'In Policy Domain' : Supreme Court Dismisses Plea Seeking Guidelines Against Fraudulent Cryptocurrency Transactions

The Supreme Court recently dismissed a petition seeking guidelines from the Court in exercise of its jurisdiction under Article 142 of the Constitution to prevent and penalize fraudulent transactions involving cryptocurrencies.A bench of Justices BR Gavai and AG Masih passed the order, being of the view that the prayers made were within the domain of the legislature and the executive. Be that as it may, the bench left it open for the petitioners to make a representation before the appropriate authority, if they wish to do so, to be decided in accordance with law.During the hearing, counsel for the petitioners contended that the petitioners were seeking regulatory framework for dealings with cryptocurrency. Referring to the decision in Internet and Mobile Association of India v. RBI, she argued that the Court has already upheld fundamental rights of persons dealing with cryptocurrencies as virtual assets, and that under tax law, cryptocurrency is characterized as a "property". However, there is no law to regulate dealings in cryptocurrency.In response, Justice Gavai remarked, "that is in the domain of policymakers, how can we issue any such directions? We can't lay down the law".Insofar as the counsel contended that various petitioners had approached local crime branch/policy authorities, but all of them replied that there was no regulatory framework, the judge suggested that the petitioners make a representation to the Government of India.When it was insisted that the Court consider laying down guidelines, as it did in other cases where there was a legal vacuum (like Vishakha v. State of Rajasthan), Justice Gavai exclaimed "how can we do that? Ld. Solicitor General, about 2 weeks back, argued that the Supreme Court and the High Courts cannot lay down guidelines in every matter!".Ultimately, the petition was dismissed, with liberty to make a representation to the appropriate authority.Briefly put, the petitioners, investors and registered users of respondent No.8-WazirX (a cryptocurrency exchange platform), maintained wallets with the platform. They reportedly invested substantial sums therein, but in July 2024, the platform declared that there was a cyberattack on one of its multi-signature wallets, which resulted in an alleged loss of more than 230 million dollars. Subsequently, the platform unilaterally decided to distribute losses from the ERC-20 token theft across its entire user base, including non-users of the said token. Aggrieved, the petitioners approached the Court.They claimed that the systemic failure to ensure secure cryptocurrency transactions poses a serious threat to the integrity and financial security of the nation. In the context of the $230m scam, it was averred that the petitioners were deprived by the State of their fundamental rights under Articles 14, 19(1)(g) and 21, inasmuch as there was neglection of the "colossal breach of trust" and "fiduciary duty" of respondent No.8 - one of India's most prominent cryptocurrency exchange platforms."The Petitioners are also aggrieved by the inaction and failure of regulatory authorities (Respondent Nos. 1 to 7) to intervene decisively and protect the interests of Indian investors in the cryptocurrency sector. The lack of a comprehensive regulatory framework and effective redressal mechanism has resulted in widespread financial insecurity, loss of trust, and systemic risk within the digital asset industry."With regard to the "cyberattack", the petitioners contended that it was not merely a security breach "but potentially an orchestrated crime facilitated by serious internal failures and regulatory lapses". They claimed that the respondents, particularly WazirX, failed to implement robust Know Your Customer (KYC) and Anti-Money Laundering (AML) protocols as mandated under the Prevention of Money Laundering Act.Seeking laying down of guidelines, the petitioners averred,"There are no laws in India to protect the users or the investors or the entrepreneurs dealing with crypto currencies. Lack of legal framework poses difficulty to investors in case of fund freezes, platform shutdowns etc. There is no relief to customers in the event of collapse of unregulated exchanges. There is no defined jurisdiction, uncertainty as to where to approach in case of disputes between investors and exchanges."They further stressed that there is uncertainty as to the legal consequence of non-compliance of crypto exchanges to the KYC requirements and PML/CFT measures. The reliefs sought included:- Guidelines to be followed by cryptocurrency exchanges operating in India;- Guidelines to be followed by regulatory authorities in cases of financial misappropriations involving cryptocurrency transactions;- Appointment of a committee/officer to assess damages incurred by the petitioners (and other users) and disbursement of the same along with appropriate compensation/full value of tokens/tokens within a fixed time frame.The petition was drawn by Advocates Anjali Anil and...

'In Policy Domain' : Supreme Court Dismisses Plea Seeking Guidelines Against Fraudulent Cryptocurrency Transactions

Debby Jain

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