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ICICI bank which has been a leading Bank in India adopting to innovative Cyber Banking in India is also in the forefront of incidents in which customers have lost money because of the negligent manner in which security of the systems is maintained as well as the fraudulent involvement of its employees.

Recently in two cases the TDSAT passed adverse orders against ICICI Bank. In the S.Umashankar Vs ICICI Bank case, ICICI Bank was held to have assisted the fraudster in commission of the crime. Though clinching evidence of criminal complicity of ICICI Bank had been adduced in the Adjudication and Tribunal in this case, since these forums were not criminal Courts, they stopped at passing adverse remarks in the orders. Had they been criminal Courts, we could have considered that ICICI Bank had been indicted of criminal offences under Sections 66 and 65 of ITA 2000/8.

In another case of Rajendra Yadav Vs ICICI Bank, an earlier order dismissing the complaint by the Adjudicator of Karnataka (in 2011) on the ground that “Section 43 was applicable only to individuals and not to Companies” has also been dismissed with costs on ICICI Bank.

ICICI Bank  enjoying the power of public money however is not accepting the decisions and is challenging the decisions in higher Courts in the belief that the victims of Cyber crimes who have brought these litigation on the Bank will not have resources to continue their legal battle in higher courts for both the expenses and time involved.

Both these cases are cases which have been in litigation since 2008 and 2010.

In the latest attempt, ICICI Bank wants to get itself exempted from being liable under Section 43 by raising a bogey that the word “Person” used in the section applies only to an individual and no action can be brought against the Bank. The exemption claimed under Section 43 is also an exemption claimed under Section 66 since the two are interlinked.

This means that ICICI Bank is claiming that if it commits any offence under Section 66 which includes unauthorized access, denial of access, diminishing the value of information residing inside a computer etc., it has to be protected because it is a “Company”.

It would be interesting to see if the Courts admit such petitions or dismiss it at the first place.

Naavi has already pointed out in the judicial forums why this claim is ridiculous and cause different anomalies in law. We shall elaborate this some time later.

Naavi

Refer: TDSAT order 

Here is a copy of the report by the Inter ministerial committee on Crypto currencies.

Copy

The report contains the copy of the bill proposed to be introduced for banning Crypto currencies in India.

According to the Bill,

1.No person shall directly or indirectly use Crypto currency in any manner including as medium of exchange, and/or a store of value and/or a unit of account, nor as a legal tender or currency in any place in India.

P.S: Cryptocurrency, by whatever name called, means any information or code or number or token not being part of any Official Digital Currency, generated through cryptographic means or otherwise, providing a digital representation of value which is exchanged with or without consideration, with the promise or representation of having inherent value in any business activity which may involve risk of loss or an expectation of profits or income, or functions as a store of value or a unit of account and includes its use in any financial transaction or investment, but not limited to, investment  schemes;

2. Mining, holding, trading etc will be offences punishable with one to 10 years of imprisonment and fine.

3. Advertising and promotion of crypto currencies is punishable with fine and/or imprisonment upto 7 years.

4. Even an attempt to commit any offences under the Act shall be punishable with half the term meant for the offence.

5. A separate investigating authority will investigate and prosecute offences under the act and actions in Courts can be initiated only by the Government.

6. Offences will be non cognizable and bailable.

7. Companies will have liability on the Officer in charge  for offences attributable to them subject to usual defenses of due diligence.

8.Fines under the Act can range from Rs 1 lakh to R 50 crores under different sections

Naavi

According to Zebpay which has shifted its business out of India, it still has more than 2 million Bitcoin holders in India and have more than 40000 bitcoins in their possession.  According to their estimate there are about another  15000 bitcoins in the hands of Indians in other exchanges and may be a further 20,000 in dark pools which Zebpay itself calls as “Black Market”. The other Crypto currencies could add up to a further 50% of the Bitcoin holding.

The total estimated value of the Crypto currencies in the hands of Indians which we term as “Digital Black Money” could therefore be around 100,000 bit coins. At around Rs 8.5 lakhs per Bitcoin, the total value is around Rs 8500 crores. It must be recognized that this is only an estimate of the holding by Indians and the rest of the market capitalization (nearly 300 billion US dollars)  is held by non Indians.

According to the industry’s own estimate,  only 21% of Bitcoin transactions are deemed ” Lawful” as revealed by the research of MIT and IBM. The research said that billions of dollars are laundered through Crypto currencies every year.

The honourable Supreme Court cannot ignore these facts when it hears the arguments of the industry on legitimization of Cryptos in India.

Naavi

Articles on Bitcoin on naavi.org

Here is a simple survey I am conducting on a question of law. I request all legal professionals to send me your personal view on this matter through e-mail or otherwise.

This looks simple and a waste of time for most of the legal professionals. But believe me, your view may be important in defining the law of Cyber Crimes in India. Hence I request you to take a few minutes to send me your views.

Naavi

Section 43 of ITA 2000 states as follows:

Penalty and Compensation for damage to computer, computer system, etc 

If any person without permission of the owner or any other person who is in charge of a computer, computer system or computer network –

(a) accesses or secures access to such computer, computer system or computer network or computer resource 

(b) downloads, copies or extracts any data, computer data base or information from such computer, computer system or computer network including information or data held or stored in any removable storage medium;

(c) introduces or causes to be introduced any computer contaminant or computer virus into any computer, computer system or computer network;

(d) damages or causes to be damaged any computer, computer system or computer network, data, computer data base or any other programmes residing in such computer, computer system or computer network;

(e) disrupts or causes disruption of any computer, computer system or computer network;

(f) denies or causes the denial of access to any person authorised to access any computer, computer system or computer network by any means;

(g) provides any assistance to any person to facilitate access to a computer, computer system or computer network in contravention of the provisions of this Act, rules or regulations made thereunder,

(h) charges the services availed of by a person to the account of another person by tampering with or manipulating any computer, computer system, or computer network,

(i) destroys, deletes or alters any information residing in a computer resource or diminishes its value or utility or affects it injuriously by any means 

(j) Steals, conceals, destroys or alters or causes any person to steal, conceal, destroy or alter any computer source code used for a computer resource with an intention to cause damage,

he shall be liable to pay damages by way of compensation to the person so affected.

This section uses the term “Person” many times and most importantly for the entity that has suffered a damage and the entity that has caused the damage.

This section is linked to Section 66 and any of these acts committed dishonestly or fraudulently constitutes an offence under Section 66. The two sections cover most of the so called Cyber Crimes against which all of us are fighting against.

In law the word “Person” is applicable both to an individual living person as well as a company. The General Clauses Act also specifies the same.

In this context please let me know your view as to whether the word “Person” used in Section 43 of ITA 2000 is restricted to only an “Individual”.

Thanking you in advance.

Naavi

IAMAI the Internet and Mobile Association of India is a body registered under the Societies Act with a self declared mandate to expand and enhance the online and mobile value added services sectors. Considering the growth of the mobile industry in India and its reach among the common people. IAMAI represents a very important segment of the communications industry. It therefore holds a very important obligation to the people of India.

While promotion of the commercial interests of the members is a legitimate activity of the association, I would like to ask the Governing Council members to take a fresh look at their objectives and whether the objectives include promotion of commercial interests irrespective of the impact of their decisions on the society at large.

In short we need to question if the objectives to promote business includes promotion of “Ethical and Legal Business” and not business that is detrimental to the very survival of the India as a sovereign country. ( This is no reflection on many good causes for which IAMAI might have devoted its energies in the past.)

There are may actions of the IAMAI such as its opposition to Data Localization that has betrayed the lack of national interest in the pursuance of its objectives but I would like to focus now on the specific stand that IAMAI has taken to support the legitimization of Crypto Currencies in India and oppose the stand of RBI in banning the Bankers involvement in the Crypto exchanges.

In the petition being heard in the Supreme Court IAMAI has taken a stand to oppose the RBI ban on Crypto transactions.

The IAMAI counsel has argued

“RBI restricting banks from providing services to crypto [businesses] is a colorable exercise in the guise of consumer interest. It can exercise power in public interest only to the extent as provided under law such as interest of depositors, borrowers etc,

“cryptocurrency must not be equated to sovereign currency i.e., rupee etc,”

“RBI is only a delegatee of power which cannot exercise [the] same powers as Parliament which has a direct impact on legitimate businesses,”

“since Blockchain technology” is not disputed, the blanket ban on Virtual currencies built on this technology is “arbitrary, unfair and unconstitutional”.

The counsel has also showed that certain businesses have suffered losses or closed down their businesses because of the RBI ban and therefore drawn attention to Article 19(1) of the constitution.

We draw the attention of the honourable Supreme Court to the counter views that it must consider before taking any view on these arguments.

1. 1. Bitcoin and other private crypto currencies form one set of mutually interchangeable assets. Hence a holder of one of the currencies can convert it to anther. Some of these currencies are convertible to legacy currencies such as Swiss Francs and Japanese yens. There are ATMs operating in several places abroad where cryptocurrencies can be deposited or withdrawn against legit currencies. Hence any holding of a crypto currency is equivalent to the holding of foreign currency and violates the FEMA regulations.
   2. Crypto currencies are called “Currencies” because they are dealt with as “Currencies”. They are not dealt with in the market as “Commodities”. Hence the only discussion that is relevant is for “Crypto” as a “Currency” and not as a “Commodity”.
   3. In actual usage Cryptos are used as “Currency of the criminals” and “Currency of terrorists”. More than 90% of the Cryptos like Bitcoins are in the past used for financing some illegal drug activity or arms trading or for collecting ransom and hence most of the current stock if considered as “commodity” is tainted as “used in money laundering”.
   4. Cryptos arise out of three channels namely the “Mining”, “Trading” and “ICOs”. Mining is an activity which consumes huge quantities of resources in terms of power and computing resources and will encourage unproductive use, crypto mining offences etc. Trading will enable the currencies to be used for money laundering. ICOs are a fraud since it is like a private placement of a self created wealth. As long as the identity of Bitcoin wallet owners and Bit coin transactions remain anonymous, we have to treat the holdings of Cryptos as “Digital Black Money”.
   5. If Supreme Court is even thinking of legitimizing private cryptos, it would mean that the Court has gone back on its commitment to root out black money.

IAMAI should refrain from promoting  business that supports “Digital Black Money” and “Money laundering” however beneficial it is, to its members. If some of these Crypto exchange companies close down, it is a natural consequence of pursuing the business of money laundering. It cannot be a fundamental right that the Court should protect.

I request members of IAMAI to discuss whether the organisation has to involve itself in promoting Crypto currencies as it amounts to promoting unethical business.

Naavi

Also see:

The leaked copy of the Bill

Bitcoin.com and livelaw.in have reported that the hearing at Supreme Court took place on 8th August 2019 and certain points were presented. The petitions are being heard by a bench consisting of justices Mr R F Nariman and Surya Kant.

The main points indicated as discussed in these reports are summarized below. More details are available here  and here. Our comments are also interspersed.

There were two issues that were specifically discussed. One was the RBI circular of April 6 2018 prohibiting the Banks from providing any Banking facilities to the Crypto exchanges and the second is the action the Government of India is contemplating on regulating the Crypto currencies in India.

Comment 1: It is unfortunate that IAMAI (Internet and Mobile Association of India) is a party promoting the Crypto currencies. Its involvement in this case is like a CII or FICCI arguing that narcotics trade or arms trade should be legalized in India because the traders and industries can benefit from such trade. The industry body is exceeding its mandate and bringing pressure on the Government and RBI to introduce policies that are illegal and detrimental to the interests of the citizens of India rather than focus on business interests within the framework of what the policy makers allow.

The counsel for IMAI argued that since “Blockchain technology” is not disputed, the blanket ban on Virtual currencies built on this technology is “arbitrary, unfair and unconstitutional”.

Comment 2: The argument that if Blockchain technology is acceptable, any product or service built on that technology should be accepted exposes  abject ignorance or dishonesty of the argument. This is like arguing that if Windows as a computing platform is acceptable, a virus created to run on windows or a crime using a windows vulnerability is constitutional and cannot be banned or punished.

The Court has to recognize that technology platform is different from how the platform is put to use for a particular product or service. Acceptance of Block chain technology cannot be termed as acceptance of all criminal activities that are conducted using the technology.

The counsel also argued that “No Study” was conducted by RBI before the decision was taken.

Comment 3: A “Study” or a “Committee” is not a pre condition for the RBI to take any policy decision. The internal expertise available with the executives and the publicly available information on the damage that crypto currencies may create to the monetary system in any country is adequate for the RBI to take the decision. The Supreme Court cannot be forced to lay down a principle that before any operative decision, RBI should mandatorily constitute a committee or conduct a study.  This will be an interference in the day to day activities of RBI which is a statutory body regulating the monetary health of the country.

The Government has submitted the draft regulation on Crypto currency which it has prepared and expressed its intention to introduce it as a bill in the next session of the Parliament. It appears that this did not come up for discussion today.

The hearing has been now adjourned to August 14th.

The report in Bitcoin.com makes a false and misleading contention that the Secretary of the Ministry of Finance was removed immediately after the submission of the report on Crypto currency as if the two are connected. The Bitcoin community is now trying to influence Mrs Nirmala Sitharaman for a favourable view. It is also trying to mislead the public that “Crypto currency is not prohibited in India”, quoting a parliamentary answer given by Mr Anurag Thankur. This is a fraudulent misrepresentation aimed at cheating the public into entering into fresh transactions.

I urge the Government to ensure that “Promotion of Private Crypto currencies” as an alternative to legit currencies is also considered a punishable crime in the proposed bill.

The Government must take note of the attitude of the industry to challenge the sovereignty of the national currency system. One example of this attitude is revealed in the following statement (Refer livemint.com)

” Sathvik Vishwanath, CEO co-founder, Unocoin, said he doesn’t think the bill will be able to stop the dealings in cryptocurrencies even if it does come into effect. “Transactions are completely online,” he said. “It’s impossible to tell where it’s happening from…..it would be a bad idea for the government to ban cryptocurrency in India, because it might drive transactions underground…..a lot of people had moved their cryptocurrencies out of the country..”

” Ashish Singh, CEO of bZird, a digital marketing firm, said many cryptocurrency users in India keep their money abroad…..many Indian users don’t actually hold cryptocurrency accounts in their own name. Instead, they have friends in other countries who buy and sell currencies for them, and send the money through platforms such as PayPal”

The above are admissions of illegality and havala operations by Bitcoin businesses in India. I wish the honourable Supreme Court must take note of these views and the Government must initiate further inquiries with these executives to stop such illegal activities that they are referring to in these statements.

Naavi