Supreme Court of India Urges Immediate Cryptocurrency Regulation, Calls Existing Laws Obsolete

Introduction

In a significant development reflecting growing judicial concern over digital financial technologies, the Supreme Court of India has stressed the urgent need to implement an updated legal framework to govern cryptocurrency usage in the country.

The Court’s observations came during a hearing involving allegations of extortion and misuse of digital currencies, a case which once again put the spotlight on the regulatory vacuum in India’s cryptocurrency space.

The Case That Sparked the Concern

The bench of Justices Surya Kant, Dipankar Datta, and Vijay Bishnoi was hearing the case of Shailesh Babulal Bhatt, a Gujarat-based businessman who has been embroiled in several criminal proceedings across multiple states for allegedly misusing cryptocurrencies. Bhatt had approached the apex court to seek the transfer and clubbing of all pending FIRs, arguing that his actions were being prosecuted in the absence of any clear legal framework defining cryptocurrency-related offences.

During the hearing, Senior Advocates Siddharth Dave and Mukul Rohatgi, representing Bhatt, pointed out that the current legal infrastructure does not address the specific nature of digital assets like cryptocurrencies. They drew the Court’s attention to a broader issue: that the existing laws, designed for traditional financial systems, are outdated and incapable of regulating emerging technologies such as blockchain and digital currencies.

Observations from the Bench

The bench expressed agreement with the contention that India lacks a coherent policy on cryptocurrencies. Justice Surya Kant specifically remarked, “Different jurisdictions are saying different things about it. Some grey area is there and the existing laws are completely obsolete.” This candid observation reflected the Court’s recognition that enforcement authorities and the judiciary are working with limited tools in an increasingly complex digital landscape.

While the Additional Solicitor General Aishwarya Bhati, appearing for the Union government, emphasized that the case was more about Bhatt’s alleged illegal actions than regulatory gaps, the Court firmly responded that the broader issue could not be ignored.

The bench highlighted that the lack of regulation makes it easier for individuals to exploit these technologies for criminal purposes such as fraud, money laundering, and illegal cross-border transfers.

A History of Uncertainty

India’s journey with cryptocurrency regulation has been anything but linear. In April 2018, the Reserve Bank of India (RBI) issued a circular barring financial institutions from dealing with entities engaged in virtual currency operations. This move severely impacted crypto exchanges, forcing many to shut down or move operations abroad.

However, in March 2020, the Supreme Court overturned the RBI circular, holding that the ban was disproportionate and infringed on the fundamental right to trade under Article 19(1)(g) of the Constitution.

Despite that landmark judgment, the legislative and regulatory progress on cryptocurrencies has been sluggish. The government introduced the Cryptocurrency and Regulation of Official Digital Currency Bill in 2021, which sought to prohibit all private cryptocurrencies while enabling the creation of a central bank digital currency (CBDC).

Yet, the Bill has not been passed or tabled formally since, leaving a regulatory void that continues to be exploited.

Legal System Playing Catch-Up

The growing number of criminal cases involving cryptocurrency has exposed how Indian law enforcement agencies struggle to deal with offences involving digital assets. There have been reports of cybercrime cells lacking adequate training and tools to trace blockchain-based transactions, and confusion prevails over which agencies should investigate what types of cryptocurrency-related crimes.

In the case involving Shailesh Bhatt, the fragmented investigation across various states highlighted another operational challenge—the absence of a centralized enforcement and regulatory mechanism. Cryptocurrency, by its very nature, is borderless and decentralized. State-level investigations, while legally permissible, are inefficient when dealing with crimes that span jurisdictions.

Calls for a Unified Framework

Legal experts and stakeholders have long advocated for a uniform national policy on cryptocurrencies. A public interest litigation filed in the Bombay High Court in 2021 had also urged the Centre to create a statutory framework to protect investors and regulate crypto trading platforms.

Without a clear policy, India’s approach to digital currencies remains reactive rather than proactive. While crypto adoption grows—both in terms of trading volumes and technology startups—investors, enforcement agencies, and even courts are left relying on general provisions of the Indian Penal Code, the Prevention of Money Laundering Act, and the Information Technology Act, none of which are tailored to address the unique attributes of cryptocurrencies.

Looking Ahead

The Supreme Court’s latest remarks reflect a growing impatience with the government’s lack of movement on cryptocurrency regulation. The bench’s call for reform is more than just a judicial observation; it is a clear signal that the existing legal ecosystem is lagging far behind technological advancements. There is now judicial consensus that waiting longer to act could result in increased misuse of digital assets and further legal uncertainty.

As India aspires to be a global technology leader, its legal and policy frameworks must evolve in parallel. Establishing clear regulatory standards will not only help curb misuse but also provide legitimacy and direction for innovation in the blockchain and fintech sectors.

For now, the message from the country’s highest court is unmistakable: the time for ambiguity is over, and the time for regulatory clarity has come.