The world of cryptocurrency was caught off guard when FTX exchange, one of the world’s largest cryptocurrency exchanges filed a bankruptcy petition in the USA in November last year. This came as a shock because every crypto investor has a direct or indirect effect on their “crypto asset”.
There are about 1.15 crore people in India who have invested in cryptocurrencies and as per a survey of Indian crypto exchange average investment by an individual is around Rs. 9000 in India. All things kept in mind, it is necessary to know what legal remedy one has in case an FTX-like crash happens in India. As we all know, India does not have any legal framework regarding cryptocurrency like SEBI regulates the stock market, we have to find legal recourse in laws which are in force.
Before we delve further, it may be noted that nomenclature of cryptocurrency is “currency” however, they are not “currency” as per existing Indian laws, at best they can be described as “digital products” or “digital assets”.
In this article, we are only looking at leading crypto exchanges in India (hereafter referred as “exchanges”). We will be dealing with their terms and conditions and what other legal recourse is available to an investor.
T&Cs are boring, lengthy and full of legal jargon, but the truth is that they are the only agreement between the user and the company.
It may be revelation to some of us that many crypto exchanges are not even based in India i.e., they are not registered as a Company or LLC in India. This means any legal battle against them will be an uphill task. Interestingly, some of them are based in Singapore.
Although every cryptocurrency exchange in India advertises themselves as a “Top Exchange”, however, if we dig deeper in their T&C’s, they actually consider themselves as “merely a technology platform”.
Some of the top exchanges have a similar dispute resolution clause. Many exchanges provide for Conciliation, through which any user who has a grievance can send 60 days’ notice to the company to resolve their complaint.
However, most exchanges provide for an Arbitration Clause. In simple words, Arbitration is a procedure in which a dispute is submitted, by agreement of the parties, to one or more arbitrators who make a binding decision on the dispute. In choosing arbitration, the parties opt for a private dispute resolution procedure instead of going to court.
Although India has its own Arbitration Act and several domestic/international arbitration centres, some exchanges prescribe that every dispute should be referred to Singapore International Arbitration Centre (SIAC). For an investor, it is important to know that arbitration is an expensive process where there are different forms of fees like arbitrator’s fee, administrative fee and lawyer’s fee. For reference, the total fee for a dispute of a sum of under Rs. 30 lacs would be around 10,000 SGD in SIAC (approx. Rs. 6.5 lacs). It is a no-brainer that no small investor would opt for arbitration. These type of clauses are meant for larger businesses and not for individual investors. Clearly, the exchanges are showing their upper hand and dominant position while drafting such clauses to create hindrances for anyone who has a grievance against them.
As some exchanges are based in Singapore, their T&C provide filing of claims before Small Claims Tribunal, Singapore. The Tribunal can adjudicate dispute sum of up to 30,000 SGD (approx. Rs.18.5 Lacs). This clause may seem appropriate, however, it is not feasible for any Indian investor to approach the tribunal in Singapore.
So, what’s the recourse to a small investor who has not invested tens of lacs, well, that’s when our current law comes into the frame. This is a point when we enter uncharted territory because our existing laws have not been tested against new-age technology disputes.
In 2019, the new Consumer Protection Act came into force. The Legislature has added new facets to this law, one of which is defining what “e-commerce” means and further “Consumer Protection (E-Commerce) Rules, 2020” were notified in 2020 which prohibit unfair trade practices on e-commerce platforms. Any aggrieved user can file a consumer complaint before one of the Commissions formed under the Act. However, it must be noted that there is no precedent either by any High Court or the Supreme Court of India whether such a complaint is maintainable or not.
It must be noted that Presiding Officers in consumer courts may not be well versed with all the technological advances with respect to cryptocurrencies. For resolving any crypto disputes, it would be imperative to have a specific adjudicating Authority/ Tribunal with Presiding Officers having deep technical knowledge and aware of nitty-gritties of the crypto world.
The one thing which is clear from the above discussion is that the Parliament needs to formulate a specific legislation to govern the crypto backed products and services and form an Authority/Tribunal, so that any dispute can be expeditiously and effectively decided. Until then, please invest carefully.