INTRODUCTION
Blockchain technology has evolved rapidly in the past decade, which has led to the emergence of new financial innovations and norms for asset ownership. The tokenization of Real-World Assets (RWAs) is the conversion of tangible assets into digital forms on the ledgers; this marks a revolutionary step in asset markets. The process of issuing a token based on real-world assets such as real estate, intellectual property, or financial instruments is known as tokenization. There are various benefits linked to it, making fractional ownership of the assets easier, ensuring better liquidity and trading around the globe, and trading without geographical limitations are some of them.[1]
The Indian regulatory framework currently lacks statutory regulations for tokenized RWAs; however, regulatory bodies such as the RBI and SEBI have issued guidelines from time to time and have adopted a cautious stance towards these digital assets. The RBI issued a circular regarding the prohibition in trading of these virtual currencies in 2018, which was later quashed by the Supreme Court in Internet and Mobile Association of India v. RBI, hence though efforts are made, there remains a legal vacuum which fails to address ownership rights, contractual enforceability, and unclear taxation. Furthermore, there is no clarity on how Indian legislation intends to apply to blockchain-based transactions. [2]
This blog critically examines the legal status of tokenized RWAs in India, mapping all the legal gaps and regulatory uncertainties that are silenced and need to be addressed. Through comparative analysis and policy evaluation, it aims to maintain legal and financial stability.
UNDERSTANDING TOKENISATION OF REAL-WORLD ASSETS (RWAs)
It refers to the digital representation of ownership in RWAs through blockchain-based tokens. A token can be referred to as a single unit of value digitally represented on distributed ledgers and can be transferred, stored, and traded. In the context of RWAs, the liquefaction of tangible assets such as real estate and financial securities in tradable tokens enhances market accessibility. The process of tokenization creates a smart contract that defines the rights and obligations of parties associated with the token. These tokens can represent legal ownership, beneficial interest, and contractual claims over the underlying asset.
Types of tokens:
- Asset-backed tokens – Types of tokens backed by tangible or intangible assets. For example, a real estate token that represents one square meter of commercial property.
- Utility tokens – Types of tokens that grant access to a platform or service and exclude physical ownership of assets. For example, Basic Attention Token (BAT).
- Security tokens – Types of tokens that represent traditional financial instruments. For example, tokens representing shares of a company
THE INDIAN LEGAL GREY ZONES
India remains in a stage of regulatory ambiguity despite the global momentum on the topic. In the present scenario, there is no legislation in India governing tokenization or distinguishing between the types of these tokens. This gap in legislation has created a grey area. The regulatory framework in which investors operate often involves uncertain legal scenarios that can result in non-compliance liabilities under existing laws, as it lacks provisions for blockchain-based innovations.
The Information Technology Act, 2000, does not provide legal recognition for blockchain-based transactions, nor does it have provisions for the transfer of ownership of rights regarding such instruments. Simultaneously, though the Securities Exchange Board of India (SEBI) is attempting to address blockchain for securities transactions, the Securities Contract (Regulation) Act, 1956, and the SEBI Act, 1992 do not expressly address or cover legislations on tokenized securities.[3]
However, continuous discussions on whether RWA falls within the scope of securities are in place.
The RBI has maintained a distinguishing factor between central bank digital currencies (CBCDs) and privately issued digital tokens advocating a conservative stance on the topic, the launch of digital rupee shows that RBI is moving toward an open approach in adopting tokenized monetary instruments, it is still to extend its framework towards asset tokenization in private markets.[4] The Finance Act 2022 introduced a 30% tax on virtual assets, but the lack of classification creates uncertainty in taxation, leading to inconsistent interpretations. The absence of a regulatory regime inhibits India’s domestic innovation and falls short of multiple legislations, such as the Companies Act 2013 and the Indian Stamp Act 1899. The regulatory silence maintained by Indian legislations creates a de facto prohibition of the country in digital finance around the globe.
LEGAL CHALLENGES AND RISKS OF TOKENISED RWAs IN INDIA
The absence of clarity in the legal framework in India regarding the tokenization of RWAs gives rise to a variety of challenges. One of the primary challenges is uncertainty in asset classification. Without legislative expression, it is unclear that physical assets, such as real estate, gold, etc., constitute “goods”,” derivatives”, or Sui generis digital instruments. This ambiguity in classification leads to jurisdictional challenges amongst regulatory bodies such as the SEBI, IBBI, and RBI, leading to regulatory conflicts.
Further, the validity of smart contracts is considered a pressing issue as the Indian Contract Act 1872 does not recognize self-recognizing digital contracts, although the silence of section 10 gives validity to contracts formed by mutual consent, the contract laws do not contain the jurisprudential clarity in addressing mutual consent formed in smart contracts.[5] Consumer protection and risks of fraud are threats too; in the absence of regulatory vetting, retail investors could be defrauded by tokenized assets misrepresented to have asset backing. There is no mandatory disclosure regime for token issuers like the securities market, leaving investors without knowledge of the values of underlying assets and legal title. Also, as these transactions are in a digital mode, there are always data privacy and cybersecurity risks present in trading through these instruments. The Digital Personal Data Protection Act 2023 still does not specifically address the decentralized architecture of blockchain transactions.[6] In essence, until a dedicated legal framework is introduced, there will be cases of non-compliance and regulatory backlash, and the industry will be open to unwanted litigations.
CONCLUSION
Tokenization of RWAs creates a decentralized trust mechanism with increased liquidity and an innovative framework. While other countries are moving toward a comprehensive technology-neutral approach, the Indian tokenization ecosystem lies in a precarious position, discouraging its involvement in foreign markets. India must repulse through these prohibitions and form a calibrated model that allows experimentation under supervisory conditions. The regulatory bodies should take the initiative to collaborate and tailor the best worldwide practices in the Indian economic context. There is a need for a unified definition of digital assets and recognition of token-based ownership to reduce legal uncertainty and maintain industry confidence. With the enactment of proper legislative policies, Indian can unlock its full potential in this emerging financial framework, safeguarding its economic sovereignty.
Author(s) Name: Rajat Patel & Salini Tiwari (KIIT SCHOOL OF LAW & KIIT SCHOOL OF LAW)
References:
[1] Neeraj Pandey and Arnav Anand,’ Tokenization of Real-World Assets: Indian Regulatory Perspective’ (2023) 6(1) NLUJ Law Review 45.
[2] Internet and Mobile Association of India v Reserve Bank of India (2020) 10 SCC 274.
[3] SEBI, Report on Blockchain for Securities Market (2021) https://www.sebi.gov.in/ accessed 22 June 2025.
[4] Reserve bank of India, Concept Note on Central Bank Digital Currency (2022)
https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CONCEPTNOTEACB531172E0B4DFC9A6E506C2C24FFB6.PDF accessed 22 June 2025.
[5] Indian Contract Act 1872, s 10.
[6] Digital Personal Data Protection Act, 2023.