Introduction
India’s government is actively promoting blockchain technology as a driver for innovation in finance and governance. In 2020, the National Institute for Smart Governance (NISG) prepared a National Strategy on Blockchain under the Ministry of Electronics & IT (MeitY), envisioning India as a global leader in blockchain by 2025. That strategy called for policy frameworks, incentives and legal architectures to integrate blockchain into economic ecosystems and even recommended creating an official digital currency like a sovereign cryptocurrency.
A follow-up framework by the National Informatics Centre (NIC) in early 2021 identified key legal hurdles: it noted the Reserve Bank of India’s (RBI’s) earlier ban on cryptocurrency banking, gaps in existing laws (e.g. no blockchain provision for property or wills), and conflicts between blockchain’s immutable ledgers and emerging data privacy rights like the “right to be forgotten”. These national documents underscore that while India’s National Blockchain Framework aims to accelerate fintech applications, it also emphasizes the need for clear legal compliance across sectors.
RBI Regulation and Fintech Blockchain Initiatives
The Reserve Bank of India, as the banking regulator, plays a crucial role in fintech blockchain adoption. In January 2022 the RBI created a dedicated FinTech Department to identify innovation opportunities and launched numerous pilot programs related to India’s central bank digital currency (CBDC). Under this initiative, RBI Innovation Hub’s Distributed Ledger Technology (DLT) pilot brought together banks and fintech partners to test blockchain for trade finance (specifically, issuance of Letters of Credit).
The RBI’s embrace of blockchain materialized publicly in late 2022 when it launched a pilot of the Retail Digital Rupee on December 1, 2022, distributing the “e‑₹” through select banks. These token-based digital currency pilots demonstrate RBI’s support for blockchain-backed payment systems.
At the same time, traditional banking laws continue to apply. The RBI Act and the Payment and Settlement Systems Act, 2007 require any new payment platform to be licensed by the RBI. Thus, a fintech using blockchain to move money (for example, a crypto exchange or a tokenized payment service) must comply with existing regulations as if it were any other payment system.
This includes adhering to KYC/AML norms under the Prevention of Money Laundering Act, 2002 (PMLA) and RBI’s own Know-Your-Customer guidelines. Notably, the RBI’s 2018 circular prohibiting banks from dealing with cryptocurrency exchanges was struck down by the Supreme Court in Internet & Mobile Association of India v. RBI, AIR 2021 Supreme Court 2720. The Court found the blanket ban disproportionate since digital assets had not demonstrably harmed banks. While that case dealt with cryptocurrency, it sets a precedent that overbroad restrictions may not survive legal scrutiny.
In practice, it means blockchain projects not involving prohibited crypto can continue under oversight. In sum, RBI’s posture is to encourage innovation (as seen in the digital rupee and regulatory sandbox initiatives) while ensuring banks and fintech firms remain compliant with core banking and payment laws.
SEBI Regulation and Blockchain in Securities Markets
The Securities and Exchange Board of India (SEBI) has also begun integrating blockchain in the capital markets. In August 2021, SEBI directed the country’s depositories (NSDL/CDSL) to develop a distributed ledger platform for recording and monitoring the creation of securities, particularly non-convertible debentures (NCDs). This permissioned blockchain system – called the “security and covenant monitoring system” – requires issuers, debenture trustees and credit rating agencies to log security issuance, charges and covenants on a shared ledger.
SEBI highlighted that a blockchain-based registry would strengthen security creation by providing a verifiable audit trail: all charge registrations and asset valuations are cryptographically time-stamped on the ledger. The new system, implemented by April 2022, automatically enforces pre-agreed logic (for example, preventing duplicate charges on the same asset) through smart conditions coded into the platform.
SEBI’s approach indicates that for securities regulation, blockchain is viewed as a compliance tool. Any issuance of shares, bonds or funds using blockchain must still satisfy SEBI’s capital markets laws (such as the SEBI Act, 1992, Companies Act, 2013 and listing rules), but SEBI is explicitly using DLT to improve disclosure and monitoring in this sector.
IT Act and Legal Recognition of Blockchain Records
India’s Information Technology Act, 2000 (IT Act) provides the baseline for legal recognition of electronic transactions. Section 4 of the IT Act declares that any requirement of paper records or signatures is met by electronic records and electronic signatures where prescribed. Thus, blockchain entries – being electronic data – qualify as “electronic records”. Section 5 and related provisions treat digital signatures (issued by licensed Certifying Authorities) as legally equivalent to handwritten signatures for most contracts.
In principle, this means blockchain transactions could form valid contracts or records under Indian law. However, official commentary notes a tension: the IT Act requires a government-approved digital signature to authenticate electronic contracts, yet blockchain smart contracts are self-executing and lack a conventional certifying authority.
A recent analysis observes that “the IT Act provides that digital contracts are valid contracts and enforceable in the court, but they should have the… signature by the Certified Authority… authorized by the government”). This creates uncertainty: a smart contract without a CA-backed signature may not neatly fit the IT Act’s model.
On evidence, the IT Act amendments (via the Indian Evidence Act. 1872) permit electronic records in court. Section 65B of the Evidence Act (added by the IT Act) requires an electronic record to be accompanied by a certificate of authenticity.
In practice, this means a blockchain ledger can be admissible evidence, but a foundation attesting to its integrity must be provided. Recent official notes echo this: they point out that section 43A of the IT Act (governing data security) has no explicit privacy safeguards for blockchain, and that statutory “right to be forgotten” (as proposed in India’s draft data protection laws) conflicts with blockchain’s immutability.
They also highlight that the IT Act’s Schedules (which list transaction types like wills or negotiable instruments) do not yet cover blockchain entries for things like property transfers. In summary, while the IT Act establishes that electronic records are legal, existing provisions were not drafted with decentralized ledger technology in mind. Compliance may require new rules or government certificates to seamlessly integrate blockchain records into India’s e-commerce and evidence framework.
Data Protection and Privacy Obligations
Blockchain’s immutable nature also intersects with India’s evolving data protection regime. The Supreme Court recognized privacy as a fundamental right in Puttaswamy v. Union of India,AIR 2018 SC (SUPP) 1841, 2019 (1) SCC 1, prompting a new data law. The Digital Personal Data Protection Act, 2023 (DPDP Act), passed in August 2023, now governs personal data.
It mandates that data fiduciaries (such as fintech platforms) collect data only for lawful purposes with consent, maintain accuracy, secure it, and delete it once its purpose is fulfilled. Individuals have rights to information, correction and erasure under the new law.
These requirements clash with blockchain’s design. Once personal data is recorded on a blockchain, it cannot be easily altered or deleted. The 2021 NIC report explicitly warns that the “right to be forgotten… has contradictions with the inherent feature of Blockchain where data cannot be deleted”. This means a permissioned or private blockchain storing personal information must carefully structure access controls and off-chain storage to comply with DPDP.
In practice, fintech blockchains handling personal data may need to encrypt data and store references on-chain, so that actual personal details can be erased or corrected off-chain if required. Failure to do so could breach DPDP obligations.
Moreover, data localization norms (also under discussion by MeitY) add another layer of compliance: blockchain nodes spread globally could run afoul of any requirement to keep certain personal or financial data within India. Ultimately, fintech companies adopting blockchain must reconcile immutable distributed storage with new privacy rights and security obligations, often through architectural or legal workarounds.
Smart Contracts and Enforceability
“Smart contracts” – blockchain-embedded code that automatically executes transactional conditions – have no special legal status under Indian law but can be analyzed as electronic contracts. Section 10 of the Indian Contract Act, 1872 only requires offer, acceptance, lawful object and consideration to form a valid contract.
By that measure, a smart contract that clearly encodes mutual assent and consideration can be considered a valid agreement under Indian law. An industry guide notes that because smart contracts meet the fundamental elements (offer, acceptance, intent), they are “proper and valid contracts under Indian law”.
In practice, courts will treat them like any other contract: enforceable if the terms are clear and legal. However, practical hurdles remain. The IT Act’s signature requirement means that, to fit existing law, parties may need to affix digital signatures (with CA certificates) to a smart contract’s intent at the time of agreement. Otherwise, the automatic code execution has no traditional signature.
There are no reported Indian court cases specifically enforcing a smart contract to date, so the legal robustness of a purely code-based transaction is still untested. Disputes may arise over how to interpret blockchain records or which jurisdiction’s laws apply.
To mitigate risk, commercial parties often reference the blockchain contract terms in an off-chain agreement or ensure compliance with contract formalities. In essence, smart contracts can be binding, but parties must be mindful of evidence requirements (such as the need for a 65B certificate) and digital signature norms in India.
Intellectual Property and Blockchain Innovation
Fintech companies developing blockchain solutions should also consider intellectual property laws. India’s Copyright Act, 1957 and Patents Act, 1970 apply to software and technological inventions. While pure software cannot be patented in India unless tied to a novel hardware device, blockchain-related innovations can be protected.
According to legal analysts, products using emerging technologies like blockchain may qualify for patent protection (if they meet the patentability criteria, e.g. as part of a hardware-assisted solution) or be covered by copyright (as source code).
For example, proprietary blockchain algorithms and user interfaces can be copyrighted, and novel consensus mechanisms or hardware implementations might be patented. Trademarks can also protect the branding of a blockchain-based service. Fintech firms should therefore secure IP rights – filing patents, registering copyrights or trademarks – for their blockchain innovations to bolster competitiveness and prevent copying.
Other Financial Compliance Considerations
Beyond the fintech-specific laws, general financial and commercial regulations apply to blockchain applications. For instance, tokenizing assets (like equities or real estate) on a blockchain still triggers stamp duty, tax and corporate law obligations unless explicitly authorized. The NIC report points out that current law (the IT Act Schedule I) does not recognize blockchain records for certain legal instruments (e.g. property deeds, wills), so tokenized property transfers may not have legal effect.
Similarly, if a blockchain network issues a token deemed a security, the issuer must comply with SEBI regulations (like prospectus and disclosure requirements). Insurance or pension products built on blockchain must still follow IRDAI or PFRDA rules. In practice, fintech firms usually implement blockchain under the umbrella of an RBI or SEBI license category.
For example, a blockchain payment gateway would need approval under the Payment Systems Act, and the operators would be treated as a payment system provider subject to audit and data-localization rules. Anti-money-laundering laws (PMLA) apply as well; any cryptocurrency or token used for transactions must not facilitate illicit flows. In short, no existing law is repealed by using blockchain, and fintech innovators must build on a foundation of India’s comprehensive financial regulatory framework.
Conclusion
India’s push to adopt blockchain in fintech comes with a complex regulatory matrix. The National Blockchain Framework and strategy documents lay a broad vision and identify challenges in adopting blockchain, but concrete implementation will occur within established laws. The RBI and SEBI have already outlined sandbox programs and specific mandates (e.g. digital currency pilots and DLT-based securities monitoring) that embrace blockchain under supervision.
Meanwhile, key statutes – the IT Act, Contract Act, Evidence Act and the new Digital Personal Data Protection Act – impose conditions on digital transactions and data handling that blockchain solutions must satisfy. Legal experts note the tension between blockchain’s technical features (immutability, decentralized consensus) and legal requirements (digital signatures, data erasure).
For fintech companies, this means ensuring legal compliance at every step: designing blockchain products with regulatory approval in mind, adhering to KYC/AML rules, honoring data privacy rights, and properly documenting smart contracts. At the same time, India’s regulatory authorities are moving toward clearer frameworks, as seen in RBI’s recent FinTech initiatives and SEBI’s blockchain projects.
Ultimately, successful blockchain adoption in India’s fintech sector will depend on aligning technological innovation with the evolving legal landscape – a goal explicitly recognized in the national blockchain policies and ongoing legislation.
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