Safiya Malik

The Delhi High Court has directed the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and other relevant authorities to respond to a petition seeking the regulation of cryptocurrencies and an investigation into alleged financial irregularities involving BitBNS, a cryptocurrency exchange platform. The plea was filed by 16 users, raising concerns about the exchange’s operational lapses, including a prolonged freeze on fund withdrawals and the concealment of a cyberattack.

According to the petition, a cyberattack in February 2022 left users unable to access their funds, resulting in significant financial distress. The plea states, “Numerous users have faced prolonged delays in accessing their legitimate funds, with some unable to withdraw their investments. Discrepancies in portfolio values and wallet balances not aligned with market trends have caused further financial losses and emotional distress.” The petitioners allege that BitBNS concealed the cyberattack under the guise of “system maintenance,” breaching its fiduciary duty of ensuring transparency and security.

During the proceedings, the petitioners’ counsel informed the Court that after notice of the petition was served, BitBNS began repaying users incrementally. However, the counsel contended that this was insufficient to address the broader allegations of mismanagement. It was also stated that BitBNS transferred user funds abroad following the cyberattack. The counsel submitted, “BitBNS, as a cryptocurrency exchange, owes a fiduciary duty to its users to provide transparency, security, and timely grievance redressal. By failing to disclose the cyberattack, the platform has breached this duty, causing financial and psychological harm to its users.”

Justice Sachin Datta inquired, “Who is authorized to investigate the allegations?” The petitioners’ counsel responded that the Enforcement Directorate (ED) and the Central Bureau of Investigation (CBI) possess the necessary infrastructure and jurisdiction to handle such cases. The Court then directed SEBI, RBI, and other named authorities to verify the allegations raised in the petition and provide their responses. The matter has been listed for further hearing on April 4.

The petition states that there is a lack of a comprehensive regulatory framework for cryptocurrencies. and Virtual Digital Assets (VDAs) in India. It argues that this lack of oversight leaves investors vulnerable to financial fraud, operational failures, and systemic risks. Petitioners also cited the ineffectiveness of other legal remedies, including a joint complaint filed with the National Cyber Crime Portal, which they claim failed due to jurisdictional challenges.

The reliefs sought by the petitioners include a directive to SEBI, RBI, and the Union Finance Ministry to establish clear regulations governing cryptocurrency platforms. The petitioners have also requested the formation of a Special Investigation Team (SIT) or a CBI inquiry to investigate the allegations against BitBNS, including fund mismanagement, cyber fraud, and operational lapses. Furthermore, the plea seeks the immediate release of user funds withheld by BitBNS and compensation for users who have suffered financial losses.

The petition, filed through advocates Dinesh Jotwani, Shivalika Midha, Shruti Singh, Bhargav Baisoya, and Aniket Sahu, calls for stronger governance in the cryptocurrency sector to ensure investor protection. It contends that cryptocurrency exchanges must operate with greater transparency and accountability due to the volatile and decentralized nature of digital asset markets.

The Court directed the regulatory authorities to examine the allegations against BitBNS and submit their responses. The matter is scheduled for further hearing, where the submissions from the named authorities and the reliefs sought by the petitioners will be considered.

Case Title: Aditya Malhotra and Ors v. Union of India
Bench: Justice Sachin Datta