India's crypto regulatory gap sparks a rights protection dilemma: courts reject investors' claims, and fund freeze disputes escalate

February 25 News: The Delhi High Court recently dismissed a lawsuit filed by a group of cryptocurrency investors against a certain crypto platform. Judge Prushaindra Kumar Kaurav stated that the platform is a private company and does not meet the definition of a “state” entity under Article 12 of the Constitution. Therefore, it cannot be subject to judicial intervention under Article 226, and the petition lacks a legal basis for acceptance.

The lawsuit was initiated by investors including Rana Handa and Aditya Malhotra, requesting the court to strengthen regulation of the crypto platform, and to direct the CBI or a special investigation team to investigate. They also asked for the freezing of user funds that were reportedly restricted. However, the court clearly indicated that ordering a criminal investigation is an extremely special circumstance, and some complaints have not even completed the FIR process, which is insufficient to trigger a mandatory investigation.

The core dispute in the case concerns withdrawal restrictions. Several users reported difficulty in withdrawing funds from the platform since 2025, with issues such as account valuation discrepancies and limit adjustments. Rana Handa told the court that he invested approximately 1.422 million rupees in 2021, but subsequent withdrawal obstacles led to widespread doubts about the platform’s liquidity and compliance. Affected investors had previously filed complaints through the National Cyber Crime Portal and eventually turned to legal channels to seek justice.

The court also emphasized that the regulation of cryptocurrencies falls under legislative and policy matters, which should be formulated by Parliament and regulatory agencies such as RBI and SEBI, rather than by the judiciary proactively creating rules. In the absence of clear regulations, the court prefers to guide parties to resolve disputes through traditional legal pathways such as civil lawsuits, consumer complaints, or police reports.

From an industry perspective, this ruling highlights the legal gray area caused by the still-developing crypto regulatory framework in India. For investors facing frozen funds, withdrawal difficulties, or platform disputes, obtaining quick relief through constitutional litigation becomes significantly more challenging. Legal experts generally agree that this decision follows existing constitutional principles but also amplifies concerns about the lack of crypto asset regulation, investor fund safety risks, and platform compliance reviews. It is expected that legislative discussions and regulatory policy battles will continue to intensify into 2026.