Then trading and bartering with illegal drugs also should be OK. Same logic
Meal tickets/coupons and tokens should be illegal by your logic. Do you know that during demonetization, printed slips were used as temporary currency for bartering goods between traders here in Hyderabad?
Any thing can be a currency if people want it to be. Legal tender just means that its legally recognized tender.
Lets say Person A owes Person B Rs 1000.
The legal system will recognize the repayment of the amount only if A is it using legal tender. If A wants to pay the amount to B in his own custom currency, it is not recognized as repayment. If A wants to give Sodexo coupons worth Rs 1000, it not considered repayment. However, if B agrees to take the sodexo coupons, it is not a problem for the legal system. If B agrees to take A's currency as repayment, it is also not a problem. It was just a currency accepted by both A & B.
The FM said that Bitcoin is not recognized as legal tender. What it means is that the legal system does not currently recognize the bitcoin or its value. i.e. If you make a bitcoin transaction and get cheated, you cannot go to court and demand that its value be given back to you either in bitcoin or in legal tender. If you buy a bitcoin some time back and an exchange refuses to give you today's value, you cannot take them to court.
Basically, you have no legal protection, but it does not mean that you cannot use it to transact with somebody with bitcoin if they recognize its value too.
If owe somebody 10 Lac, and you want to pay them in bitcoin, it won't be recognized by a court as legitimate payment means. But if the other party agrees to accept repayment in bitcoin. Nothing stopping you from doing it.