India: Crypto legality no shield for investor fraud

India’s Orissa High Court has ruled that the legality of cryptocurrency trading does not grant immunity to individuals accused of cheating investors through fraudulent crypto schemes.

In a significant observation on cryptocurrency fraud in India, Justice Sanjeeb K Panigrahi said that even a legally permissible business activity can attract criminal liability if it is used as a “cloak for fraudulent conduct.”

The Court made the remarks while refusing to quash criminal proceedings in the case of Umesh Kumar Ramani vs State of Odisha, as reported by Bar and Bench, involving allegations of a fake cryptocurrency investment scam that allegedly duped investors across multiple districts in Odisha.

Orissa High Court on cryptocurrency fraud

The case arose from a complaint filed in November 2024 alleging that the accused cheated an investor of ₹13,540 (around $141) by creating an account under the name MVC (My Victory Club).

According to the prosecution, the accused allegedly floated a fake company named Digi Mudra Connect Pvt Ltd and promoted a digital coin called SIITO. Investors were reportedly promised that the SIITO cryptocurrency would soon be listed on leading crypto exchanges, including Binance.

The prosecution further alleged that funds were collected through bank transfers as well as digital payment platforms such as Google Pay and PhonePe linked to the accused persons.

Over ₹5 Crore allegedly collected in crypto scam

The State informed the Court that the alleged cryptocurrency scam was not limited to a single investor. Prosecutors claimed that more than ₹5 crore ($522,860) was collected from investors across several districts in Odisha.

The prosecution also alleged that one of the accused earned commissions worth ₹1.5 crore ($156,861) and acquired assets using proceeds generated through the alleged crypto investment fraud.

The accused, however, argued that they were merely agents acting under instructions from senior company officials and had promoted only cryptocurrency investments. They contended that investors knowingly entered a volatile market and could not invoke criminal proceedings merely because they suffered financial losses.

‘Law does not extend immunity to deceit’

Rejecting the plea to quash proceedings, the Court observed that the allegations went far beyond ordinary cryptocurrency trading “The law does not extend immunity to deceit merely because the medium through which such deceit is practised is not itself prohibited,” the Court observed, as noted by Bar and Bench.

The Bench clarified that the prosecution’s case was based on allegations that cryptocurrency was used as an instrument to deceive investors through false promises, fake entities and a non-existent digital coin. The Court further stressed that economic offences and cryptocurrency-related investor fraud cases must be taken seriously, as they erode public confidence in the financial system.

Trial needed to examine financial transactions and digital evidence

The High Court also held that disputed questions regarding the exact role of the accused could only be examined duringtrial. According to the Bench, the investigation would require scrutiny of financial transactions, electronic evidence, witness statements and surrounding circumstances to determine whether the accused acted merely as agents or were active participants in the alleged conspiracy.

This comes amid the Indian government classifying the Virtual Digital Asset (VDA) sector as “high risk” in a recent presentation to the Parliamentary Standing Committee on Finance, citing concerns about money laundering, cyber fraud, human trafficking, drug networks, and radicalisation.

Another issue that officials were quick to bring up was tax compliance in the cryptocurrency industry. Only about 139,000 of the 645,000 cryptocurrency dealers who had TDS applied to their transactions disclosed their cryptocurrency revenue, according to government data from FY23. Authorities view such figures as a window into larger concerns about transparency, offshore activities, and the efficiency with which the industry is monitored and regulated, rather than just a tax issue.

The Parliamentary Standing Committee on Finance in India, led by BJP MP Bhartruhari Mahtab, had in-depth conversations with representatives from significant cryptocurrency exchanges like Binance, WazirX, and ZebPay, as well as government authorities, as reported by The Economic Times. The meeting marked one of the most structured engagements between lawmakers and the industry, involving multiple departments, including Finance, Corporate Affairs, CBDT, and IFSCA.