Plea in Delhi High Court for regulation of cryptocurrency, probe into BitBNS crisis

The Delhi High Court on Thursday sought a response from various authorities including the Central government, the Reserve Bank of India (RBI) and the Securities Exchange Board of India (SEBI) to a plea raising concerns about a financial crisis that has allegedly affected users of the BitBNS cryptocurrency exchange platform [Aditya Malhotra and ors v. Union of India]..BitBNS, an Indian crypto exchange platform, has been in the news after customers complained of a freeze on withdrawals. The petition filed by 16 users of the crypto exchange platform has sought a probe by a Special Investigation Team (SIT) or the Central Bureau of Investigation (CBI) into the matter. As per the plea, the crisis at BitBNS highlights the dire need for better regulation of cryptocurrency or virtual digital assets (VDA) in India. "The absence of such regulations leave users vulnerable to fraud, financial losses, and mismanagement," the petitioners have contended. The petitioners' counsel today referred to allegations that the BitsBNS platform took money from many people in India, which was then sent out of India after a cyberattack that was allegedly concealed from users by the platform. "BitBNS, as a cryptocurrency exchange, owes a fiduciary duty to its users to ensure transparency, security, and timely resolution of user grievances. By concealing the February 2022 cyberattack under the guise of ‘system maintenance,’ it has violated this duty, causing financial and psychological harm to its users," it was stated. When advanced notice of the present petition was given to the crypto platform (whose directors have been made parties to the case), it started paying back to investors in bits, the petitioners' counsel added during the hearing today. "Who is authorised to investigate into the allegations?" asked Justice Sachin Datta asked. .The counsel replied that the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI) have the infrastructure to investigate such cases.The Court proceeded to ask SEBI and RBI, which are among the numerous authorities arrayed as parties to the petition, to verify the allegations levelled by the petitioners. The matter will be heard next on April 4. .As per the plea, after a cyber-attack in February 2022, users of BitBNS were left unable to withdraw funds from their wallets, causing them significant financial distress and hardships."Numerous users have faced month-long delays in accessing their legitimate funds, and some have been unable to withdraw their investments. Additionally, discrepancies in portfolio values and wallet balances that did not align with market trends have caused further financial losses and emotional distress. Despite repeated user complaints and appeals to address these issues, BitBNS has failed to provide resolutions, leaving crores of user funds inaccessible," the plea stated. Attempts at availing other legal remedies, including a joint complaint to the National Cyber Crime Portal, have yielded no results due to jurisdictional and infrastructural challenges, the petitioners said. They, therefore, sought the Delhi High Court's intervention in the matter. The prayers made in their petition include:- The SEBI, the RBI and/ or the Union Finance Ministry and the Ministry of Electronics and Information Technology (MEITY) should be directed to put in place a comprehensive regulatory mechanism to check on cryptocurrency/ VDA and protect investors.- An SIT or the CBI should be directed to register a case against BitBNS to thoroughly investigate the allegations of the financial fraud, cyberattack, fund mismanagement, and operational lapses at BitBNS.- The funds of BitBNS investors must be released and the 'arbitrary' restrictions on withdrawals must be lifted.- Compensation should be paid to BitBNS users who have suffered losses due to mismanagement and fraudulent activities by BitBNS..The petition was filed through advocates Dinesh Jotwani, Shivalika Midha, Shruti Singh, Bhargav Baisoya, and Aniket Sahu.