Cryptoassets & Blockchain 2021 – India

General legal and regulatory framework

Legal framework

1 What legal framework governs cryptoassets? Is there specific legislation governing cryptoassets and businesses transacting with cryptoassets?

At present, there is no legal framework governing cryptoassets or cryptocurrencies. Despite the vacuum in legislation, regulators such as the Reserve Bank of India (RBI) have previously issued various cautionary circulars deterring individuals from dealing in cryptoassets. In 2018, under its circular of 6 April 2018 (the RBI Circular), the RBI banned all RBI-regulated entities (eg, banks, financing institutions and non-banking financial institutions) from dealing in cryptoassets. While this circular did not ban cryptoassets per se, it had blocked any financial dealing contemplated by a buyer, seller or trader of cryptoassets. In contrast, regulators such as the Securities Exchange Board of India (SEBI) have remained silent on regulating cryptoassets. The RBI Circular was set aside by the Supreme Court of India (Supreme Court) order of 4 March 2020.

Given the lack of certainty, market participants filed several petitions before the Supreme Court challenging the constitutionality of the RBI Circular and sought clarity on the government’s stance on the legality of cryptoassets and cryptocurrencies in India. In response, in July 2019, the government released draft legislation (the Banning of Cryptocurrency and Regulation of Official Digital Currency Act 2019) (the Cryptocurrency Bill 2019), which seeks to ban any person from ‘mining, generating, holding, selling, dealing in, issuing, transferring, disposing of or using cryptocurrency in the territory of India’.

Under the Cryptocurrency Bill 2019, ‘cryptocurrency’ means any information, code, number or token generated through cryptographic means or otherwise:

· that provides a digital representation of value that may be exchanged, with or without consideration, with the promise or representation of having an inherent value in a business activity which may involve the risk of loss or expectation of profits; or

· that functions as a store of value or unit of account.

The only exception carved out regarding cryptocurrency is the use of its underlying technology for experimental, research or educational purposes, provided that the cryptocurrency is not used to make or receive payment. Violation of the draft legislation may result in up to 10 years’ imprisonment.

In response to the petitions filed by market participants, on 4 March 2020, the Supreme Court, passed an order setting aside the RBI Circular on grounds of proportionality, including on account of lack of any factual damage to RBI regulated entities arising from the use of cryptocurrencies and in the absence of any express legislative prohibitions concerning cryptocurrencies in India.

Subsequently, on 25 May 2020, the RBI clarified (in response to an application filed under the Right to Information Act 2005) that presently there is no prohibition applicable to banks to provide bank accounts to crypto exchanges or crypto traders.

Given the absence of an enacted legislation, any application of cryptoassets or cryptocurrency to undertake financial activities or operations in the payment ecosystem, while being current practice, may become subject to ongoing scrutiny from the regulatory authorities and risk legislative bans (eg, after the enactment of the Cryptocurrency Bill 2019 in its current form).

Government policy

2 How would you describe the government’s general approach to the regulation of cryptoassets in your jurisdiction?

Since the 2013 boom in cryptoasset trading on the open market, the RBI and the Income Tax Department have been swift to shut down business operations involving cryptoassets. However, the government has switched between a negative and an agnostic approach. In his 2018 budget speech, the finance minister announced that: ‘The government does not consider cryptocurrencies as legal tender or coin, and will take all measures to eliminate the use of cryptoassets in financing illegitimate activities or as part of the payment system.’ This approach is also reflected in the draft legislation before Parliament, which explicitly bans the use of cryptoassets.

In contrast, in September 2019, a report released by a committee set up by the Ministry of Finance (Department of Economic Affairs) (Inter-ministerial Committee Report) acknowledged that ‘blockchain and Initial Coin Offerings (ICOs), are revolutionising the global fintech landscape’ and distinguished categories of cryptocurrency, specifically utility and security tokens. Notably, the report made no policy recommendations on cryptocurrency or blockchain, unlike other aspects of fintech (eg, agritech and know your customer).

While the Finance Ministry remains cautious, the RBI appears more opposed to the use of cryptocurrency, as evidenced through its press releases since 2013 and the RBI Circular, which had placed a prohibition on financial institutions from dealing in cryptocurrency and any relaxation on that ban within the regulatory sandbox.

According to public sources, we understand that an enacted legislation for cryptocurrency may shortly be brought into force in India, although it remains to be seen whether the proposed law will be on the lines of the Cryptocurrency Bill 2019 or whether it will move away from the bill’s blanket-ban position, and instead provide a regulatory landscape for cryptocurrencies in India.

Regulatory authorities

3 Which government authorities regulate cryptoassets and businesses transacting with cryptoassets?

No specific government authority regulates cryptoassets and businesses transacting in cryptoassets. However, the Ministry of Finance (Department of Economic Affairs), the Ministry of Electronics and Information Technology, SEBI and the RBI have been instrumental in drafting the Cryptocurrency Bill 2019.

Regulatory penalties

4 What penalties can regulators impose for violations relating to cryptoassets (eg, injunctions, fines or prison terms)?

Despite the vacuum in legislation, the Income Tax Department has in the past issued notice or initiated proceedings that have required businesses dealing in cryptoassets to close. Further, criminal proceedings may be initiated per the provisions of the Cryptocurrency Bill 2019, which could lead to a maximum of 10 years’ imprisonment or monetary penalties being imposed or both.

Court jurisdiction

5 Which courts have jurisdiction over disputes involving cryptoassets?

No special court or tribunal exercises jurisdiction over disputes involving cryptoassets. In the absence of an express or implied bar and depending on the financial and territorial nature of a dispute (ie, civil or criminal), lower courts and tribunals can exercise jurisdiction in addition to an appeal lying before the state high courts and Supreme Court.

Legal status of cryptocurrency

6 Is it legal to own or possess cryptocurrency, use cryptocurrency in commercial transactions and exchange cryptocurrency for local fiat currency in your jurisdiction?

While there is ambiguity on the legality of cryptocurrencies, in the event the Cryptocurrency Bill 2019 is enacted in its current form, it will impose a ban on any person from holding cryptocurrency unless to use the underlying technology or process for experimental, research or educational purposes, provided that the cryptocurrency will not be used to make or receive payment in this activity.

Fiat currencies

7 What fiat currencies are commonly used in your jurisdiction?

The national currency of India is the Indian rupee issued by the RBI. There are restrictions under the extant foreign exchange laws in India concerning holding and usage of foreign currencies, and any foreign currency earned or acquired may be required to be converted into Indian rupees under the applicable foreign exchange laws.

Industry associations

8 What are the leading industry associations addressing legal and policy issues relating to cryptoassets?

Several associations, including the Blockchain and Virtual Currency Association, the Blockchain Foundation of India, the Digital Asset and Blockchain Foundation of India and the Internet and Mobile Association of India, which include industry participants and government representatives, have committed to examining legal and policy issues relating to cryptoassets.

Cryptoassets for investment and financing

Regulatory threshold

9 What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?

The Cryptocurrency Bill 2019 tabled before Parliament bans any person from dealing in cryptoassets (agnostic of any specific attribute of that cryptoasset), including, among others, as a means for investment. In light of the proposed blanket ban on the use of cryptoassets, regulators have not sought to identify any attributes that would distinguish its various use cases, including as a security.

Investor classification

10 How are investors in cryptoassets classified and treated differently (eg, ordinary (retail), institutional, sophisticated, accredited)?

Investors in cryptoassets are not classified or treated differently.

Initial coin offerings

11 What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?

At present, there are no rules or restrictions on the conduct of and investment in ICOs. While the facets of an ICO remain untested in an Indian legal context, if funds are collected to obtain a ‘coin’ (ie, a representation of value or right) to be redeemed in the future, this collection of funds, being unregulated, could contravene the Banning of Unregulated Deposit Schemes Act 2019. Such a contravention could result in imprisonment and a financial penalty. The Inter-ministerial Committee Report and Cryptocurrency Bill 2019 explicitly prohibits the use of cryptocurrency as a medium of exchange, store of value or unit of account or use as a means to raise funds.

Security token offerings

12 What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?

Irrespective of the nature of offerings, including a security token offering, a collection of funds for such a scheme could be deemed as an unregulated deposit and result in imprisonment and financial penalties under the Banning of Unregulated Deposit Schemes Act 2019. In light of the present legislative climate, it seems unlikely that the Securities Exchange Board of India would equate a security token to a security, in light of its role in drafting the proposed legislation banning cryptocurrency, including its use to raise funds or in financial transactions or investment schemes.


13 What rules and restrictions govern the issue of, and investment in, stablecoins?

Stablecoins are akin to a hybrid cryptocurrency, created as a reaction to the unreliable nature of most cryptocurrencies, specifically bitcoin, the valuation of which is largely based on speculation. Unlike cryptocurrency, the value of stablecoins is based on an underlying asset, including fiat currencies. Irrespective of their underlying value, the issue of and investment in stablecoins would potentially be prohibited under the Cryptocurrency Bill 2019 and its definition of ‘cryptocurrency’.


14 Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?

The principle behind an airdrop is to increase demand and the value associated with cryptoassets by distributing the same to investors for free. Increasingly, cryptocurrency has been dispensed to the wallet addresses of potentially aware or unaware investors, who are deemed owners of those assets once they are aware of the airdrop. Indian regulators and legislatures have not yet examined the transfer of cryptoassets; however, under the current legislative scenario, when an investor becomes aware of having cryptoassets (ie, it is their deemed owner), they would be subject to the proposed ban to holding or possessing cryptoassets. An airdrop could therefore inadvertently lead to the potential holder becoming liable for penalties, including imprisonment. Additionally, where such airdrop is viewed as promoting, inducing participation or advertising cryptocurrency under the Cryptocurrency Bill 2019, this will amount to a contravention of the Bill and may be subject to penalties or imprisonment or both as prescribed thereunder.

Advertising and marketing

15 What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?

Given the legislative proposal to equate any activity involving cryptoassets with illegal activity, the advertising or marketing of cryptoassets could fall foul of generally accepted advertising standards and applicable criminal laws depending on the nature of loss suffered by viewers of that advertising. Such a violation could thereby lead to pecuniary penalties and imprisonment. Also, under the provisions of the Cryptocurrency Bill 2019, any person directly or indirectly promoting, issuing an advertisement, soliciting, abetting or inducing any participation in any activity involving cryptocurrency as specified under sections 6 and 7 of the Bill, shall be subject to penalties or imprisonment or both as prescribed thereunder.

Trading restrictions

16 Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?

Such activity could potentially be deemed illegal; however, at present, there are no regulations governing investors trading in initial offerings of cryptoassets.


17 How are crowdfunding and cryptoasset offerings treated differently under the law?

Crowdfunding is essentially the collection or pooling of funds through small financial contributions from multiple individuals for a specific project, venture or social cause. A subset of crowdfunding (ie, peer-to-peer lending of fiat currency) is a permitted legal activity regulated by the Reserve Bank of India. Given that an offering of cryptoassets maybe a collection of fiat currencies for potentially illegal activity (ie, dealing in cryptocurrency), such an offering could fall foul of the Cryptocurrency Bill 2019 and accordingly be deemed illegal.

Transfer agents and share registrars

18 What laws and regulations govern cryptoasset transfer agents and share registrars?

At present, there are no regulations applicable to cryptoasset transfer agents and share registrars.

Anti-money laundering and know-your-customer compliance

19 What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?

Any party that attempts to, or knowingly assists in, any process or activity connected with the proceeds of a crime, including its concealment, possession, acquisition or use, will be guilty of money laundering.

Typically, to prevent money laundering activities, regulated entities (eg, banks, stock exchanges, financial institutions or parties carrying out designated business) are mandated to comply with the requisite AML or KYC requirements under Indian laws (including conducting KYC checks on customers). Currently, while there are no AML or KYC requirements or guidelines prescribed regarding cryptoassets (given the Cryptocurrency Bill 2019), a key concern expressed by the authorities concerning businesses offering cryptoassets, is the likelihood that they will act as a vehicle for money laundering activities in India. As a result, these businesses undertake extensive KYC checks despite not being legally mandated to do so.

Sanctions and Financial Action Task Force compliance

20 What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force standards?

Being a member of the Financial Action Task Force, India has set up the Financial Intelligence Unit – India (FIU-IND) to be the country’s central national agency responsible for receiving, processing, analysing and disseminating information relating to suspicious financial transactions.

Under anti-money laundering legislation, reporting entities must provide information regarding cash transactions exceeding permitted values, suspicious transactions and cross-border transactions exceeding specified thresholds. If a regulated entity (eg, a bank, financial institution or stock exchange) receives information regarding the suspicious transaction of cash that breaches prescribed thresholds, the FIU-IND may take appropriate action (including criminal proceedings) against the parties involved in that transaction irrespective of whether it concerns cryptoassets.

Cryptoasset trading

Fiat currency transactions

21 What rules and restrictions govern the exchange of fiat currency and cryptoassets?

At present, no rules or restrictions govern the exchange of fiat currency and cryptoassets. However, if the proposed legislation tabled before Parliament is enacted in its current form, this exchange would be prohibited and could attract penalties or imprisonment or both as prescribed thereunder.

Exchanges and secondary markets

22 Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?

In the absence of an exchange of fiat currency, investors can execute pure cryptoasset trades. Based on the proposed legislation tabled before Parliament, a cryptoasset exchange executing a pure cryptoasset trade could also result in penalties given that a ban has been proposed on any dealing of cryptoassets, including via an exchange.


23 How are cryptoasset custodians regulated?

At present, cryptoasset custodians are unregulated in India, although their operations could be deemed illegal once the Cryptocurrency Bill 2019 is enacted in its current form.


24 How are cryptoasset broker-dealers regulated?

While cryptoasset broker-dealers are not regulated at present, their operations could be deemed illegal once the Cryptocurrency Bill 2019 is enacted in its current form.

Decentralised exchanges

25 What is the legal status of decentralised cryptoasset exchanges?

At present, cryptoasset exchanges (centralised or decentralised) remain unregulated and this may affect the trade of cryptoassets for cryptoassets. However, on the enactment of the Cryptocurrency Bill 2019, this exchange could be deemed to be illegal and prohibited from affecting any cryptoasset trade.

Peer-to-peer exchanges

26 What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?

A parallel is often drawn between cryptocurrency and prepaid instruments that facilitate the exchange of funds between peers. This activity is regulated under the Payment and Settlement Act 2007 and the Reserve Bank of India (RBI) Master Directions on Issuance and Operations of Prepaid Payment Instruments of 11 October 2017. However, prepaid instruments have intrinsic value and are ‘loaded or reloaded with cash’, unlike cryptocurrencies, which cannot have any intrinsic value per se, but their value is contingent on their demand and supply. Because cryptocurrencies do not fall under the above legislation, a peer-to-peer transfer of cryptoassets would arguably be permitted. However, this transfer could potentially be deemed illegal given that Cryptocurrency Bill 2019 seeks to prohibit the transfer of cryptoassets.

Trading with anonymous parties

27 Does the law permit trading cryptoassets with anonymous parties?

The trading of cryptoassets, irrespective of whether such party is identified or anonymous, may be potentially illegal, given the provisions of the Cryptocurrency Bill 2019. In light of cryptoassets being commonly viewed as a front to conduct suspicious transactions, a cryptoasset trade with anonymous parties, if falling under the radar of the Financial Intelligence Unit set up under Financial Action Task Force, could attract penal consequences.

Foreign exchanges

28 Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?

At present, foreign cryptocurrency exchanges facilitating cryptocurrency-to-cryptocurrency trades are not subject to laws or regulations in India.

29 Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?

At present, an Indian citizen can lawfully exchange cryptoassets for other cryptoassets on a foreign exchange only if it does not involve the exchange of fiat currency in light of prevailing foreign exchange norms that permit only cross-border remittances of permissible activities. Further, while the RBI Circular has been set aside by the Supreme Court, the lack of a clear directive from the RBI may also pose practical challenges in the remittance of fiat currency.


30 Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?

Despite the Indian tax authorities being proactive in initiating action against businesses involved in the exchange of cryptoassets for other cryptoassets or fiat currencies, the basis for such action must be established. Since the finance minister’s budget speech of 2018–2019, which declared cryptocurrency to be illegal tender, the Indian tax authorities have issued notices to businesses failing to declare profit earned from cryptocurrencies. Given that the legal status of cryptoassets is yet to be determined, such an earning could arguably be deemed as recurring or non-recurring income earned from other sources, which would require the payment of income tax by the individual or organisation in question.

Cryptoassets used for payments

Government-recognised assets

31 Has the government recognised any cryptoassets as a lawful form of payment or issued its own cryptoassets?

The government has not recognised cryptoassets as a lawful form of payment. Instead, the government and regulators have been vocal in their objection to the use of cryptoassets as a form of payment. In a push to eradicate the use of these assets, the government has contemplated the issuance of a digital rupee. According to public reports, the digital rupee would act as a digital representation of fiat currency issued within the monetary framework of the Reserve Bank of India (RBI). Separately, the Cryptocurrency Bill 2019 also contains a provision concerning approval from central government of the digital rupee being legal tender.


32     Does Bitcoin have any special status among cryptoassets?

No. At present, bitcoin has no special status among cryptoassets in India.

Banks and other financial institutions

33 Do any banks or other financial institutions allow cryptocurrency accounts?

Under the Supreme Court decision striking down the RBI Circular, the RBI has also clarified (in response to the application filed under the Right to Information Act 2005) on 25 May 2020, that, presently there is no restriction applicable to banks prohibiting opening bank accounts for crypto exchanges or crypto traders.

Cryptocurrency mining

Legal status

34 What is the legal status of cryptocurrency mining activities?

The mining of cryptocurrency essentially requires the miner to solve puzzles and add transactions to distributed ledger technology. This activity is integral to the blockchain and rewards the miner ordinarily with cryptocurrency. Cryptocurrency mining is often viewed as akin to a regulator issuing fresh currency within the financial market. Unlike the significant discussion focused on the use of cryptocurrency, there is limited public discussion on mining. While the Inter-ministerial Committee Report and the Cryptocurrency Bill 2019 seek to ban the mining of cryptocurrency, mining as an activity is yet to be legally evaluated.

Government views

35 What views have been expressed by government officials regarding cryptocurrency mining?

Government officials remain silent on cryptocurrency mining; however, given their cautious-to-negative approach to cryptocurrency, cryptocurrency mining would potentially be viewed similarly. Despite public discussions on cryptocurrency mining, the Inter-ministerial Committee Report and the Cryptocurrency Bill 2019 explicitly prohibit cryptocurrency mining.

Cryptocurrency mining licences

36 Are any licences required to engage in cryptocurrency mining?

At present, licences are not required to engage in cryptocurrency mining.


37 How is the acquisition of cryptocurrency by cryptocurrency mining taxed?

The acquisition of cryptocurrency by cryptocurrency mining is not currently taxed and will depend on the outcome of cryptocurrency legislation and whether it is considered a legal asset.

Blockchain and other distributed ledger technologies

Node licensing

38 Are any licences required to operate a blockchain/DLT node?

At present, no licences are required in India to operate a blockchain/DLT node.

Restrictions on node operations

39 Is the operation of a blockchain/DLT node subject to any restrictions (eg, based on sanctions/AML/KYC/FATF rules and standards)?

The government has been proactive in its push for businesses to innovate using blockchain/DLT and has accordingly imposed no legal or regulatory restrictions on the operation of a blockchain/DLT node.

DAO liabilities

40 What legal liabilities do the participants in a decentralised autonomous organisation (DAO) have?

Decentralised autonomous organisations are organisations whose decisions are made electronically by written computer code or through the votes of members. It is a system wherein hard-coded rules define which actions an organisation will take. The organisation seeks to remove the human element behind decisions and base this on code. While the liabilities from these organisations remain untested in India; ultimately, the connection between the organisation and the ultimate creator or controller should be examined. For instance, companies in India are legal entities, and their directors or individuals vested with the responsibility to manage the company are deemed liable for a contravention of the law. The same parallel may be drawn to DAOs.

DAO assets

41 Who owns the assets of a DAO?

The lack of control by a human element is a cornerstone of DAOs, but ownership is based on the parties that have the ultimate influence over a DAO. For instance, if multiple parties contribute towards a DAO, each party could potentially have a right to its assets. Ordinarily, these parties would execute an agreement that identifies their contribution to the DAO and accordingly distribute the assets among them.

Open source

42 Is DLT based on open-source protocols or software treated differently under the law than private DLT?

The legislature has yet to address the legal and regulatory treatment and the distinction between different types of DLT.

Smart contracts

43 Are smart contracts legally enforceable?

Unlike digital agreements, smart contracts are a series of codes or functions that facilitate the execution of an agreement. Distinct from the terminology, a smart contract can be equated with any other computer program. In short, a smart contract facilitates the underlying activity that a legal contract seeks to enforce. Therefore, arguably, if an agreement is legally enforceable, the smart contract seeking to execute the legal agreement is also enforceable.


44 Can blockchain/DLT technology be patented?

The popularity of blockchain/DLT technology has grown exponentially in India, among not only government entities, but also burgeoning start-ups. In India, patents are obtained under the Patent Act 1970, which requires an invention (ie, a new product or process) to involve an inventive step and be capable of industrial application. An inventive step essentially requires the invention to involve technical advancement over existing knowledge or have economic significance, which is not obvious to an otherwise skilled person in the relevant field. At first glance, blockchain/DLT technology appears an unlikely candidate for patentability. However, a key roadblock to any technological invention obtaining a patent is the legislation’s exclusion of a per se computer program. Because blockchain/DLT technology is primarily a set of computer programs or codes, it may provide the author with copyright but prove difficult to obtain a patent.

Update and trends

Recent developments

45 Are there any emerging trends, notable rulings or hot topics related to cryptoassets or blockchain in your jurisdiction?

The Supreme Court ruling of March 2020, setting aside the Reserve Bank of India (RBI) Circular, has been notable in bringing about a positive attitude to crypto trading in the Indian markets.

Unlike resistance to cryptoassets, blockchain has recently gained much traction. The government report that forms the basis for the proposed legislation banning cryptocurrency acknowledges that blockchain will play a major role in the new digital age and explicitly excludes this technology from the purview of the ban. Private entities and government institutions have aggressively pushed for innovation using this technology. Noteworthy developments include the Andhra-Pradesh government developing and using blockchain in banking and finance as well as exploring the use of smart contracts. The defence minister has also declared that blockchain has ‘Revolutionised the existing paradigm of warfighting,’ and that the ministry is seeking to employ this technology to better safeguard the security of the critical infrastructure. In its white papers, the RBI has consistently highlighted the various uses of blockchain and encouraged its deployment in the financial services market. Given the vote of confidence, the Indian market is keenly following the policy initiatives that the government may potentially release in the coming years.


46 What emergency legislation, relief programmes and other initiatives specific to your practice area has been implemented to address the pandemic? Have any existing government programmes, laws or regulations been amended to address these concerns? What best practices are advisable for clients?

The Indian government has issued various guidelines concerning financial aid, health measures, etc, to address concerns arising from the covid-19 pandemic. Given the lack of clarity in regulating cryptocurrency and cryptocurrency businesses, no specific measures or initiatives have been taken in this area.

Law stated date

Correct on

Give the date on which the information above is accurate.

23 November 2020.


Vipul Jain, Partner
Nikita Chawla, Senior Associate
Rachana Rautray, Associate


Published In:GTDT Lexology
Date: March 9, 2021