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India’s Supreme Court criticized the central government for lacking a clear policy on cryptocurrency regulation despite taxing digital assets, warning of economic risks from a parallel, unregulated crypto market.
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The remarks came during a bail hearing for a Gujarat man accused of crypto-related fraud, prompting the court to question the government’s inconsistent approach of taxing but not regulating Bitcoin and other digital currencies.
NEW DELHI (MarketsXplora) – India’s Supreme Court has criticized the central government for its continued failure to introduce a clear regulatory framework for cryptocurrencies, warning that unregulated digital asset trading poses a growing threat to the country’s economy.
During a hearing related to a bail petition in a crypto fraud case, Justices Surya Kant and N. Kotiswar Singh questioned why the federal government has yet to implement a definitive policy on cryptocurrency, despite imposing taxes on digital assets such as Bitcoin (BTC).
“Why does the Centre not come out with a clear-cut policy on regulating cryptocurrency?” the bench asked, according to reports from the Economic Times and legal news outlet LawChakra. “By regulating the cryptocurrency, you can keep an eye on the trade.”
The comments were made during the hearing of a bail application filed by Shailesh Babulal Bhatt, a resident of Gujarat accused of engaging in crypto-related fraud. Bhatt is alleged to be one of the largest Bitcoin trade aggregators in the state and is said to have deceived others with promises of high returns.
While the court refrained from concluding whether Bhatt was a perpetrator or a victim in the case, the justices expressed dismay at the government’s ongoing regulatory ambiguity, which they suggested allows illicit activities to flourish in the crypto space.
Taxing Without Regulating: A Legal Contradiction
Justice Kant drew parallels between Bitcoin trading and illegal financial systems. “It is an illicit trade more or less like a Hawala business,” he remarked, referencing the informal and illegal method of transferring money without moving physical currency, which remains banned in India.
Kant added that the crypto sector has enabled the rise of a “parallel under-market” that poses risks to the nation’s financial stability.
“This is a whole parallel economy running with such coins, and it is a danger to the economy of the country,” he said.
India’s Additional Solicitor General Aishwarya Bhati, representing the federal government, responded by asking the court for time to seek instructions, indicating the government may consider reviewing its approach to digital asset regulation.
Justice Kant also highlighted the inconsistency in the government’s position—specifically, its decision to impose a 30% tax on crypto gains while failing to regulate the sector.
“If you can tax it at 30%, also please regulate it as you have recognised it by taxing it,” he said.
The government had previously signaled plans to release a discussion paper on crypto regulation by September last year, though no such document has been published. A senior official cited earlier this year said the delay was due to ongoing reviews of how more crypto-friendly policies under the administration of former U.S. President Donald Trump had unfolded.
Related! India Signals Potential Shift in Crypto Stance Amid Global Changes
Judicial Voices Warn of Economic Risk and Misuse
The hearing also included commentary from senior lawyer Mahesh Jethmalani, who noted that Bitcoin is already in use across various global markets. “In Europe, you can walk into a car showroom and buy a car using just one Bitcoin,” he said. While such transactions are not widespread, they are possible in some specialized dealerships.
Jethmalani also made an inaccurate reference to the pseudonymous Bitcoin creator Satoshi Nakamoto, saying the cryptocurrency was “created by someone from Japan who used a fake name.”
The justices raised additional concerns about the potential for abuse within the crypto space, with Justice Kant noting that while “some Bitcoins are genuine, some might not be,” a remark likely referring to the use of digital assets in illicit activities rather than to counterfeit cryptocurrencies, which do not exist on the Bitcoin blockchain.
India has yet to introduce comprehensive legislation governing cryptocurrency, although it mandates tax compliance and some reporting requirements for firms engaged in the sector. The lack of a formal legal framework continues to draw criticism from both judicial authorities and industry participants, as digital assets gain popularity in the country.