i was in very similar situation that you are in now, my passport impound order was released but i got a stay from the High Court, my wife sent emails and even a letter from DGP to my employer to terminate my employment, but i moved to a Permanent position and now no issues with H1 extensions got it approved twice since the case was filed. Only difference is that i have a valid passport for the next 7 years. i would suggest to visit the embassy and talk to the officer and explain him the situation, and try to get your passport renewed, if your employer doesnt want to apply for an extension switch to another one, there are a hell lot of Desi consultancies who are ready to take you.
I would not suggest you go back to India now, Im pretty sure that you will not be able to come back to US in the near Future, Passport will be confiscated, dont even know if they get your passport renewed with the current cases. get ready to shell out money like waste paper, once police or lawyers know that you are from US they would demand based on the dollar value.
All the best