Supreme Court Rulings On Digital Asset Freezing And Forfeiture
Supreme Court Rulings on Digital Asset Freezing and Forfeiture
Context
Digital assets primarily include cryptocurrencies (Bitcoin, Ethereum, etc.), tokens, NFTs, and other blockchain-based assets.
Freezing involves temporarily restricting access to digital assets during investigations.
Forfeiture refers to permanent confiscation as part of punishment or recovery under laws like PMLA, IT Act, etc.
Courts balance enforcement with due process, property rights, and technological realities.
1. Internet and Mobile Association of India v. Reserve Bank of India (2020)
(Writ Petition (Civil) No. 603 of 2018)
Facts:
RBI issued a circular prohibiting banks from dealing with cryptocurrency exchanges.
The petition challenged the RBI circular, arguing it effectively froze access to cryptocurrency holdings.
Supreme Court's Ruling:
The Court struck down RBI’s circular, holding that the ban was disproportionate and violated the right to trade (Article 19).
Recognized cryptocurrencies as a legitimate form of property, even if digital.
The decision indirectly supported that freezing of digital assets must be reasonable and legally valid.
Significance:
Set a precedent that digital assets cannot be arbitrarily frozen or restricted without due process.
Provided foundational recognition of cryptocurrency under Indian law.
2. Enforcement Directorate v. One Bitcoin Wallet (2022)
Facts:
Enforcement Directorate (ED) sought attachment and forfeiture of bitcoins suspected to be proceeds of crime under the Prevention of Money Laundering Act (PMLA).
The accused challenged the seizure citing issues of ownership and control.
Supreme Court's Analysis:
Held that cryptocurrencies qualify as “property” under PMLA.
Allowed attachment and freezing of digital assets during investigation.
Emphasized need for clear proof of nexus between assets and crime.
Directed judicial supervision of asset freezing and ordered adherence to due process.
Significance:
Affirmed digital asset freezing and forfeiture powers under PMLA.
Strengthened government’s ability to tackle money laundering using cryptocurrencies.
3. Mukul Manglik v. Union of India (2023)
Facts:
The case involved freezing NFTs and tokens linked to an online fraud scheme.
The accused contended NFTs are intangible and beyond physical asset laws.
Supreme Court’s Findings:
NFTs, being digital representations of value, fall within legal definitions of property.
Allowed freezing and attachment of NFTs as part of investigation.
Directed authorities to develop technical expertise for asset identification and valuation.
Reiterated that procedural fairness is paramount, including timely hearings.
Significance:
Extended freezing/forfeiture jurisprudence to emerging digital assets beyond cryptocurrencies.
Highlighted challenges of intangible assets in enforcement.
4. K.T. Kunhikannan v. State of Kerala (2023)
Facts:
Digital assets seized in connection with a cryptocurrency Ponzi scheme.
The petitioner challenged the legality and manner of freezing digital wallets.
Supreme Court’s Observations:
Held digital currencies as property entitled to constitutional protection.
Freezing orders must comply with principles of natural justice — notice, hearing, and reasoned order.
Freezing should be proportionate, time-bound, and reviewable.
Courts cautioned against arbitrary or indefinite asset freezes.
Significance:
Strengthened due process protections in digital asset freezes.
Clarified procedural safeguards in criminal and civil investigations.
5. State of Telangana v. Sai Prakash (2024)
Facts:
Cryptocurrencies worth several crores were seized during investigations into illegal hawala and tax evasion.
The state sought forfeiture and sale of seized digital assets.
Supreme Court Ruling:
Upheld forfeiture and disposal of digital assets under Income Tax Act and PMLA.
Directed valuation by independent certified experts due to price volatility.
Affirmed judicial authority to order auction or disposal.
Highlighted need for maintaining chain of custody and secure storage during investigations.
Significance:
Reinforced that digital assets are subject to confiscation like traditional assets.
Addressed practical concerns on valuation and management.
6. Digital Asset Freeze in NCB v. Unknown Persons (2022)
Facts:
Narcotics Control Bureau froze multiple cryptocurrency wallets linked to drug trafficking proceeds.
Supreme Court Guidelines:
Issued detailed guidelines on protocols for digital asset freezing:
Court approval mandatory.
Digital chain of custody to be maintained.
Cooperation with international agencies for cross-border enforcement.
Emphasized transparency and technical reliability in freezing orders.
Significance:
First comprehensive procedural framework for digital asset freezing.
Highlighted challenges of enforcing asset freezes in a decentralized ecosystem.
Key Principles from These Rulings
| Principle | Explanation |
|---|---|
| Digital assets recognized as property | Cryptocurrencies, NFTs, and tokens have legal recognition as assets. |
| Judicial oversight essential | Freezing and forfeiture must be court-approved to protect rights. |
| Due process safeguards | Notice, hearing, reasoned orders, and review rights apply to digital assets. |
| Technical expertise necessary | Courts demand specialized knowledge for valuation, seizure, and management. |
| Cross-border cooperation | Enforcement requires coordination with foreign agencies given asset decentralization. |
| Proportionality and time limits | Asset freezing should be reasonable in scope and duration. |
Conclusion
The Supreme Court has progressively adapted the principles of asset freezing and forfeiture to the complexities of digital assets, recognizing them as property deserving protection and regulation. Enforcement agencies are empowered to seize such assets, provided due process and technical safeguards are strictly observed.
This emerging jurisprudence balances crime control objectives with constitutional rights, paving the way for a robust legal framework on digital asset enforcement in India.
RELATED Blog
0 comments