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School of Law, Bennett University | IV Bennett National Moot Court Competition

Bhumika Indulia

ABOUT BENNETT UNIVERSITY

Bennett University has been established by the ‘Times Group’, India’s largest media conglomerate through Act No. 24 of 2016 passed by the Government of Uttar Pradesh. The University at present offers unique inter-disciplinary and contemporary courses through its Schools of Engineering and Applied Sciences, Management, Law and Media & Liberal Arts. In addition, the University has also established the Centres for Innovation & Entrepreneurship and External Relation & Executive Education. Bennett University as part of its plan to excel as the frontline multi-and inter-disciplinary University has established partnerships with Babson College, Georgia Institute of Technology, EDX.org and will collaborate with leading knowledge players in the world.

 

ABOUT THE SCHOOL OF LAW

Bennett University established the School of Law with a vision to strive for excellence in teaching, research and advocacy towards Justice for all by shaping thought leaders in public policy of National and International dimensions. The school at present is offering B.A.LL.B. (Hons.); B.B.A.LL.B. (Hons.); LL.B (Hons.); and PhD courses and imbibes the best practices of national and international law schools in terms of curriculum, pedagogy, innovation in teaching methods and to add new interfaces addressing emerging new issues. The School of Law has established research centres to enhance and provide the best research facilities to its students and faculty. At present, there are 6 centres in operation which facilitate prominent research activities in their concerned areas, these Centres are: Centre for Law Technology & Innovation, Centre for Post Graduate Studies, Centre for Continuing Legal Education, Centre for Sustainable Development & Disaster Studies, Centre for Social Sciences & Centre for Human Rights. School of Law, Bennett University is invested and promoted by the largest media enterprise, which is a natural ally in voicing people rights has envisaged this school to educate and train the future thought leaders in the field of Law.

 

IV Bennett National Moot Court Competition 2022

Constitutionality of Cryptocurrency in India

Law and Technology have often shared a unique relationship. Not only does law seeks to govern various operational aspects in the usage of technology, it has also used technology for the purposes of its implementation. Technological advancements have often posed various challenges to law which the latter is frequently struggling with.

One such area in which this struggle has manifested itself is in the domain of cryptocurrency. The emergence of cryptocurrency as a concept can be attributed to increasing development of information and technology, posing numerous challenges in the field of data protection, constitutionality of technology and privacy, with a major impact on finances and governance. This often brings us to a pertinent question as to whether law regulates technology or technology operates the implementation of law.

The School of Law, Bennett University is conducting its Fourth National Moot Court Competition from February 11 to 13, 2022 which revolves around this theme of law and technology focusing on the constitutionality of cryptocurrency. The Moot Court Competition aims to dwell upon this infamous relationship between Law and Technology and its implication on the legal system.

The moot proposition has been drafted by Adv. Prateek Mishra, Partner, EPA Law Offices, who specializes in analysing the interface between technology and law.

MOOT PROPOSITION

  1. The Republic of Edna is a fast-growing major economy located in the Indian Ocean Region. It is the sixth-largest economy by nominal GDP and the third-largest in terms of Purchasing Power Parity (PPP). Edna is a common law country with a parliamentary democracy and its legal system is governed by the Constitution of Edna. The highest judicial authority is the Supreme Court of Edna and the Reserve Bank of Edna is the country’s Central Bank. It is the regulator of the Ednian banking system and also operates the monetary policy framework in the country.
  1. Since the introduction of the first virtual currency in 2009, global usage of cryptocurrencies and digital tokens has consistently increased. It is estimated that about 20,000 businesses today accept payments by way of virtual currencies and that there are more than 300 million virtual currency users in the world. Adoption of virtual currencies in Edna took off around 2016, and by late 2020, it had already become one of the top 10 countries in terms of virtual currency users with a 10 % global market share. However, until 2021, there was no special legislation in Edna governing or regulating virtual currencies.
  1. Concerned by the increased usage of virtual currencies, the Reserve Bank of Edna issued various public notices between 2013 and 2017 and cautioned users and traders against serious risks involved in dealing with virtual currencies such as cryptocurrencies and tokens. Primarily, the regulator has been concerned with the inherent limitations in regulating virtual currencies given the de-centralised nature of the underlying transactions and the difficulties associated in tracing any activities of terrorism funding and money laundering where such transactions are used.
  1. During this time, a number of Virtual Currency Exchanges (“VC Exchanges”) were incorporated by citizens in Edna with the objective of providing platforms that could offer trading and settlement services for various virtual currencies. ECTX, promoted by Peter Nazeer, an Ednese citizen, soon became the leading VC Exchange in Edna.
  1. In 2017, when virtual currency transactions had substantially increased, the Reserve Bank of Edna sought to restrict entities regulated by it from providing any services to, or facilitating the activities of, any entity or person dealing with or settling virtual currencies:

RBE Circular dated 06-04-2017

Reserve Bank has repeatedly through its public notices in December 2013, February 2017 and December 2017, cautioned users, holders and traders of virtual currencies, including Bitcoins, regarding various risks associated in dealing with such virtual currencies.

In view of the associated risks, it has been decided that, with immediate effect, entities regulated by the Reserve Bank shall not deal in VCs or provide services for facilitating any person or entity in dealing with or settling VCs. Such services include maintaining accounts, registering, trading, settling, clearing, giving loans against virtual tokens, accepting them as collateral, opening accounts of exchanges dealing with them and transfer/receipt of money in accounts relating to purchase/sale of VCs.

Regulated entities which already provide such services shall exit the relationship within three months from the date of this circular.

  1. Various writ petitions were filed against the RBE Circular dated 06-04-2017 before the Supreme Court of Edna. The court passed its judgment in these writ petitions in 2019. In the said judgment, the court allowed the said writ petitions and set aside the above RBE Circular on the principle of proportionality.
  1. Between 2018 and 2021, given RBE’s previous actions as well as uncertainty over Edna’s regulatory stance over virtual currencies, several VC Exchanges continued operating the trading platforms in Edna but chose to shift their platform infrastructure and data storage facilities to Singapore. They were now operating through entities incorporated in Singapore. Further, the user agreements for the platforms offered by these exchanges were now governed by Singapore law and any disputes were subject to the exclusive jurisdiction of courts in Singapore. ECTX was among the VC Exchanges which had shifted their bases to Singapore and had modified their agreements in this manner.
  1. This period also saw VC Exchanges purchasing substantial television, radio and internet advertisement slots in India. The general perception about these advertisements was that they targeted the lower middle-class, claimed that investments in virtual currencies is completely safe and promised astronomical returns against investments as low as ENR 100. Over the internet, sponsored posts by influencers presented these investments as ‘completely legal’.
  1. Given the RBE’s serious concerns about private virtual cryptocurrencies and the VC Exchanges’ marketing tactics, which the Government of Edna deemed as ‘misleading the youth of the country’, Edna fast-tracked the procedure to bring in a legislation to regulate virtual currencies. During this time, a few instances of the exchanges being hacked and virtual currencies being stolen were also reported. There was also a news report regarding the pumping and dumping of a ‘meme coin’.
  1. While Edna had initially contemplated regulating rather than outrightly banning virtual currencies, in August 2021, the Parliament of Edna enacted the Edna Official Digital Currency Act, 2021 (“EDCA”) “to prohibit the use of virtual currency and regulate the Official Digital Rupee and for matters connected therewith or incidental thereto.”[1] The said legislation banned the cryptocurrency in the following manner:

Prohibited Transactions:

    1. (1) No person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use Cryptocurrency in the territory of Edna.

(2)  Nothing in this Act shall apply to any person using technology or processes underlying any Cryptocurrency for the purpose of experiment or research, including imparting of instructions to pupils provided that no cryptocurrency shall be used for making or receiving payment in such activity.

(3)  Nothing in this Act shall apply to the use of Distributed Ledger Technology for creating a network for delivery of any financial or other services or for creating value, without involving any use of cryptocurrency, in any form whatsoever, for making or receiving payment.

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Cryptocurrency not to be used as legal tender and currency:

    1. (1) No person shall directly or indirectly use Cryptocurrency in any manner, including, as, –

(a) a medium of exchange; and/or Prohibited transactions.

(b) a store of value; and/or

(c) a unit of account.

(2) Cryptocurrency shall not be used as legal tender or currency at any place in Edna .

  1. The EDCA was notified in the Official Gazzette on 2nd August 2021. As soon as it was notified, VC Exchanges providing services in Edna protested against the outright ban on the virtual currencies and pointed to the significant monetary loss as well as loss of livelihood and employment that such action had already caused. Various delegations made representations to the Government to suspend the operation of provisions that banned cryptocurrency and offered to work with the Government of Edna towards solutions aimed at ensuring effective governance and regulation of virtual currencies in Edna. However, those attempts did not succeed.
  1. In the meanwhile, in view of the transition provisions contained in the EDCA, these exchanges, including ECTX commenced action to dispose of all cryptocurrency assets that it held on behalf of Ednian users. In order to comply with its duties of declaration contained in the act, ECTX commenced demanding personal data such as Unique Identity Number (“UIN”) as well as the Income Tax Registrations (“ITR”) of these users, so that the provisions could be complied with in full spirit and their cryptocurrencies, converted back into Ednese Rupee, could be refunded.
  1. Given that over 1.5 crore Ednians were using the ECTX platform, to ensure compliance within the time limit permitted in the EDCA transition provisions, ECTX hired an Ednian payment processing company, Edna Quick Process Private Limited (“EQPL”), to ensure expeditious settlement and reimbursement of funds to Ednian users.
  1. However, this would not be without its own challenges for ECTX. Huge panic selling in anticipation of, and after the enactment, of the EDCA led to a crash in prices of almost all virtual currencies that were listed on ECTX. Given the abysmal return on investment in the aftermath of the EDCA enactment, ECTX suffered from a loss of goodwill in the Ednese market.
  1. Further, as soon as users became aware that ECTX had shared their personal data with EQPL, an Ednian company, complaints under Section 72 and Section 72A of the Edna Information Technology Act were filed against ECTX and Peter Nazeer across various states in Edna. The complaints alleged breach of confidentiality and privacy by ECTX. A First Information Report (“FIR”) was registered by the Edna Capital State Police in one of said complaints.
  1. In this background, and having failed to convince the government to reconsider the ban on virtual currencies, ECTX and Peter Nazeer have filed a writ petition under Article 32 of the Constitution before the Supreme Court of Edna. The petition challenges the constitutionality of the EDCA provisions that ban mining, generating, holding, selling, dealing in, issuing, transferring, disposing of, or using Cryptocurrency in the territory of Edna.
  1. In addition, Peter Nazeer has filed another writ petition under Article 32 before the Supreme Court seeking that the FIR registered against him be quashed inter alia since the actions were taken to comply with the EDCA provisions. The Republic of Edna has opposed the said writ petition on the grounds of maintainability and has denied that the grounds raised by Peter Nazeer are sufficient to seek the quashing of an FIR.
  1. The following questions have been raised in the two petitions for the Supreme Court’s consideration:

Notes to Participants:

For more details, refer IV BNMCC , Moot Brochure and Competition Booklet

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