The Supreme Court of India has issued a scathing critique of the central government’s inertia in regulating cryptocurrencies. India’s apex judicial authority warned that the lack of a legal framework has created an ecosystem ripe for misuse and financial fraud. The Supreme Court, on May 19, 2025, likened unregulated crypto trading to a more sophisticated version of hawala, a centuries-old informal money transfer system often used for laundering illicit funds.
A bench comprising Justices Surya Kant and N Kotiswar Singh made the comments while hearing a bail petition for Shailesh Babulal Bhatt, a Gujarat-based businessman accused in a multi-state cryptocurrency fraud case. Although the hearing was procedural in nature, the court seized the opportunity to issue a broader admonishment about the vacuum in India’s digital asset policy.
“Nobody is saying to stop it… banning may be shutting your eyes to the ground reality. But what about regulating it?” the bench questioned, underscoring the paradox of the government’s stance — where crypto is neither legal tender nor outlawed, yet heavily taxed.
Court Repeats Demand for Regulatory Clarity
The court reminded the Union government that it had already asked for a policy direction on digital currencies nearly two years ago and expressed dismay that the situation remains unchanged. Justice Kant noted that India cannot afford to turn a “blind eye” to the evolution of global financial technologies and must find a middle ground between prohibition and permissiveness.
The bench’s remarks drew sharp attention to the ongoing ambiguity surrounding the legal status of digital assets in India. While profits from cryptocurrency transactions are taxed at 30%, with a 1% TDS applied per trade, there remains no formal law to govern the issuance, trading, or investigation of crypto-related activities.
Additional Solicitor General Aishwarya Bhati, representing the government, asked for time to obtain instructions, but the court’s tone reflected growing judicial impatience. It also raised concerns about evidentiary and enforcement challenges, noting that law enforcement may be left unequipped in the absence of formal definitions and procedures.
“If tomorrow somebody asks, ‘Prove what is this asset,’ how are we going to prove it?” the bench asked. “We are not experts. Experts will have to examine it, but some steps to regulate it are necessary.”
Legal Ambiguity Clouds Enforcement
Senior Advocate Mukul Rohatgi, arguing for Bhatt, noted that the Supreme Court had in 2020 struck down a Reserve Bank of India (RBI) circular that had effectively barred banks from facilitating crypto transactions. He contended that in the absence of a legislative prohibition, Bhatt’s arrest was “unjustified,” especially after the Enforcement Directorate (ED) completed its investigation without taking action during the probe phase.
The Court echoed this concern, querying the logic of arresting Bhatt post-investigation while raising alarms about inconsistent application of law enforcement in the crypto space.
Bhatt’s case has reignited the debate over the criminalization of crypto trading under India’s current legal regime. His case is one of several recent high-profile crypto-related fraud investigations across Indian states, where law enforcement agencies struggle to navigate a complex legal and technological environment.
Global Regulatory Progress Highlights India’s Delay
India’s hesitation stands in stark contrast to other economies that have moved forward with legislative and regulatory measures. The European Union’s MiCA (Markets in Crypto-Assets) framework, which comes into effect in 2025, provides comprehensive rules for crypto asset issuance, stablecoins, and service providers. In the U.S., the SEC and CFTC are increasingly defining jurisdictional lines and enforcement pathways for digital assets, albeit through piecemeal legal challenges and guidance.
In India, however, the draft Cryptocurrency and Regulation of Official Digital Currency Bill, first prepared in 2021, has yet to be introduced in Parliament. Despite several discussions, policy papers, and public consultations, the bill remains in limbo — leaving crypto exchanges, investors, law enforcement, and the judiciary navigating a grey zone.
Regulatory Limbo Undermines Industry and Oversight
The industry itself has grown increasingly vocal about the need for clarity. India’s crypto sector, once one of the most active globally, has seen a migration of companies and talent to jurisdictions like Dubai and Singapore. Exchanges such as CoinDCX and WazirX continue to operate domestically, but face stringent compliance burdens without an accompanying rights-based framework.
At the same time, the government has emphasized the risks of crypto trading. The RBI, under Governor Shaktikanta Das, has repeatedly flagged volatility, investor protection concerns, and potential threats to macroeconomic stability. India’s flagship Digital Rupee, launched as a central bank digital currency (CBDC), is being promoted as a safer, state-backed alternative to decentralized tokens like Bitcoin and Ethereum.
Yet, the dichotomy remains unresolved: the state taxes digital assets aggressively and warns against their use, but refuses to define them legally or provide investor protections.
Past Judicial Pressure and the Need for a Federal Crypto Agency
This is not the first time the Supreme Court has pressed the government for clarity. In July 2023, another bench directed the Centre to explain whether it planned to create a dedicated federal agency for investigating crypto-related crimes. It called the lack of both a regulatory framework and enforcement authority “unfortunate,” especially amid rising instances of cyber fraud, money laundering, and illicit trading involving digital assets.
More than 90,000 cybercrime cases were registered in India in 2023, according to the National Crime Records Bureau, and a growing percentage of those involve crypto elements. Yet agencies such as the ED, CBI, and state cyber units are left to operate without uniform procedures or technological capabilities.
What Happens Next?
With the Supreme Court’s latest remarks, pressure is once again mounting on the Union government to act decisively. The possibility of crypto legislation being tabled during the Monsoon Session of Parliament is now being widely speculated.
For investors and startups in the sector, the lack of clarity continues to be a deterrent to capital inflows and innovation. Legal experts suggest that until a comprehensive law is introduced, both courts and enforcement agencies will continue to grapple with inconsistencies — jeopardizing both justice delivery and market confidence.
As the world races ahead with digital finance regulation, India finds itself at a crossroads. The Supreme Court’s warning may prove to be a turning point — or just another reminder lost in bureaucratic inertia.
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