Why should your friend pay 50 dollars for something that belongs to
him?? Same thing happened to my relative once and my relative made
a report.
Regarding the phone itself the closest offence would probably
be:
Dishonest misappropriation of property [in the Penal Code].
403. Whoever dishonestly misappropriates or converts to his own use
movable property, shall be punished with imprisonment for a term
which may extend to 2 years, or with fine, or with both.
Explanation 2 [to the above section]
A person who finds property not in the possession of any other
person, and takes such property for the purpose of protecting it
for, or of restoring it to the owner, does not take or
misappropriate it dishonestly, and is not guilty of an offence; but
he is guilty of the offence above defined, if he appropriates it to
his own use, when he knows or has the means of discovering the
owner, or before he has used reasonable means to discover and give
notice to the owner, and has kept the property a reasonable time to
enable the owner to claim it.
I don't think the "use" part is necessary - as long as it is
'misappropriated'. And I think from what the guy said he quite
obviously was not helping your friend protect the phone / had the
intention of restoring it to him.
And anyway demanding money for the return of the phone would
be:
Extortion.
383. Whoever intentionally puts any person in fear of any injury to
that person or to any other, and thereby dishonestly induces the
person so put in fear to deliver to any person any property or
valuable security, or anything signed or sealed which may be
converted into a valuable security, commits “extortion”.
Injury doesn't mean only things like bruise or cut etc ... things
like harm - loss - caused to person in property terms also
can.
Don't let this fellow get away with extorting 50 bucks - sekali he
go and try the trick on other people.
Thanks alot, Eating Snake. 
Like many others who had reply earlier to my query, you have been a
great help....*applause...applause*
Today I got to learn something new from you about the penal
code.
Thanks again, your reply shown that you are not as idle as your
nick "Eating Snake" would imply, you really on the ball man!

I will be talking about another baffling case in my next reply,
hope you could help to contribute to the reason why the police was
acting in that manner.
YH