Supreme Court asks central government why crypto trading can't be regulated

Hindustan Times

19-05-2025

The Supreme Court on Monday questioned the central government's prolonged inaction on regulating cryptocurrencies and said that the absence of a clear legal framework haS created a fertile ground for 'misuse.' The Court also reiterated that unregulated Bitcoin trading was 'nothing but a more polished form of Hawala,' an informal and illegal method of transferring money across countries.
A bench of Justices Surya Kant and N Kotiswar Singh made the remarks while hearing a bail petition filed by Gujarat resident Shailesh Babulal Bhatt, who has been accused of cryptocurrency related fraud across multiple states. Though the bail plea itself was unrelated to broader policy matters, the bench to expressed its concern over the lack of regulation in the cryptocurrency sector. It also questioned why the Enforcement Directorate, the prosecuting agency in the case,felt the need to arrest Bhatt after completion of its probe when it had not arrested him while its investigation was ongoing.
The bench reminded the union government that nearly 'two years ago,' the top court sought clarity on India's policy regarding virtual currencies. It added that banning cryptocurrencies outright would be unwise, as newer financial mechanisms were evolving in global trade, but that some form of regulation was a must. The government's failure to regulate the space, the apex court said, amounted to turning a 'blind eye' to a pressing issue.
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'Nobody is saying to stop it since you have said earlier that cryptocurrency is not illegal and banning it will not be wise for the economy. Banning may be shutting your eyes to the ground reality. But what about regulating it?'
While the Union's counsel. Additional Solicitor General Aishwarya Bhati sought time to secure instructions, the Court also raised concerns about the evidentiary challenges that law enforcement might face in the absence of a legal definition or framework for crypto assets.
'If tomorrow somebody asks, 'Prove what is this asset, how are we going to prove it?' We are not experts. Experts will have examine it, but some steps to regulate it are necessary. We are told crypto trading is very volatile..today a Bitcoin might be worth lakhs and tomorrow it can mean nothing,' the bench said.
Senior advocate Mukul Rohatgi, representing Bhatt, had earlier argued that Bitcoin trading was not illegal in India, particularly after the Supreme Court in 2020 struck down a Reserve Bank of India circular that had barred banks from facilitating crypto-related transactions. He had argued that Bhatt's arrest was unjustified in the absence of a law banning such activity.
Currently, India imposes a flat 30% tax on profits from cryptocurrency transactions and a 1% tax deducted at source on every trade. However, cryptocurrencies such as Bitcoin and Ethereum are neither recognised as legal tender nor banned outright. RBI has repeatedly warned of the risks associated with crypto investments, even as it promotes the Digital Rupee, a central bank digital currency. A draft bill to regulate cryptocurrencies was prepared in 2021 but is yet to be tabled in Parliament.
In July 2023, another bench of the Supreme Court directed the union government to clarify if it intended to 'set up a federal agency to investigate criminal cases involving cryptocurrencies.' At the time, the court had said it was 'unfortunate' that the Union government did not have either a law to regulate digital currencies or an expert agency to probe such matters.