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Government of India reply to Parliament on fraud by Bitcoin Companies mentioning Leading Exchanges

It raised another question, is all other crypto exchanges registered with the Ministry of Corporate Affairs or not ?

On Monday 16 March 2020, the Minister of State for Finance and Corporate Affairs, Mr. Anurag Thakur, has responded to the questions asked by the Member of Parliament of Lakshadweep Mr. Mohammed Fazial in the Lok Sabha (lower house of Parliament), on fraud by bitcoin companies.

Following un-starred questions were asked by Mr. Fazial (a) whether the Government is seized of the growing reports of cheating and fraudulent practices by bit coin companies; (b) if so, whether such companies are repeatedly violating rules laid out by the Corporate Affairs Ministry by not filing annual balance sheets; and (c) if so, the details thereof and the action taken against such companies so far? Mr.Thakur on Monday has given reply to above questions

" (a) to (c): The Bit coin companies are not defined under the Companies Act. However, the Ministry of Corporate Affairs (MCA) has conducted inspection through Registrar of Companies (RoC), Ahmedabad in the matter of ZEB IT Services Private Limited to examine the aspect with regard to dealing in Bit coins and based on the findings, Prosecutions have been filed for violations under various provisions of the Companies Act and the same also have been concluded on payment of penalty on the compounding application(s) filed by the company. The said company has filed its Balance Sheet as at 31.03.2019 and relevant Annual Return and the Company is Under Liquidation. There is one more company registered with RoC, Karnataka called Unocoin Technologies Private Limited which is in the business of developing online market platform to facilitate and conduct buy, sell, store and accept bit coins and this companies is up to date in filing statutory returns and no complaints has been received. " Many people started talking about Zebpay liquidation and other issues on Indian exchanges after the reply by Mr. Thakur in Lok Sabha as it mentioned India's top leading exchanges. Therefore, we have shared this information and asked some questions from both exchanges to get more clarity on the issue. Mr. Vikram, CMO, Zebpay replied: The event mentioned was not really a prosecution, but a finding of accounting irregularities after a routine audit. The audit occurred because ZEB IT was one of only two crypto firms properly registered with the MCA. By September, 2019, the errors were corrected and ZEB IT paid a fine. At the time, the government chose not to publicly announce the specifics of the fine and we have complied, so I won't give the specific amount here, but it was routine and there were no findings of any illegal activity. This shows the need for clear regulations for recording and reporting crypto transactions. Such regulations were not yet created or clear. Zeb IT came in line with what the ministry asked for and there has been no further investigation of ZEB IT or any other company associated with ZebPay.

To be accurate, there was no prosecution in court. ZEB IT wasn't accused of anything unethical or illegal. And as we've said, we're 100% in favor of being properly regulated.

The liquidation of ZEB IT is for other unrelated reasons and was initiated in December 2019, I believe. With Rahul Pagidipati taking over the company we are restructuring so ZEB IT's functions have been folded into other parts of the company.

1. Please clear, what is Zebpay liquidation means here ? Is it the same company owned by previous owners and now you have any new firm ?

There is no liquidation of ZebPay. ZEB IT Services was a company created by the founders to handle certain aspects of the business. Those functions are now being done within the company, so there is no longer a need for this separate entity. It is part of a larger restructuring. For example, we created Genie Technologies to handle wallet security.  2. Will this issue effect existing users ?

Not at all. Actually, much of the liquidation process is done. There is a certain time period and various procedures to follow before the liquidation is complete and recognized by the authorities.  3. What was the prosecutions filed for violations under various provisions of the Companies Act ?

Basically, the way we had kept accounts and the way the government preferred to have the accounts kept were different in certain places. To some extent this is because regulations regarding crypto firms were (and are) still under development. As you may have noted, some crypto firms were not even registered with the MCA. ZEB IT was, and that's why we properly filed our balance sheet in March, 2019. That balance sheet and other records went through a routine audit, which turned up these irregularities. The entire matter was settled and done by September. We continue to be registered and continue to say that we want to be regulated and in compliance with Indian law. I saw the word "ongoing" in one of the articles. I want to be clear that there is no ongoing investigation of ZebPay of any kind. I believe the minister meant to say that their oversight of crypto companies is ongoing. We welcome that fully.  4. What you are doing to neutralise the premium in Indian market on Bitcoin and USDT ?

Growing the exchange! In the last several weeks, we launched crypto-crypto trading, then got surprised by the Supreme Court ruling, then launched INR-crypto, and now face this black swan event of COVID-19. So at the moment we are trying to hire new people and scale up our tech, while at the same time having almost everyone working remotely. Premiums and spreads in all markets will improve, but we're doing our best to make it happen quickly. Since Rahul has committed us to transparency, I'll tell you frankly that the volume of new deposits and new KYC requests has been more than we were ready for. It's the kind of problem we're grateful to have, since it means that thousands of people are demanding to join ZebPay. We're implementing new automated systems across the board, like PayU and CashFree (and more coming) so deposits and withdrawals are fast. We'll have fast KYC soon as well. The more people trading, the better the pricing and liquidity.

Getting members on board and making the liquidity and pricing the best available are our two top priorities right now.

Unocoin CEO Mr.Sathvik replied,

I am glad that our employees, auditors, accountants and company secretaries have taken good care of our company to have all filings happening in time and to have now complaints against us. Not much Unocoin can do to neautralize the USDT issue. We will need lot of liquidity of crypto in India to have it match international prices

This has given more clarity on the issue and also raised another question, Is all other crypto exchanges registered with the Ministry of Corporate Affairs or not ? All exchanges should share the business they are doing with the Registrar of Companies (ROC). If they have done so, they should come out and share it with users and if not, they need to do so as soon as possible to gain the trust of their users.

We also talked to chartered Account Mr. Sahil Sharma on this issue and his opinion also shared in the latest video on our youtube in Hindi where BEI founder Pankaj has given more clarity on all the aspects.


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