Author: Bhavika Dhuria, Chandigarh University
Linkedin Profile: https://www.linkedin.com/in/bhavika-dhuria-6b20b7340?utm_source=share&utm_campaign=share_via&utm_content=profile&utm_medium=ios_app
TO THE POINT
The meteoric rise of cryptocurrencies has transformed the financial landscape globally, and India is no exception. With increasing numbers of individuals investing in digital assets like Bitcoin, Ethereum, and various altcoins, the crypto ecosystem has witnessed exponential growth. However, this rapid adoption has also opened the floodgates to a wide range of fraudulent schemes that prey on consumer ignorance, legal loopholes, and the absence of a defined regulatory regime. In India, the lack of a comprehensive law to govern cryptocurrency transactions has left investors highly vulnerable to scams such as Ponzi schemes, fake Initial Coin Offerings (ICOs), phishing attacks, and fraudulent trading platforms.
Crypto scams thrive on the very features that make digital currencies appealing anonymity, decentralization, and ease of cross-border transfer. Fraudsters exploit these attributes to deceive investors, often promising guaranteed high returns or leveraging celebrity endorsements to lend credibility to fraudulent ventures. In many cases, once funds are transferred, they are nearly impossible to recover due to the complex and often untraceable nature of blockchain transactions.
Despite the growing risks, India still lacks dedicated legislation addressing the classification, regulation, and consumer redressal mechanisms for cryptocurrencies. While authorities like the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have issued circulars and warnings, they fall short of providing enforceable consumer protections. The Consumer Protection Act, 2019, the Indian Penal Code, 1860, and the Information Technology Act, 2000 offer some legal recourse, but their applicability is limited and often insufficient in tackling the nuanced challenges posed by crypto fraud.
This article aims to provide a detailed understanding of how crypto scams are perpetrated, why consumer protection is essential, and what existing laws offer in terms of redress. It also explores notable case laws, doctrinal legal principles, and the gaps that need to be filled through policy reforms. As India stands on the brink of introducing comprehensive digital asset legislation, it is crucial for consumers, lawmakers, and enforcement agencies to understand the legal intricacies involved.
In a rapidly evolving digital economy, knowledge is the first line of defense. Educating oneself about the risks of crypto scams and the limitations of current consumer protection laws is essential not only for safeguarding personal assets but also for contributing to a more secure and transparent financial ecosystem.
ABSTRACT
The rise of cryptocurrency has opened new financial doors for millions in India, offering exciting investment opportunities and digital innovation. However, along with this growth has come a darker reality—an alarming surge in crypto-related scams. From fake tokens and Ponzi schemes to phishing attacks and fraudulent exchanges, countless investors have fallen prey to misleading promises of quick returns. What makes these scams even more dangerous is the fact that India currently lacks a clear and dedicated legal framework to regulate cryptocurrencies and protect consumers effectively.
Most victims of such frauds find themselves trapped with little to no legal remedy. While existing laws like the Consumer Protection Act, the Indian Penal Code, and the Information Technology Act offer some level of protection, they are often inadequate when applied to the fast-paced, decentralized, and anonymous nature of crypto transactions. Moreover, enforcement becomes even more complex when fraudsters operate across borders or behind digital masks.
This article takes a closer look at how crypto scams happen, why investors are vulnerable, and how the current Indian legal system responds. It includes examples of real scams like the GainBitcoin and Morris Coin cases and discusses what authorities like the Reserve Bank of India and the Enforcement Directorate have done so far. It also reviews important court decisions that impact how crypto is viewed under Indian law.
Ultimately, the lack of a proper legal structure leaves a significant gap in consumer protection. To truly address the threat, India needs targeted regulations, better public awareness, and stronger digital enforcement mechanisms. This article highlights the urgent need for a balanced approach—one that encourages technological growth while ensuring investor safety in the rapidly evolving world of digital assets. Awareness and the right legal tools are the first steps in protecting consumers from crypto fraud.
USE OF LEGAL JARGON
Legal jargon plays a crucial role in interpreting the rights, duties, and remedies available to victims of crypto scams. Understanding key legal terms can help consumers navigate the complex intersection of digital fraud and existing laws. One of the most relevant terms is “fraudulent misrepresentation,” which occurs when a party deliberately provides false information to induce another into a transaction—common in cases where fake crypto projects lure investors with promises of guaranteed profits.
The concept of “mens rea” (guilty mind) and “actus reus” (guilty act) is central to criminal prosecutions. In crypto frauds, both elements must be established to prove that the scammer intended to deceive and took action to commit the fraud. Another important term is “caveat emptor,” meaning “let the buyer beware.” In the largely unregulated crypto space, consumers often engage in transactions at their own risk, making due diligence essential.
Legal proceedings may also involve “jurisdictional issues,” especially when the scammer operates from outside India. This raises challenges in investigation and enforcement, as Indian authorities may not have the power to pursue cross-border offenders without international cooperation.
Terms like “quantum of damages” are used to determine how much compensation a victim may be entitled to, based on the extent of financial loss suffered. Additionally, “breach of trust” under Sections 406 and 409 of the Indian Penal Code is applicable when a person entrusted with funds misuses them for personal gain.
Finally, in the realm of consumer protection, “unfair trade practice” refers to deceptive or unethical marketing methods, including misleading crypto ads or endorsements.
Grasping these legal terms empowers individuals not only to recognize fraudulent schemes but also to pursue justice effectively within the existing legal framework.
CASE LAWS
Cryptocurrency scams in India have become more frequent and sophisticated, affecting thousands of unsuspecting investors. One of the most notorious cases is the GainBitcoin scam, masterminded by Amit Bhardwaj. He promised monthly returns of 10% through Bitcoin mining contracts but ended up cheating investors of over ₹2,000 crore. The Enforcement Directorate and Pune Police arrested him, charging him under Sections 420 (cheating), 406 (criminal breach of trust), and 120B (criminal conspiracy) of the Indian Penal Code.
Another significant case is the Morris Coin scam, where a Kerala-based man, Nishad K, created a fake cryptocurrency and duped people through shell companies. Lavish promotional events and false promises of returns helped him con nearly ₹1,200 crore from investors. He was booked under the Prevention of Money Laundering Act (PMLA), and his case is still under investigation.
The Bit connect scandal had international reach but impacted Indian investors as well. Promising unrealistically high daily interest, Bitconnect used its token BCC to run what turned out to be a Ponzi scheme. After global outrage, the U.S. Securities and Exchange Commission (SEC) took legal action, while Indian agencies began local probes.
In a landmark decision, the Supreme Court in 2020 (AIR 2020 SC 1648) quashed the RBI’s ban on crypto-related banking, stating it violated Article 19(1)(g) of the Constitution—the right to practice any profession. Though the ruling was welcomed, it also exposed the regulatory vacuum in India.
Public warnings from the RBI and Finance Ministry have urged caution, but in the absence of formal crypto regulation, the risks remain high. Think tanks like NALSAR and NLU Delhi have also advocated for risk-based, tech-neutral laws to protect users. These facts highlight the urgent need for a dedicated legal framework to tackle crypto fraud effectively.
THE PROOF
In recent years, India has witnessed a surge in cryptocurrency scams, where unsuspecting investors have lost crores of rupees to cleverly disguised digital frauds. One of the most infamous examples is the **GainBitcoin scam**, led by Amit Bhardwaj, who promised monthly returns of 10% through a cloud mining service. Thousands of investors were duped, and the estimated fraud crossed ₹2,000 crore. Bhardwaj was arrested in 2018, and the case revealed how easily public trust could be manipulated in the absence of strict oversight.
Another major case was the Morris Coin scam, which operated in Kerala and Tamil Nadu. Here, a fake cryptocurrency was marketed through flashy events and celebrity promotions, eventually scamming investors of over ₹1,200 crore. The founder, Nishad K, used shell companies to make the project appear legitimate, but it was nothing more than a well-organized Ponzi scheme.
These are not isolated incidents. Even global scams like Bit connect affected Indian investors. Bit connect promised high-interest returns on crypto investments through its token BCC, which turned out to be fraudulent. Indian users lost significant sums before the platform was shut down and legal action began in the U.S.
Despite such huge losses, victims have struggled to recover their money due to legal ambiguity. Most of these scams operate across borders or use complex blockchain systems that make tracking funds extremely difficult. Although the Indian Penal Code and the Information Technology Act have been used in investigations, there is no dedicated law addressing crypto fraud.
These real-life examples clearly show the urgent need for a stronger legal framework, dedicated regulatory bodies, and consumer education. Until then, Indian investors remain highly vulnerable, often left to fight a lonely and uncertain battle for justice in a rapidly changing digital landscape.
CONCLUSION
The rise of cryptocurrency in India has opened exciting doors for financial innovation and new investment opportunities. But alongside this progress, we’ve also seen a troubling increase in scams and frauds that have left thousands of ordinary people confused, betrayed, and financially drained. From flashy Ponzi schemes to fake tokens and misleading endorsements, crypto scams have taken many forms—thriving in the absence of proper laws and oversight.
What makes these scams even more dangerous is how hard it is to trace or recover stolen money. Unlike traditional bank frauds, crypto transactions are fast, borderless, and often anonymous. For a regular investor, once their money is gone, it’s almost impossible to get it back. Many victims are left with nowhere to turn, as current laws like the Consumer Protection Act or Indian Penal Code weren’t designed with crypto in mind.
While authorities like the RBI, SEBI, and Enforcement Directorate have started to step in, their efforts alone are not enough. India needs a clear, dedicated legal framework that defines cryptocurrencies, regulates exchanges, and gives consumers a reliable path for redressal when things go wrong. At the same time, spreading awareness is just as important. People need to know how these scams work, what red flags to look for, and how to protect themselves online.
We are at a turning point. With the right mix of regulation, education, and enforcement, India can become a safe and innovative space for digital finance. But ignoring the risks will only lead to more losses and shattered trust. Protecting consumers from crypto scams isn’t just about laws—it’s about ensuring that progress doesn’t come at the cost of people’s hard-earned money and peace of mind.
FAQS
1. Are cryptocurrencies legal in India?
In India, cryptocurrencies are indeed legal to own and trade in. However, they are currently unregulated. This means you can buy, sell, or hold them, but there’s no specificlaw governing their use or protecting you if something goes wrong.
2. What makes crypto scams so common in India?
Crypto scams often succeed because of a lack of awareness, promises of quick profits, and the absence of a solid regulatory system. Many people invest
without fully understanding how cryptocurrency works or without checking if a platform is legitimate.
3. Can I report a crypto scam if I’ve been cheated?
Absolutely. You can file a complaint with your local Cyber Crime Cell or report it through the National Cyber Crime Reporting Portal (https:cybercrime.gov.in). You may also approach the police under sections of the IPC and IT Act, depending on the nature of the fraud.
4. Does consumer law apply to crypto scams?
Yes, in some cases. If you were misled by false advertising or received poor service from a crypto platform, you can file a complaint under the Consumer Protection Act, 2019. However, since crypto isn’t formally defined as a “good” or “service” in law yet, outcomes may vary.
5. What are some warnings to watch out for?
Promises of guaranteed or high returns.
Unregistered exchanges or apps.
Pressure to invest quickly.
Lack of transparency about founders or company details.
Use of celebrities or influencers without official backing.
6. How can I protect myself from crypto scams?
Only use well-known and registered crypto platforms.
Never share private wallet keys or passwords
Avoid investing based solely on social media promotions.
Do your research before investing
Enable two-factor authentication on your accounts.
7. Is the Indian government going to regulate cryptocurrencies?
Yes. The government has proposed a Digital India Act, and there are ongoing discussions about introducing a regulatory framework. Meanwhile, profits from crypto are taxed at 30%, indicating a sign recognition of the sector.
