India’s long-standing indecision on cryptocurrency regulation has drawn sharp rebuke from the country’s highest judicial authority. In a recent hearing, the Supreme Court questioned the Centre’s continued delay in framing a comprehensive legal framework for digital assets. The case at hand involved a crypto fraud, but the judges seized the moment to make a broader point: the absence of regulation is no longer just an oversight—it’s a threat.
A bench comprising Justices Surya Kant and N. Kotiswar Singh made these remarks while hearing the bail plea of Shailesh Babulal Bhatt, who is accused of orchestrating a cryptocurrency scam. Although the plea focused on bail, the conversation quickly turned toward the larger issue of policy paralysis in the face of a rapidly growing and increasingly misused technology.
The Enforcement Directorate (ED), India’s financial crime watchdog, had launched an investigation against Bhatt but notably refrained from arresting him. This move prompted the Court to scrutinize the legal mechanisms surrounding crypto crimes. The judges compared unregulated Bitcoin trading to a digital-age version of hawala, the illegal and opaque money transfer system long banned in India.
While India has not declared cryptocurrencies illegal, it hasn’t officially recognized them either. This legal limbo is increasingly untenable. As the Court observed, it's been nearly two years since the government publicly signaled its intent to introduce crypto legislation. Yet, the regulatory landscape remains barren. “This delay isn’t merely bureaucratic lethargy,” the Court warned, “it risks creating a mirage of regulation—appearing to govern, but governing nothing.”
In response, Additional Solicitor General Aishwarya Bhati, representing the Centre, sought more time to obtain clear instructions from the government. However, the Court pressed further, emphasizing that enforcement agencies are being asked to tackle crimes in a domain where legal clarity is missing. Without a formal definition of cryptocurrencies or a roadmap for enforcement, the system is left grasping in the dark.
This ambiguity is especially striking given the government’s decision to impose financial obligations on the sector. Currently, profits from cryptocurrency trades are taxed at a steep 30%, and every transaction attracts a 1% tax deducted at source (TDS). Yet the very instruments being taxed such as Bitcoin, Ethereum, and other digital tokens are not officially recognized as legal tender. It’s a contradiction that’s becoming harder to ignore: how can something be taxed without being legally defined?
Senior advocate Mukul Rohatgi, who appeared on behalf of Bhatt, echoed these concerns. He pointed to the Supreme Court’s 2020 judgment striking down the Reserve Bank of India’s circular that banned crypto trade. According to him, Bitcoin transactions are not illegal per se, and the absence of codified laws makes enforcement arbitrary and susceptible to misuse.
The judges agreed that prohibition was not the goal. “Nobody is saying stop it,” they clarified. “But there must be rules.” The message was unmistakable: regulation isn’t about banning innovation; it’s about providing structure and safeguarding against misuse.
As India continues its digital transformation, the Supreme Court’s intervention comes as a timely reminder. The crypto space is not waiting for lawmakers to catch up. And unless swift, decisive steps are taken, India risks falling into a regulatory vacuum—where taxation is real, but the law is still missing in action.
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