E-Gold is also a kind of currency, to be precise, an electronic currency issued by a private company. That simply implies that it is out of the purview of Indian Laws and is not recognized by either Government of India or Reserve bank of India. There are two aspects to e-gold, firstly it is a means of transferring/transmitting money and secondly, a value (currency) to be exchanged for goods & services.
  

The Reserve Bank has the sole authority to issue and manage currency in India in accordance with RBI Act, 1934 which can be in two forms - Coins or Bank Notes of different denominations along with regulating in-flow and out-flow of foreign currency for current as well as capital account transactions.

To clarify the matter, Reserve Bank of India issued a Press Release on 21 October, 2002 (attached) which clarified for the information of public that “e-gold” is not a currency of any sovereign state. Use of “e-gold” in any transaction is violative of current regulations in force in India. Members of the public, banks, money changers and other financial institutions are, therefore, cautioned against the use of “e-gold” as a currency in their transactions.

There are two aspects to e-gold, firstly it is a means of transferring/transmitting money and secondly, a value (currency) to be exchanged for goods & services.

The RBI has clarified that it is the second part that is illegal for the simple reason that the Indian Rupee & most of the world's currencies are no longer valued purely by gold reserves. The currency value is determined by inter-currency exchange rates, which could be more/less than the gold held in reserve.

Further, when payments are done using e-gold, what gets transferred electronically, is the ownership of a certain weight of physical gold that is (supposedly) held in reserves somewhere. This gold is also not under any nation's control (or responsibility if something goes wrong), but is under the control of a secretive association.