By Advocate Ajay Singh Malik | Practice: Supreme Court of India, Delhi High Court, and all District Courts | Dwarka, New Delhi
The Reality of Web3 Investor Conflict in India
The virtual digital asset (VDA) landscape in India operates in an intensive regulatory grey zone. When a decentralized finance (DeFi) protocol, NFT collection, or token offering suffers a catastrophic liquidity loss or fails to deliver on roadmap milestones, aggrieved investors rarely limit their actions to civil suits. Instead, the default recourse has become the immediate filing of criminal complaints before state Cyber Police Stations and Economic Offences Wings (EOW).
If you are a founder, promoter, or key stakeholder receiving demands for immediate restitution, proceeding without specialized counsel is perilous. Unilateral refunds are often interpreted by investigative agencies as an implied admission of liability.
Evaluating Criminal and Civil Exposure Under Indian Law
The substantive penal framework governing virtual assets in India combines modern cyber statutes with the revised criminal code under the Bharatiya Nyaya Sanhita, 2023 (BNS):
- Cheating (Section 318 BNS): Investigating authorities routinely invoke Section 318(4) by alleging that the promoter had a fraudulent or dishonest intention right from the inception of token minting or fund collection.
- Criminal Breach of Trust (Section 316 BNS): Applied whenever investors transfer fiat or stablecoins (USDT/USDC) into custodial wallets or pooled multi-sig smart contracts, alleging misappropriation or diversion of capital.
- Cheating by Personation Using Computer Resources (Section 66D, IT Act): Routinely added by Cyber Cells when digital identities, pseudonymous Discord handles, or smart contract deployments are involved.
- The BUDS Act 2019 Danger: Under the Banning of Unregulated Deposit Schemes Act, 2019, any operational model that promises fixed returns, staking yields, or guaranteed appreciation can be classified as an illegal deposit scheme, attracting stringent non-bailable provisions.
The “Restitution Trap”: Why Immediate Refunds Backfire
When investors threaten an FIR, founders instinctively seek to return invested amounts to “make things right.” In Indian criminal jurisprudence, restitution does not extinguish a cognizable offence automatically. Under the Bharatiya Sakshya Adhiniyam, 2023, conduct following an alleged offence can be scrutinized. Transferring funds without a formal legal framework can be entered into the police case diary as corroborative proof of fraudulent misappropriation.
“Restitution must never precede legal settlement architecture. Funds should only be returned under an executed Settlement Deed establishing a commercial closure with no admission of guilt, paired with sworn affidavits for the withdrawal of all existing complaints.”
The Legal Protocol: Safe Settlement and Quashing
To safely settle a crypto/NFT dispute, our litigation desk at Delhi Law Advocates deploys a rigorous three-tier framework:
- Comprehensive Communication Audit: Quashing claims of misrepresentation by isolating whitepapers, disclaimers, on-chain execution logs, and gas transactions.
- Bilateral Settlement Deed (No-Admission Clause): Drafting an unambiguous settlement instrument specifying that refund of capital represents an amicable business resolution of disputed contractual claims, explicitly barring the admission of any criminal or tortious liability.
- High Court Quashing under Section 528 BNSS: If an FIR has already been registered or complaints lodged, the settlement must be submitted to the High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS) to seek formal quashing and prevent subsequent harassment by state agencies.
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