The legality of Bitcoins in India was always in doubts. However, in order to earn money, many people and companies were dealing in Bitcoins in India with great disregard to the cyber law due diligence requirements and in active violation of the Internet intermediary liability rules framed under the Information Technology Act, 2000.
Almost all of the e-commerce websites in India are violating the laws of India especially the cyber law of India and Bitcoins dealers are no exception. In fact, websites dealing in Bitcoins are also violating financial laws of India including the money laundering laws and foreign exchange laws.
Many countries like China, France, Thailand, Norway, etc have either regulated the use of Bitcoins or they have completely banned them in their jurisdictions. But the Reserve Bank of India (RBI) and Indian government were slow in reacting to the issue. Meanwhile, Bitcoins frauds and crimes are increasing world over, including in India.
Realising the gravity of the situation, the RBI cautioned users of virtual currencies against various risks. These include legal risks as well. With the present advisory, the websites and individuals dealing in Bitcoins in any manner whatsoever must comply with the techno legal requirements of Indian laws. Otherwise, they may find themselves in big trouble.
And this is exactly what has happened. As per India Today, the Enforcement Directorate (ED) conducted its first searches on a Bitcoin trader in Ahmedabad. Searches were conducted on Seven Digital Cash LLP which owns a Bitcoin website – www.buysellbitco.in based in Ahmedabad. “We have conducted searches at 2-3 locations of Seven Digital Cash LLP and its website. The company was involved in buying and selling of Bitcoins in India, operating from Ahmedabad,” an ED official confirmed. The website www.buysellbitco.in has stopped operating online soon after the searches.
Under the Foreign Exchange Management Act (FEMA), ED is taking action on suspicion that “these Bitcoin traders might be doing hawala transaction in the name of virtual currency trading.” An ED official says, “We have started our searches with Ahmedabad – which is also the major base of Bitcoin traders, but in the coming days our other teams could conduct similar searches on other companies and websites involved in Bitcoin trading in various other metro cities.”
Thus, either the Bitcoins stakeholders must comply with the laws of India or they must shut down their websites and business in their own interest.