India's Supreme Court Compares Bitcoin Trading to Hawala, Calls for Regulation

India’s Supreme Court has expressed significant concerns over the unregulated nature of Bitcoin trading in the country, drawing a parallel between it and a sophisticated form of Hawala, an informal and often illegal money transfer system. This comparison was made during a recent bail hearing involving an individual accused of illegal Bitcoin trading.

The court, comprising Justices Surya Kant and N Kotiswar Singh, highlighted the absence of a clear regulatory framework for virtual currencies, which has led to uncertainty and potential misuse. The remarks were made while considering the bail plea of Shailesh Babulal Bhatt, who has been in custody since August 2023 for allegedly engaging in illegal Bitcoin trading. Bhatt’s lawyer, senior advocate Mukul Rohatgi, argued that Bitcoin trading is not illegal in India, citing the 2020 ruling by the apex court that struck down the Reserve Bank of India’s ban on banking services for crypto platforms.

Justice Surya Kant, however, emphasized that without proper regulation, Bitcoin trading closely resembles a refined version of Hawala. This observation underscores the court's concern over the potential for Bitcoin trading to facilitate illegal activities due to the lack of oversight. The court noted that this issue has been raised before, with previous calls for the government to clarify its policy on virtual currencies going unanswered.

Despite the ongoing uncertainty, India has made some progress in regulating virtual digital assets. A tax regime introduced in 2022 imposes a 30% tax on crypto profits and a 1% tax deducted at source on all transactions above a certain threshold. Additionally, virtual asset transactions were brought under the Prevention of Money Laundering Act in March 2023, leading many platforms to register with India’s Financial Intelligence Unit to comply with local rules.

However, a broader regulatory framework remains absent. In a December 2024 response to Parliament, the government stated that there is currently “no fixed timeline” for introducing comprehensive rules on virtual assets. This lack of a clear regulatory framework has left the judiciary in a difficult position when dealing with crypto-related cases, as highlighted by the court's recent remarks.

The court's comparison to Hawala serves as a stark reminder of the potential risks associated with unregulated cryptocurrency trading. It underscores the urgent need for a comprehensive regulatory framework to monitor and control cryptocurrency transactions, ensuring they do not become a conduit for illicit financial activities. The court's remarks reflect a growing global concern over the regulatory challenges posed by cryptocurrencies and the need for a balanced approach that acknowledges both the potential benefits and risks of digital currencies.

The implications of the court's remarks are significant. They highlight the importance of effective regulation in maintaining the stability and integrity of the financial system. The government's inaction in this regard has been a point of contention, with the court questioning why no steps have been taken to address the regulatory void. The comparison to Hawala is not just a critique but also a call to action, urging the government to prioritize the development of a robust regulatory framework for cryptocurrencies.