Crypto & Virtual Digital Assets: Can Indian Laws Protect Investors?
The
rise of Virtual Digital Assets (VDAs), especially cryptocurrencies, has
transformed World financial landscape. Millions of Indians have invested in
crypto with the hope of high returns, but this has also led to scams, frauds,
and regulatory uncertainty. The recent WazirX case, where the
Enforcement Directorate investigated alleged money laundering through crypto
exchanges, has once again raised critical questions: Can Indian laws really
protect investors from fraud in VDAs?
The Legal Landscape of VDAs in India
- Recognition
under Finance Act, 2022: VDAs (like Bitcoin, Ethereum,
NFTs) are defined under the Income Tax Act for taxation purposes, with a 30%
flat tax on gains and 1% TDS on transactions.
- Consumer
Protection Act, 2019: In principle, consumers misled by unfair trade
practices in crypto can seek redressal.
- PMLA, 2002: Crypto
exchanges are now “reporting entities,” bringing them under anti-money
laundering obligations.
- RBI’s stance: The central
bank has repeatedly warned about the risks of crypto, linking it to
financial instability.
Despite
these measures, there is no dedicated crypto law, which leaves gaps in
investor protection.
When Does a Crypto Fraud Become a Crime?
For
misconduct in crypto to qualify as a crime, it must fit into the legal
definition:
1.
Prohibited by law, and
2.
Punishable by the State.
Since VDAs are now recognized as property/assets, crimes involving deception, misappropriation, or laundering can apply to them just like traditional property or money.
Criminal Law Coverage
for VDA-Related Frauds
1. Cheating (Section 318, BNS, 2023)
- What it means: Deceiving
someone dishonestly to induce delivery of property.
- Crypto example: Fake investment
platforms promising “guaranteed returns.”
- Punishment: Up to 7 years
imprisonment + fine.
2. Criminal Breach of Trust (Section
316, BNS)
- What it means: When entrusted
property is dishonestly misappropriated.
- Crypto example: Exchanges
misusing investor deposits or blocking withdrawals.
- Why it matters: Platforms
holding investor funds have fiduciary responsibilities.
3. Dishonest
Misappropriation of Property (Section 314, BNS)
- What it means: Taking someone
else’s property without consent.
- Crypto example: Hacking wallets,
stealing private keys, or “exit scams.”
- Why it matters: VDAs are
treated as movable property under Indian law.
4. Forgery &
Fraud with Digital Records
- What it means: Manipulating
electronic records or using fake identities.
- Crypto example: Falsifying
blockchain entries, fake KYC accounts, deepfake frauds.
- Legal backup: BNS + Bharatiya
Sakshya Adhiniyam recognize electronic records as valid evidence.
5. Money Laundering
(PMLA, 2002)
- What it means: Disguising
proceeds of crime as legitimate assets.
- Crypto example: Layering
illicit money through multiple wallets/exchanges.
- Why it matters: ED has already
invoked PMLA in cases like WazirX.
Why Criminal Law
Matters for VDAs
- Accountability: Ensures
fraudsters, intermediaries, and negligent platforms are answerable.
- Deterrence: Threat of
imprisonment and fines discourages scams.
- Consumer
Confidence:
Gives investors faith that scams will not go unchecked.
- Industry
Discipline:
Forces platforms to adopt compliance, KYC, and AML safeguards.
Limitations of
Criminal Law Alone
- Disclosure
hesitation:
Many investors avoid filing complaints due to fear of exposing undeclared
investments.
- Cross-border
issues:
Fraudsters often operate from outside India, making enforcement difficult.
- Civil remedies
gap:
Criminal law punishes offenders but does not guarantee compensation to
victims.
The Way Forward
1.
Dedicated VDA Legislation – India needs a comprehensive law to
regulate crypto trading, custody, and investor protection.
2.
Consumer Awareness – Stronger campaigns to educate retail
investors about risks.
3.
RegTech Solutions – Use of blockchain analytics for
fraud detection and compliance.
4.
International Cooperation – Aligning with global best practices
(EU MiCA, US SEC guidelines).
Conclusion
While
India lacks a dedicated crypto law, existing provisions of criminal
law (BNS, PMLA, IT Act) ensure that scams and frauds involving VDAs already
qualify as crimes. Cheating, breach of trust, misappropriation, and digital
forgery provide a legal framework for accountability and deterrence.
However,
for true investor protection, criminal law must work alongside regulatory
clarity, consumer awareness, and international collaboration. Until then,
investors must remain cautious — because in the world of crypto, the line
between opportunity and fraud is razor-thin.
Disclaimer: This article is for educational purposes only and should not be treated as legal or financial advice. Contact For queries or comments :
· Email: info@publicrightaction.in
·
Website:
https://publicrightaction.blogspot.com
Disclaimer: This blog provides informational and educational
content only. It does not constitute financial, legal, or
investment advice. Readers are advised to conduct their own due diligence and
consult qualified
professionals before making any financial or investment
decisions.
#CryptoIndia #VirtualAssets #InvestorProtection
#CryptoScams #WazirXHack #Blockchain #BNS #ITAct #PMLA #CryptoFraud
#DigitalAssets #FinancialSafety #LegalAwareness #CyberFraud
References
2. Kanpur Cryptocurrency Scam – Times of India
3. Singapore HC Axes WazirX Restructure – Economic Times
4. Mudrex Survey – Crypto Regulation (Economic Times)
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