Digital Wealth and Doctrinal Gaps - Envisioning Inheritance of NFTs under Hindu Succession Law (Part 1)

*by Shivansh Singh

This blog is a part of a special two-part issue. Stay tuned to read the next instalment of the blog.

Introduction

In 2022, Singapore, through the judgment of Janesh s/o Rajkumar v Unknown Person, officially recognised the proprietary rights of NFTs. This legal recognition of NFTs is a natural first step in incorporating digital assets into the evolving economic framework of global property rights. However, this judgment also raises a pertinent question about the modalities of inheriting these digital assets, if they are to be treated as conventional properties. The engagement with this aspect of inheritance is largely lacking in India, where digital assets remain mostly unregulated by the Indian Courts and parliament.

The rise of digital assets, such as cryptocurrencies and non-fungible tokens (NFTs), has reshaped the concepts of property, ownership, and wealth in contemporary times. In India, this change is being implemented within a legal regime of inheritance based on conventional concepts of physical property, particularly under the Hindu Succession Act, 1956 (hereinafter referred to as the HSA). NFTs and other distinct blockchain-authenticated digital tokens now form a considerable portion of wealth for many. Yet, the legal nature of such assets is uncertain, particularly in the context of inheritance and succession.

Therefore, the first part of this article explores this critical gap by first understanding NFTs and other digital assets in the Indian context, followed by examining how far NFTs and other digital assets are included (or excluded) in (or out of) the current Indian inheritance regime. Considering that a significant portion of the inheritance matters in India is governed by the HSA, the article shall carry forward this discussion to the same extent. The second part of the article highlights the challenges deterring the adoption of NFTs in the Indian inheritance regime, following which it examines the fractionalization model of digital assets and delineates its utility in Indian inheritance law. In the concluding section, the article provides ancillary recommendations to address the policy gap. 

Understanding NFTs And Digital Assets In The Indian Context

A non-fungible token (NFT) is a type of cryptographic asset used to verify digital ownership of unique assets. NFTs provide a secure record authenticated with a unique identifying code stored on the blockchain. It is characterised by its uniqueness, which makes it irreplaceable against any other virtual entity in the world. Blockchain acts as an immutable, shared ledger that records transactions and tracks assets in a business network. At a cumulative annual growth rate (CAGR) of 57%, the Indian Web3 market is expected to reach $1.1 billion by 2032, up from $0.0049 billion in 2022. Accordingly, it is anticipated that the Indian NFT market will generate $ 9,247.9 million in net revenue by 2030, growing at a CAGR of 36.9% from 2024 to 2030. It is estimated to be valued at 77.5 million USD in 2025. Even on the consumer side, the demand for exclusivity-based NFT ownership constantly increases. This is reflected in the increase in startup ventures, with 71 NFT startups launched in 2021, and more than 86 NFT startups operating outside of India. Additionally, 18 per cent of ultra-high-net-worth individuals in India have invested in crypto assets, with 10 per cent and 8 per cent invested in NFTs.

Incidentally, there exists no concurrent legal framework to regulate NFTs and their commercial dealings, except for the Income Tax Act of 1961, which includes NFTs under the definition of virtual digital assets (VDA) following the introduction of this term through the 2022 amendments, which taxes them at 30 per cent. The government has attempted to regulate digital currencies by introducing the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021, to create a supervising framework monitored by the Reserve Bank of India (RBI); however, this bill has yet to become law.

Therefore, the interplay between NFTs and other virtual assets, which don’t exist in terms of tangible and material possession, and the law of inheritance in India emerges as an exciting area of study, given the rapid inclusion of NFTs in the modes of wealth acquisition, as indicated by the figures mentioned before. 

Defining Property Under Hindu Law, And Does It Cover Digital Assets?

Hindu law is primarily governed by the general scheme of succession laid down under the HSA. The term property has not been explicitly defined in the HSA. The Indian Courts have, however, described the term ancestral property under classical Hindu law as a property inherited by a person up to four generations of male lineage by birth. Furthermore, an HSA allows a person to make a will or testament to transfer their separate property. 

Section 8 of the HSA outlines the “general rules of succession for males”, stating that the property of a Hindu male who dies intestate passes into his Class I heirs, followed by Class II heirs, and agnates and cognates. Furthermore, a property in the name of any member of the joint family is ipso facto presumed to have been acquired from out of family funds and to be part of the joint family property if the joint family has enough nucleus to develop it. on the date of acquisition, unless it is sufficiently demonstrated and proven that the acquisition was from separate funds and not the joint family funds. Section 8 of the HSA also provides that the property inherited by a Hindu male from his father after 1956 is his separate property.

Therefore, a distinct definition of the term "property" for inheritance can be determined from two primary qualifications: 

●      Alienation Right - By distinguishing it from the ancestral property, a separate property can be understood as any property owned by a person exclusively with absolute powers over its disposal. NFTs aptly satisfy this qualification.

●      Mode of Acquisition - The property acquired through one’s earnings, predicated on one’s skills or effort, is deemed self-acquired. NFTs also qualify under this categorisation.

Where there is no statutory definition, the word "property" under the interpretation of the HSA can be construed broadly to include inherited as well as self-acquired property, subject to the proviso that they do not form part of a coparcenary property, thereby making such property freely alienable and subject to testamentary or intestate succession under the Act.

This interpretative approach becomes crucial in dealing with emerging forms of property like digital property and NFTs, whose classification and devolution under Hindu law must be based on an advanced and adaptive concept of "property."

*Shivansh Singh is a 2nd-Year law student pursuing B.A. LL.B. (Hons.) from Integrated Law Course (ILC), Faculty of Law, University of Delhi.

The views expressed above are the author's alone and do not represent the beliefs of Family Law Chronicle: The CFL Blog.

Editorial Note: This first part concludes the author's analysis of the conceptual compatibility between NFTs and the property framework under the Hindu Succession Act, laying the groundwork for a broader inquiry into the legal treatment of digital assets. The forthcoming second part will turn to the practical and doctrinal challenges that complicate the integration of NFTs and blockchain-based assets into the Indian inheritance regime. Readers interested in the intersection of technology and succession law are encouraged to follow the next installment of this two-part series.