India’s Supreme Court Questions Government’s Delay in Regulating Cryptocurrency

The Supreme Court of India has intensified its scrutiny of the central government’s inaction on cryptocurrency regulation, drawing parallels between bitcoin trading and illegal hawala operations. The court emphasized the potential risks of unregulated crypto activity on the national economy.

Court Pushes for a Unified Crypto Policy, Calls Activity Hawala-Like

During a recent bail hearing for Shailesh Babulal Bhatt—a Gujarat man accused of running fraudulent bitcoin schemes—the court urged the government to introduce a comprehensive regulatory framework for cryptocurrency. Justices Surya Kant and N. Kotiswar Singh, addressing Additional Solicitor General Aishwarya Bhati, questioned the absence of a central policy, noting:

“Why hasn’t the Centre formulated a clear policy on cryptocurrency regulation? There’s an underground market for it, and it could destabilize the economy. Regulation would provide oversight.”

Justice Kant went further, comparing bitcoin trading to hawala transactions, a method often associated with money laundering and illicit financial flows. In response, Bhati said she would consult with the government before giving an official reply.

The remarks were made while reviewing Bhatt’s bail application. He is accused of misleading investors with promises of high returns from bitcoin investments and allegedly used threats and even kidnapping to sustain his fraudulent network.

Not the First Supreme Court Warning

This isn’t the court’s first expression of concern. Earlier, on May 5, the bench had similarly criticized the lack of legal clarity in India’s crypto ecosystem, again likening it to hawala-style transactions.

Bhatt’s defense cited a 2020 Supreme Court judgment that overturned an RBI ban on crypto banking services, claiming this ruling had implicitly allowed crypto trading in India. The case is also seeking to dismiss various FIRs filed across the country accusing Bhatt of financial deception.

Regulatory Deadlock Continues

India’s stance on digital assets has remained ambiguous since a 2019 draft bill proposed a complete ban on private cryptocurrencies and recommended launching a central bank digital currency (CBDC). Although no legislation has been enacted, the government began taxing crypto earnings in 2022, applying a 30% tax on gains and a 1% TDS, treating digital assets more as speculative instruments than legally recognized currencies.

Meanwhile, enforcement agencies have tightened compliance, implementing stricter KYC norms. Still, there’s division among regulators: SEBI has expressed willingness to oversee the crypto market, whereas the RBI remains opposed, citing concerns over economic stability and systemic risks.