Demystifying Distributed Ledger Technology (DLT)

DLT is transforming how transactions and data are recorded, validated, and stored. At its core, DLT offers a decentralised, tamper-resistant framework with far-reaching legal implications

A modern legal system with no central gatekeeper

  • participant (or “node”) holds a synchronised copy of the ledger.
  • Tamper-Proof Records: Once data is recorded, it becomes immutable — edits and deletions are practically impossible without detection.
  • Consensus-Based Validation: Transactions are verified through collective agreement (via cryptographic or permissioned protocols).
  • More than just Blockchain: While blockchain is the most visible use case, DLT includes other models like directed acyclic graphs and private/permissioned ledgers.

Why does it matter to lawyers?

DLT challenges traditional legal assumptions ~

  • How do you define ownership without a central register?
  • Who is liable when no single party controls the system?
  • How do regulators oversee cross-border, decentralised networks?
  • Can smart contracts built on DLT truly replace legal contracts?

In essence, DLT enables trust without intermediaries — but raises new legal questions that demand fresh thinking.

Indian Regulatory Framework on DLT

India has adopted a cautious yet forward-looking regulatory stance toward emerging technologies such as DLT. While RBI has expressed concerns over virtual currencies, citing risks such as volatility, consumer protection issues, and threats to financial stability, both RBI and SEBI have simultaneously recognized and encouraged the development of legitimate DLT use cases within the broader financial ecosystem.

RBI on DLT

Between 2013 and 2017, RBI issued several advisories[1] warning the public and financial institutions of the risks associated with virtual currencies.

April 2018, it prohibited regulated entities from offering services to cryptocurrency-related businesses, effectively imposing a banking ban. This decision was challenged by the crypto industry, culminating in a landmark Supreme Court ruling[2] in March 2020 that struck down the RBI’s directive, deeming it disproportionate and lacking legal backing. Despite the reversal of the ban, comprehensive cryptocurrency legislation is still pending before Parliament. Nevertheless, RBI continues to discourage the use of cryptocurrencies while promoting innovation in blockchain and DLT through structured regulatory initiatives.

  • Pilot Projects[3]: RBI, through its Innovation Hub (RBIH), has launched pilot projects that utilize DLT to improve processes such as the issuance of Letters of Credit (LoCs). These initiatives involve collaboration among banks, fintech companies, and distributed infrastructure providers. A dedicated working group has also been formed to explore and define additional DLT use cases across financial services. 
  • Regulatory Sandbox (2019)[4]: In November 2019, the RBI launched its first regulatory sandbox with the theme of "Retail Payments," inviting applications from innovators using smart contracts and blockchain technologies. The sandbox facilitates controlled testing of new products and services in a live environment, under regulatory supervision, enabling data-driven evaluation of their viability and risks.
  • White Paper on DLT (2020)[5]: In its 2020 White Paper, the RBI emphasized the transformative potential of DLT in enhancing payment system efficiency, reducing settlement times, and improving transparency through decentralized record-keeping. It highlighted DLT’s cryptographic strengths in ensuring data integrity and minimizing fraud. However, the paper also warned of operational risks such as liquidity and maturity mismatches, regulatory arbitrage, and cybersecurity vulnerabilities. It advocated for robust regulatory frameworks and continuous technological assessment to balance innovation with financial stability.

SEBI’s Use of DLT in Securities Markets:

  • SEBI has proactively supported the adoption of DLT to improve the transparency and robustness of the capital markets. Depositories are now mandated to build and maintain DLT-based systems for monitoring security and covenant compliance in debenture issuances. This enables real-time tracking and enhances the enforceability of contractual obligations.
  • To operationalize this requirement, SEBI has issued[6] detailed technical and procedural standards for DLT deployment by market participants. These guidelines reflect SEBI’s intent to embed blockchain within core regulatory processes, improving surveillance and compliance oversight.
  • SEBI proposed framework[7] for fractional ownership of real estate assets through blockchain-enabled Special Purpose Vehicles (SPVs). This model allows investors to hold digital tokens representing fractional ownership in real estate assets. Regulatory amendments made to the SEBI (REIT) Regulations[8] in 2024 now formally support such tokenised asset structures, enabling greater liquidity, retail participation, and innovation in the real estate investment space.
  • SEBI’s evolving regulatory approach aims to incorporate DLT and tokenisation in a manner that fosters technological innovation while upholding investor protection and market integrity. These initiatives underscore SEBI’s commitment to adapting traditional financial regulation to accommodate next-generation digital asset models and blockchain infrastructure.

IFSCA’s Initiative on DLT

  • In parallel with its regulatory approach to tokenization, the International Financial Services Centres Authority (“IFSCA”) has recognised DLT as a critical enabler for innovation in the financial ecosystem of Gujarat International Finance Tec-City (“GIFT IFSC”). IFSCA has taken steps to encourage experimentation and regulated deployment of blockchain solutions in financial services.
  • In September 2023[9], it formed a seven-member Expert Committee to examine the legal validity of smart contracts, assess DLT-related risks, and propose a regulatory framework for asset tokenization.
  • IFSCA then went on to release a Consultation Paper on February 26, 2025[10], titled “Regulatory Approach towards Tokenization of Real-World Assets”, the paper outlines potential use cases of DLT in asset issuance, secondary market trading, and settlement processes, and seeks stakeholder feedback on enabling a regulatory environment that supports responsible innovation using blockchain technologies.
  • IFSCA aims to establish GIFT City as a leading jurisdiction for regulated DLT-based financial products, encouraging fintech development while maintaining investor protection, market integrity, and regulatory oversight.

Navigating the Roadblocks:

  • Regulatory Uncertainty: India lacks a clear, unified legal framework for DLT, especially for applications beyond finance. This creates uncertainty for businesses and investors.
  • Limited Technical Infrastructure: Many sectors and government bodies still rely on outdated digital infrastructure, making integration of DLT systems challenging.
  • Lack of Skilled Workforce: There is a shortage of professionals with the technical expertise needed to develop, implement, and maintain DLT-based systems.
  • Data Privacy and Compliance Challenges: With the enactment of the Digital Personal Data Protection Act, 2023, data subjects now have the right to request correction or erasure of their personal data. However, Distributed Ledger Technology (DLT), by design, maintains immutable records—meaning once data is written, it cannot be modified or deleted. This fundamental feature of DLT can conflict with legal obligations under the Act, creating compliance challenges for entities looking to adopt blockchain-based systems within India.

DLT is more than just a new tool—it changes the way data is stored, verified, and shared. In India, regulators like the RBI and SEBI are supporting its use in areas like payments, trade finance, and capital markets, even as they remain cautious about cryptocurrencies. As global interest in DLT grows, its adoption in India will depend on solving challenges like legal clarity, system scalability, and coordination between regulators. India’s measured approach aims to support innovation while keeping financial systems safe and stable.

Authors:

Smrithi Nair

Partner, Juris Corp

Email: [email protected]

Muskan Shah

Associate, Juris Corp

Email: [email protected]

Disclaimer:

This article is intended for informational purposes only and does not constitute a legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This article is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial / quasi-judicial authorities may not take a position contrary to the views mentioned herein.

[1] https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/FSPI260613FL.pdf

RBI cautions users of Virtual Currencies against Risks dated Dec 24, 2013 Reserve Bank of India

RBI cautions users of Virtual Currencies dated Feb 1, 2017 Reserve Bank of India

Reserve Bank cautions regarding risk of virtual currencies including Bitcoins dated Dec 5, 2017 Reserve Bank of India

[2] IAMAI v. RBI, 2020 SCC Online SC 275.

[3] Distributed Ledger Technology - leveraging emerging technology at scale

[4] Reserve Bank of India - Reports

[5] 03AR_11022020510886F328EB418FB8013FBB684BB5BC.PDF

[6] Operational guidelines for ‘Security and Covenant Monitoring’ using Distributed Ledger Technology (DLT) and Security and Covenant Monitoring’ using Distributed Ledger Technology

[7] Consultation paper on SEBI | Regulatory Framework for Micro, Small and Medium REITs (MSM REITs) issued on May 12, 2023.

[8] Chapter VI B of SEBI | Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 [Last amended on April 23, 2025]

[9] IFSCA forms a committee to suggest rules for asset tokenisation - BusinessToday

[10] IFSCA Consultation Paper on Regulatory Approach towards Tokenization of Real-World Assets