency, the loss of the e-wallet could result in the permanent loss of the VCs held in them.

 

                                        ii.     Payments by VCs, such as Bitcoins, take place on a peer-to-peer basis without an authorized central agency which regulates such payments. As such, there is no established framework for recourse to customer problems/disputes/chargebacks etc.

 

                                      iii.     There is no underlying or backing of any asset for VCs. As such, their value seems to be a matter of speculation. Huge volatility in the value of VCs has been noticed in the recent past. Thus, the users are exposed to potential losses on account of such volatility in value.

 

                                      iv.     It is reported that VCs, such as Bitcoins, are being traded on exchange platforms set up in various jurisdictions whose legal status is also unclear. Hence, the traders of VCs on such platforms are exposed to legal as well as financial risks.

 

                                       v.     There have been several media reports of the usage of VCs, including Bitcoins, for illicit and illegal activities in several jurisdictions. The absence of information of counterparties in such peer-to-peer anonymous/ pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism (AML/CFT) laws.

 

A true copy of the Press Release No. 2013-2014/1261 dated 24th December, 2013 published by the Reserve Bank of India is attached as ANNEXURE P-1   (Page 49-51).

 

QQ.          The European Banking Authority, has prepared an opinion on Virtual currencies analyzing that the risks associated with such virtual currencies are manifold and cited more than 70 risks were identified across several categories, including risks to users; risks to non-user market participants; risks to financial integrity, such as money laundering and other financial crime; risks to existing payment systems in conventional FCs, and risks to regulatory authorities.

 

A true copy of the Opinion of the European Banking Authority dated 4th July, 2014 is attached as ANNEXURE P-2 (Page 52-144).

 

RR.            In the entire trade of illegal Virtual Currencies like Bitcoins, (“Know Your Customer”) KYC Norms are also not being followed with impunity under the nose of the Government functionaries. The Know Your Customer (KYC) Guidelines published by the RBI, as updated up to September 02 2016, are being violated without any accountability and with impunity before the law. KYC Norms are the norms which have been set by the RBI that require banks to continuously monitor their customers’ transactions, keep an up-to-date record of their identity, and take steps simply in case any of the transactions of a customer break from his or her usual pattern of behavior.

 

A true copy of the Know Your Customer Guidelines published by the Reserve Bank of India is attached as ANNEXURE P-3 (Page 145 - 156).

SS.            Vide its PressRelease No. 2016-17/2054 dated 1st February, 2017, the Respondent No.4, i.e., the Reserve Bank of India has issued an advisory as under:

“The Reserve Bank of India had cautioned the users, holders and traders of Virtual Currencies (VCs), including Bitcoins, about the potential financial, operational, legal, customer protection and security related risks that they are exposing themselves to, vide its press release dated December 24, 2013.

The Reserve Bank of India advises that it has not given any license / authorization to any entity/company to operate such schemes or deal with Bitcoin or any virtual currency. As such, any user, holder, investor, trader, etc. dealing with Virtual Currencies will be doing so at their own risk.”

A true copy of the Press Release No. 2016-17/2054 dated 1st February, 2017 published by the Reserve Bank of India is attached as ANNEXURE P- 4 (Page 157).

 

TT.            That recently in March 2017, Hon’ble Minister of State for Finance Mr. Arjun Ram Meghwal on a question relating to Bitcoin and Virtual currencies in the Rajya Sabha, stated as under:

“The absence of counter parties in usage of virtual currencies, including Bitcoins, for illicit and illegal activities in anonymous/pseudonymous systems could subject the users to unintentional breaches of anti-money laundering and combating the financing of terrorism laws,” 

He further stated:

“No regulatory approval, registration or authorization is stated to have been obtained by the entities concerned for carrying on such activities,”

The above stand of the Government clearly is in consonance with the apprehension of the Petitioners that the use of virtual currencies like Bitcoins is not authorized by the RBI and could result in breach of Indian laws, including, anti-money laundering provisions.

 

A true copy of the Written Answer given by the Hon’ble Finance Minister of State Mr. Arjun Ram Meghwal  on a question relating to Bitcoin and Virtual currencies in the Rajya Sabha is attached  as ANNEXURE P-5 (Page 158-159).

UU.            In terms of the orders of the Hon’ble court a letter dated 19.07.2017 was sent to Reserve Bank of India.

A true copy of the letter dated 19.07.2017 sent to Reserve Bank of India is attached as ANNEXURE P-6   (Page 160 -166).

 

VV.            In response to the letter dated 19.07.2017 of the Petitioner, a letter dated 08.08.2017 was received from the Reserve Bank of India.

A true copy of the letter received from the Reserve Bank of India is attached as ANNEXURE P-7   (Page 167-170).

 

WW.        It has also come to light that there are several Indian Companies registered with the Registrar of Companies under the Companies Act, 1956 / 2013, who are engaged in the business of buying and selling illegal Virtual Currencies like Bitcoins i.e. Cryptocurrencies, and considering that the business of cryptocurrencies/ virtual currencies are illegal, these companies have registered themselves as IT companies, and have also received foreign direct investment under the automatic route.Some of these companies are operating under the domain names likewww.zebpay.com, www.unocoin.comand https://bitcoin-india.org/.

 

A true copy of the WHOIS record of zebpay.com showing it as an entity held in India is attached as ANNEXURE P-8 (Page 171-175).

 

A true copy of the WHOIS record of unocoin.com showing it as an Indian company registered under the Companies Act under the name Unocoin Technologies Pvt. Ltd. is attached as ANNEXURE P- 9 (Page176-181).

A true copy of webpage of about bitcoin-india.org is attached as ANNEXURE P- 10 (Page182-192).

 

XX.            That recently, in the month of September 2017, China banned its residents from trading in cryptocurrencies on exchanges and made it illegal.

 

YY.            The above basic reasons have compelled the Petitioners to present this Petition before the Hon’ble Court, who is the custodian of Rule of Law in India.

 

4.     That the Petitioner has no other alternative and equally efficacious remedy; and the instant Writ Petition has been filed, inter alia, on the following grounds:

GROUNDS

A.      Because sale or purchase or dealing in any other manner with the illegal Virtual Currencies like Bitcoins,which are being traded openly and extensively within the knowledge and domain of the Respondents for a host of anti-national, i

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