India’s Supreme Court criticises the central government for failing to regulate cryptocurrency, warning that the lack of legal clarity fosters financial misuse and legal ambiguity.
India’s Supreme Court on Monday expressed strong dissatisfaction with the central government’s ongoing failure to establish a regulatory framework for cryptocurrencies, stating that the vacuum has created ample opportunity for misuse. The court warned that unregulated crypto trading was akin to a more sophisticated version of Hawala, a system long considered illegal and opaque.
A bench comprising Justices Surya Kant and N. Kotiswar Singh made the pointed observations while hearing a bail plea filed by Shailesh Babulal Bhatt, a Gujarat resident accused of orchestrating cryptocurrency-related frauds in multiple states. Although the hearing was specific to Bhatt’s bail application, the justices took the opportunity to raise broader concerns about the regulatory void in India’s crypto ecosystem.
The bench questioned why the Enforcement Directorate (ED), which had completed its investigation, decided to arrest Bhatt post-inquiry when it had refrained from doing so during the active phase of its probe. The court’s focus, however, quickly shifted to the larger issue: the Centre’s failure to deliver on its promise of crypto regulation.
“Nearly two years ago, this court sought clarity from the government regarding its policy on virtual currencies,” the justices reminded the government. They added that an outright ban on cryptocurrencies would be counterproductive given the global trends in digital finance. “Banning may be shutting your eyes to the ground reality. But what about regulating it?” the bench asked.
Highlighting the evidentiary challenges faced by law enforcement agencies in the absence of legal definitions and frameworks, the bench further remarked: “If tomorrow somebody asks, ‘Prove what is this asset,’ how are we going to prove it? We are not experts. Experts will have to examine it, but some steps to regulate it are necessary.”
Additional Solicitor General Aishwarya Bhati, appearing on behalf of the Centre, sought more time to obtain instructions from the government. The bench, however, pressed for urgency, reiterating that the current regulatory paralysis was tantamount to turning a blind eye to an emerging financial reality.
Senior advocate Mukul Rohatgi, representing Bhatt, argued that Bitcoin trading is not illegal in India, referencing the Supreme Court’s 2020 decision that struck down an earlier Reserve Bank of India circular which had barred banks from facilitating cryptocurrency transactions. “There is no law that criminalises such trading,” Rohatgi said, calling Bhatt’s arrest unjustified.
At present, India imposes a flat 30% tax on profits earned from cryptocurrency transactions, along with a 1% tax deducted at source on every trade. Despite this, digital currencies like Bitcoin and Ethereum continue to exist in a legal grey area—neither recognised as legal tender nor explicitly banned.
As cryptocurrencies gain traction in global finance, the court’s rebuke has intensified pressure on the Indian government to move decisively and establish a clear, enforceable policy.
