CRYPTO AND LAW IN INDIA

Devesh Srivastava, Advocate (Author’s Viewpoint)

1. INTRODUCTION

The rapid emergence of cryptocurrencies has fundamentally altered the contours of the global financial ecosystem, raising complex questions at the intersection of technology, law, and regulation. Digital assets such as Bitcoin and Ethereum have introduced a decentralized paradigm of value exchange, operating beyond the traditional control of sovereign monetary authorities and established banking systems. This transformative shift has compelled legal systems worldwide to re-examine conventional notions of currency, property, and financial regulation.

In India, the legal status of cryptocurrencies remains fluid and evolving, shaped by judicial pronouncements, cautious regulatory measures, and emerging policy considerations. While the Reserve Bank of India has expressed consistent concerns regarding financial stability and monetary sovereignty, the Supreme Court of India has underscored the necessity of balancing regulatory oversight with constitutional freedoms, particularly in the absence of an express legislative prohibition. The resulting framework is one of regulated uncertainty, where cryptocurrencies are increasingly acknowledged as valuable digital assets, yet remain outside the ambit of formal legal recognition as currency.

Against this backdrop, the regulation of cryptocurrencies in India presents a compelling case study of a legal system navigating innovation in the absence of a dedicated statutory regime, while simultaneously engaging with global regulatory trends and domestic economic imperatives.

2. NATURE OF CRYPTOCURRENCIES: LEGAL CHARACTERISATION

Cryptocurrencies such as Bitcoin and Ethereum are built on decentralized blockchain networks, which facilitate peer-to-peer transactions without the need for traditional intermediaries such as banks or financial institutions. This technological architecture ensures transparency, immutability, and security of transactions through distributed ledger mechanisms, while simultaneously removing centralized control over issuance and validation.

From a legal perspective in India, however, such cryptocurrencies do not enjoy the status of legal tender. The Reserve Bank of India has consistently clarified that only currency issued or backed by the sovereign i.e., fiat currency that can be recognised as legal tender for discharge of debts and obligations. Consequently, cryptocurrencies cannot be mandatorily accepted as a medium of payment and do not possess the statutory sanctity attached to traditional currency.

Instead, Indian law increasingly treats crypto-assets as a distinct class of digital or virtual assets, capable of being owned, transferred, traded, and taxed. This classification is further reinforced by their recognition as “Virtual Digital Assets” under tax legislation, indicating a policy approach that acknowledges their economic value while withholding formal monetary recognition.

As a result, cryptocurrencies in India occupy a hybrid legal position functioning as investment assets or commodities rather than currency subject to regulatory oversight, taxation, and evolving judicial interpretation.

3. JUDICIAL DEVELOPMENTS

A significant turning point came with the landmark judgment of the Supreme Court of India in Internet and Mobile Association of India v. Reserve Bank of India 2020 INSC 264.

The Hon’ble Supreme Court held that although virtual currencies (VCs) are capable of functioning as a medium of exchange and are accepted by certain institutions for purchase of goods and services thereby bringing the activities of their users and traders within the regulatory domain of the Reserve Bank of India and further acknowledging that VCs have the potential to create a parallel monetary system posing a perceived threat to sovereign monetary control, the RBI undeniably possesses the authority to regulate or even prohibit such activities; however, the impugned circular, being primarily directed at banks as “system participants” under the Payment and Settlement Systems Act, was within RBI’s regulatory competence to the extent of issuing directions governing payment obligations and instructions.

The Court also accepted that the RBI had applied its mind, having undertaken a series of deliberative measures over several years before issuing the circular; nevertheless, on the touchstone of Article 19(1)(g) of the Constitution, the Court held that any restriction on the freedom to carry on trade or business must satisfy the test of reasonableness and proportionality, and in this regard, it found merit in the petitioners’ contention that denial of access to banking services being fundamental to modern economic activity amounted to a disproportionate restriction, particularly when the RBI itself had not imposed a formal prohibition on VCs and had failed to demonstrate any concrete adverse impact of VC exchanges on regulated entities over a considerable period; consequently, the Court concluded that the impugned RBI circular did not meet the standard of proportionality and was therefore liable to be set aside.

On October 25, 2025, the Hon’ble Madras High Court (Court), in Rhutikumari v. Zanmai Labs Pvt Ltd (O.A. No. 194 of 2025) The Hon’ble High Court rendered a significant judgment recognizing cryptocurrencies as property, marking a watershed moment in their legal characterization within India. This constitutes the first explicit judicial pronouncement in the country to treat crypto-assets as property, thereby reinforcing the framework for investor protection and strengthening the contours of fiduciary responsibility in dealings involving such assets.

The Court deliberated upon following issues:
a. Whether the applicant’s cryptocurrency holdings qualify as “assets situated in India” for the purpose of invoking jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996; and

b. Whether the proceedings before the Singapore High Court, culminating in a modified scheme of arrangement, are binding upon the petitioner. While adjudicating the aforesaid issues, the Court, inter alia, held as follows:

a. Cryptocurrencies / Virtual Digital Assets (VDAs) constitute “property” under Indian law. The Court observed that although such assets are neither tangible property nor currency, they are nonetheless capable of being possessed and beneficially enjoyed, and can validly form the subject matter of a trust.

b. Under the prevailing statutory framework, Indian law does not treat cryptocurrencies as mere speculative instruments, but recognises them as “virtual digital assets” within the meaning of Section 2(47A) of the Income Tax Act, 1961. Accordingly, the petitioner’s investment, having been converted into cryptocurrency, represents an asset capable of storage, transfer, and trade.

c. The imposition of a freeze on operations pertaining to assets held in custody does not result in diminution or erosion of the underlying assets. The custodian entity, namely Zanmai, continues to bear a fiduciary obligation to safeguard and preserve the petitioner’s assets.

4. REGULATORY POSITION AND GOVERNMENT APPROACH

Despite judicial recognition and market growth, the regulatory posture of the Indian State towards cryptocurrencies remains cautious and deliberately non-committal. The Government has neither accorded formal legal status to cryptocurrencies nor imposed an outright prohibition, thereby maintaining a position of calibrate ambiguity. Although legislative initiatives such as the proposed “Cryptocurrency and Regulation of Official Digital Currency Bill” have been contemplated from time to time, no comprehensive statutory framework has yet been enacted. Concurrently, the Reserve Bank of India has proceeded to introduce a Central Bank Digital Currency in the form of the Digital Rupee, signalling a clear institutional preference for a sovereign-backed digital monetary system over privately issued cryptocurrencies.

At the same time, the legislature has moved to regulate the economic dimension of crypto-assets through taxation. The Finance Act, 2022 introduced a stringent regime governing “Virtual Digital Assets,” imposing a flat tax rate of 30% on gains arising from their transfer, disallowing all deductions except the cost of acquisition, and mandating a 1% Tax Deducted at Source (TDS) on specified transactions. This framework reflects a tacit acknowledgment of the existence and tradability of crypto-assets, albeit without conferring upon them the status of legal tender or fully legitimising their use within the financial system.

In the absence of a dedicated regulatory enactment, cryptocurrencies in India are presently governed through the application of existing legal frameworks. Crypto exchanges have been brought within the ambit of the Prevention of Money Laundering Act, 2002, thereby subjecting them to stringent compliance obligations, including Know Your Customer (KYC) norms and reporting suspicious transactions. Issues relating to cyber fraud, hacking, and data breaches are addressed under the Information Technology Act, 2000, while cross-border transactions involving crypto-assets may attract scrutiny under the Foreign Exchange Management Act, 1999,

particularly in relation to capital account regulations. Furthermore, traditional penal provisions under the Indian Penal Code, 1860 continue to apply in cases involving cheating, fraud, and criminal breach of trust in crypto-related dealings. Collectively, this fragmented yet functional regulatory approach indicates that while cryptocurrencies are not formally recognized within a unified legal regime, they are nonetheless subject to a layered system of indirect regulation, oversight, and enforcement.

5. GLOBAL INFLUENCE AND COMPARATIVE PERSPECTIVE

India’s regulatory approach is influenced by global developments:

a. In the United States, the regulatory treatment of cryptocurrencies is nuanced and largely determined on a case-by-case basis, depending upon the nature, structure, and use of the particular digital asset. Regulatory authorities such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) exercise overlapping jurisdiction, with the former treating certain crypto-assets as “securities” where they satisfy the investment contract test, and the latter classifying others, such as Bitcoin, as commodities. This dual approach has resulted in a fragmented but enforcement-driven regime, where regulatory clarity is often derived through litigation and administrative action rather than comprehensive legislation.

b. In contrast, the European Union has adopted a more structured and harmonised regulatory framework through the Markets in Crypto-Assets (MiCA) Regulation, introduced by the European Union. MiCA seeks to establish uniform rules across member states by providing clear definitions of crypto-assets, licensing requirements for service providers, consumer protection safeguards, and market integrity provisions. It represents one of the first comprehensive legislative attempts globally to regulate the crypto ecosystem in a holistic manner, balancing innovation with financial stability and investor protection.

c. Conversely, jurisdictions such as China have adopted a prohibitive stance by imposing a complete ban on cryptocurrency trading, mining, and related activities. The Chinese authorities have consistently expressed concerns regarding financial stability, capital flight, and illicit financial flows, leading to stringent enforcement measures against crypto exchanges and service providers. This approach reflects a policy preference for strict state control over the monetary system, in sharp contrast to the regulatory accommodation or calibrated acceptance seen in jurisdictions like the United States and the European Union.

d. Judicial developments across leading common law jurisdictions have consistently affirmed the proprietary character of cryptocurrencies, thereby shaping the global legal discourse on digital assets. In the United Kingdom, the High Court in AA v Persons Unknown (2019) unequivocally recognized Bitcoin as “property,” holding that it is capable of being the subject matter of a proprietary injunction, thereby extending traditional equitable remedies to crypto-assets. Similarly,

e. The Singapore High Court in ByBit Fintech Ltd v Ho Kai Xin & Ors (2023) held that digital tokens possess the essential attributes of property, inasmuch as they can be clearly defined, uniquely identified, transferred, and securely stored, akin to conventional forms of property.

f. In Hong Kong, the Court of First Instance in Re Gatecoin Limited (In Liquidation) (2023) categorically ruled that cryptocurrencies constitute property under Hong Kong law and are therefore capable of forming the subject matter of a trust, thereby reinforcing fiduciary obligations in insolvency contexts.

g. Likewise, the High Court of New Zealand in Ruscoe v Cryptopia Ltd (in Liquidation) (2020) held that cryptocurrencies are a species of intangible property, capable of being held on trust for account holders, thus affirming both their proprietary status and the attendant trust law implications. Collectively, these decisions underscore a growing judicial consensus that cryptocurrencies, despite their intangible and decentralized nature, satisfy the legal indicia of property and are entitled to protection under established principles of property and equity jurisprudence.

In India, the legal position on cryptocurrencies is steadily aligning with the global recognition of digital assets as property, albeit without a comprehensive statutory framework. The Supreme Court of India in Internet and Mobile Association of India v. Reserve Bank of India acknowledged the legitimacy of crypto-related activities in the absence of a ban, while legislative measures such as the taxation of “Virtual Digital Assets” indicate their treatment as identifiable assets. Emerging judicial observations further support their characterisation as property capable of being held and transferred, thereby reflecting a gradual convergence with the prevailing international legal approach.

Author’s Viewpoint:

The legal landscape governing cryptocurrencies in India is in a state of calibrated evolution, marked by judicial recognition, regulatory caution, and incremental legislative response. While cryptocurrencies such as Bitcoin have undeniably emerged as significant economic instruments, Indian law continues to treat them as assets rather than currency, thereby denying them the status of legal tender while simultaneously acknowledging their commercial and proprietary value. The jurisprudence of the Supreme Court of India in Internet and Mobile Association of India v. Reserve Bank of India, coupled with subsequent High Court developments recognising cryptocurrencies as property, reflects a decisive shift towards integrating crypto-assets within established legal doctrines of property, trust, and commercial law.

At the same time, the regulatory approach characterized by taxation without full legitimization, application of existing statutes, and the introduction of a sovereign digital currency by the Reserve Bank of India demonstrates a conscious effort to balance innovation with financial stability and systemic risk concerns. Comparative global developments further reinforce the inevitability of formal recognition and structured regulation, as jurisdictions increasingly move towards defining cryptocurrencies within coherent legal frameworks.

In this backdrop, the need of the hour is a comprehensive and cohesive legislative regime that clearly delineates the legal status, regulatory oversight, and rights and obligations associated with crypto-assets. Such a framework would not only reduce ambiguity but also enhance investor confidence, ensure market integrity, and align India with the evolving international legal order. Until such codification is achieved, cryptocurrencies in India will continue to occupy a hybrid and transitional space regulated in practice yet not fully recognized in law.