The Delhi High Court has held that disputes between users and a private cryptocurrency exchange concerning withdrawal restrictions, alleged cyber incidents and alleged fund mismanagement remain private law disputes, even if many investors are affected. Such disputes do not automatically acquire a public law character, and taxation or statutory recognition of Virtual Digital Assets under the Finance Act does not, by itself, make such private entities “State” under Article 12 or subject them to writ scrutiny on that basis.
The Court further held that where reliefs such as release of funds and compensation require adjudication of disputed facts, evidence, proof of loss, culpability and quantification, those issues must be pursued before civil courts or other competent fora, and not through writ proceedings under Article 226. A direction for CBI or SIT investigation also cannot be granted in the absence of exceptional circumstances.
The Division Bench comprising of the Chief Justice Devendra Kumar Upadhyaya and Justice Tejas Karia agreed with the core view of the Single Judge, and observed that the dispute was essentially between individual customers and a private cryptocurrency exchange over a cyber incident, withdrawal restrictions and alleged fund mismanagement. The Bench said that merely because a large number of investors were affected, the dispute did not become one involving enforceable public law rights. It also held that private cryptocurrency entities do not become “State” under Article 12 simply because VDAs are taxed under the Finance Act.
On the relief for release of funds, the Bench observed that such a claim would require factual examination of the amount standing to the credit of each investor and whether the withdrawal restrictions were protective measures or amounted to mismanagement. On the compensation claim, the Bench held that proof of loss, culpability and quantification would all require evidence and trial. For that reason, both claims were held to be unsuitable for summary adjudication under Article 226.
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Briefly, a Letters Patent Appeal was filed by users of the cryptocurrency exchange platform BitBNS, challenging the Single Judge’s order dated Feb 11, 2026, where the petition was disposed of by holding that the dispute essentially arose from private law transactions, that Respondent Nos. 11 to 13 were not “State” under Article 12 of the Constitution, and that no exceptional case was made out for directing a CBI or SIT investigation. The Single Judge therein also gave liberty to the appellants to approach the appropriate forum for their grievances relating to release of funds and compensation.
The appellants said they were users of BitBNS, a cryptocurrency exchange operated by Respondent No. 11 and co-founded by Respondent Nos. 12 and 13. They referred to the RBI’s Circular dated April 06, 2018 restricting regulated entities from dealing with virtual currencies, and to the Supreme Court’s decision in Internet and Mobile Association of India v. RBI [2020 INSC 264], which set aside that circular and restored banking access for cryptocurrency exchanges. They also referred to the Finance Act, 2022, which introduced a taxation regime for Virtual Digital Assets, including provisions on income tax and TDS.
According to the record, BitBNS issued a public statement dated Feb 01, 2022 regarding a reported cyber incident affecting the platform. After that, users were allowed to withdraw wallet balances only up to Rs. 5,000 per day. The affected users later filed a collective criminal complaint on Sep 06, 2024 on the National Cyber Crime Portal.
By filing this petition, the users sought multiple reliefs: a direction to SEBI, the Union of India, the Ministry of Finance, the RBI and the Ministry of Electronics and IT to implement a regulatory framework for cryptocurrency exchanges; a direction for constitution of an SIT under the CBI to register an FIR and investigate the alleged financial fraud, cyberattack, fund mismanagement and operational lapses at BitBNS; directions for investigation by government agencies; release of users’ funds and lifting of withdrawal restrictions; and compensation for affected users who allegedly suffered losses due to mismanagement and fraudulent activities.
