Maharashtra Is First Indian State to Bring Crypto Under Depositor-Protection Law

Maharashtra has become the first Indian state to explicitly bring cryptocurrencies and other virtual digital assets under its depositor-protection legislation aimed at fraudulent investment schemes, giving authorities clearer powers to recover losses tied to scams. State lawmakers passed amendments to the Maharashtra Protection of Interest of Depositors in Financial Establishments (MPID) Act, 1999 on July 1. The updated definition of "deposit" now covers virtual digital assets as defined under Section 2(111) of the Income-tax Act, 2025. Under the revised framework, investigators can trace, attach, value, and liquidate digital holdings linked to investor losses. The broadened definition spans cryptocurrencies, non-fungible tokens (NFTs), and other electronic representations of value that can be transferred, stored, or traded. Previously, the MPID Act allowed attachment of property acquired through deposits, but did not expressly include digital assets—a gap that complicated recovery when operators shifted funds into blockchain-based holdings. Proceeds from liquidation can be routed into the MPID compensation process for affected depositors. The state framed the move as a tool against crypto-based Ponzi schemes and unauthorized deposit-taking operations, not ordinary crypto trading. The amendment also introduces procedural measures intended to reduce delays. Designated MPID courts may grant only two adjournments; a third is permitted only in exceptional circumstances with written reasons. A financial establishment seeking to challenge a recovery order must also deposit 50% of its total liability with the competent authority before an appeal can proceed, a condition aimed at curbing stalling and speeding repayments. To strengthen enforcement, Minister of State for Home Yogesh Kadam said financial monitoring units will be set up in every district to flag suspicious entities, unrealistic return promises, and new investment schemes. He added that authorities would be able to recover losses by valuing digital holdings rather than simply freezing them. The government linked the reforms to roughly ₹38,000 crore in unresolved financial-fraud recovery claims. While the bill drew broad support, some lawmakers called for additional steps, including more special courts, tighter oversight of cooperative institutions, and expanded action against cybercrime networks and fraudulent social-media accounts. The change does not make cryptocurrency legal tender and does not establish a comprehensive licensing regime for India's digital-asset sector. It primarily strengthens recovery and restitution powers under an existing depositor-protection framework. Effective outcomes will depend on investigators' ability to trace wallets, secure digital holdings, and liquidate volatile tokens while preserving value for victims.