While the order is interim, its implications are sweeping: platforms can no longer treat investor holdings as pooled assets, users have stronger protections, and regulators face renewed pressure to formalise rules. As India edges toward a structured digital-asset regime, this judgment reshapes the conversation from speculative trading to investor rights, custody standards and the future architecture of crypto regulation.
What’s the ruling?
In a case involving WazirX and its operator Zanmai Labs, the High Court of Madras in a 25 October ruling held that the applicant’s holding of 3,532.30 XRP coins (on WazirX) were her assets, and that the exchange could not redistribute them to cover losses of others.
The case arose after the exchange faced a cyberattack in July last year, resulting in theft of digital assets worth around $235 million and prompting a restructuring proposal in Singapore. The exchange sought to socialise the losses by imposing a haircut on all investors. That plan was approved by the Singapore court.
The applicant, who invested through the platform challenged this approach. “The investor argued that the crypto stolen was different from the assets she held, so her holdings shouldn’t be diluted to compensate for losses caused by a breach,” says Prashanth Ramdas, Partner at Khaitan & Co. Since the dispute was settled in Singapore arbitration, the Indian investor approached domestic courts only for interim protection.
The Madras High Court observed:
“There can be no doubt that ‘crypto currency’ is a property. It is not a tangible property nor is it a currency. However, it is a property, which is capable of being enjoyed and possessed (in a beneficial form). It is capable of being held in trust.”
The court pointed out that the tokens were identifiable, transferable, capable of exclusive control (via private keys), traits similar to property rights. It also rejected that the exchange could treat all users’ holdings as one pool for loss-sharing in a restructuring, when the claimant’s specific holdings were untouched by the hack.
Crucially, the court rejected the platform’s attempt to distance itself from responsibility. “The court said intermediaries facilitating crypto investments owe fiduciary duties to investors. They can’t wash their hands by saying they are mere facilitators,” Ramdas says.
On the legal status of crypto, Ramdas explains: “The court has highlighted that crypto is not fiat currency, it’s not a security, but it is certainly not nothing. It is property in legal parlance, capable of ownership, transfer and beneficial enjoyment. Crypto assets are now viewed similar to other assets.”
While the ruling granted only interim relief (through a bank guarantee), its signalling is significant. “The key takeaway is investor protection. Courts will prioritise safeguarding investor rights in situations where assets are eroded due to factors beyond the investor’s control,” he notes.
Legal implications
The Madras High Court’s verdict marks a major shift in how Indian law treats digital assets, giving investors stronger protection through property law remedies like injunctions and trust claims, beyond mere contractual or regulatory recourse. This also raises the bar for crypto exchanges and custodians, who may face heightened fiduciary responsibilities. In practice, that could mean assets need to be held in trust, potentially segregated, and not frozen or reallocated without due cause. “If an exchange is hacked or customer holdings are blocked, investors may now argue more convincingly that their crypto is a distinct, protected asset rather than merely an entry on a platform’s ledger,” says Rajarshi Dasgupta, Executive Director – Tax at AQUILAW.
Equally important is jurisdiction. The ruling signals that Indian courts are willing to assert authority in cases involving domestic investors and assets, even if the underlying platforms or restructuring processes lie offshore. For Indian users, this translates into greater confidence that rights can be enforced at home rather than leaving them at the mercy of foreign proceedings.
However, legal experts caution that the implications are not absolute. The judgment comes from a single high court and may face appeal; its effect is persuasive, not uniform, across jurisdictions. Moreover, the ruling focuses on crypto as an asset class, not a currency, and leaves open questions regarding the treatment of varied token types such as utility tokens, stablecoins and governance tokens.
As Dasgupta notes, “While the ruling brings clarity by recognising crypto as property, it does not confer currency status or change the regulatory vacuum. Its practical effect will depend on how courts and regulators align going forward.”
Taxation aspect
Recognising cryptocurrency as property also has tax implications. Under the Income Tax Act, digital tokens are treated as “virtual digital assets” (VDAs), taxed at a flat 30% under Section 115BBH with no loss set-off, and subject to 1% TDS on transfers. While the court’s ruling doesn’t change these provisions, it reinforces crypto’s status as an asset class rather than a speculative bet.
Why Madras High Court’s ruling on crypto matters?
What’s the background?
- WazirX suffered cyberattack last year
- Hack resulted in theft of $235 million in assets
- WazirX proposed “socialisation of losses”
What’s Madras High Court Case about?
Petitioner argued that her specific crypto holdings were different from the stolen tokens and should not be diluted or pooled.
The Madras High Court allowed interim protection and held:
- Applicant’s holdings were her own assets
- Exchange can’t redistribute to cover losses
The court observed
- Crypto currency is a property
- It is not tangible nor is it currency
- Crypto can be held in a trust
- Crypto is identifiable & transferable
Investors can have exclusive control
Implications for investors
1.Stronger legal protection
2.Holders may have recourse to property law remedies
3.Like injunctions, trusts, claims for misappropriation
4.Exchanges, custodians face stronger obligations
5.Assets must be held in a trust, perhaps segregated
6.Assets cannot be arbitrarily frozen or redistributed
7.If an exchange is hacked, or user’s coins are frozen, the user may better argue that their asset is distinct and protected rather than mere “entries in a database”
Treating crypto as property strengthens the case for viewing it as a capital asset, especially in matters of inheritance, succession, and gifting. Even before VDA rules, tribunals had classified crypto gains as capital gains—this ruling reinforces that view.
“The ruling may also have practical implications for estate planning and financial reporting. If crypto is recognised as part of an individual’s property, it suggests that such holdings should be accounted for in end-of-year asset disclosures, considered in estate and insolvency settlements, and evaluated for potential tax triggers when transferred as gifts or inherited,” says Dasgupta.
For investors, the takeaway is clear: crypto is increasingly being treated not as a fringe speculative bet, but as a formal part of one’s wealth footprint, and the taxman’s view is aligned with that reality.
Exchanges’ view
The Madras High Court’s classification of cryptocurrency as “property” has been welcomed by Indian exchanges as a major step toward investor protection and legal clarity. The ruling strengthens users’ ownership rights and offers clearer recourse in cases of fraud, misuse of funds, or platform failures. It also elevates the role of exchanges, positioning them as custodians with fiduciary duties—a shift that demands stronger governance, segregation of assets and enhanced security standards. Industry leaders say this could speed up the creation of a more transparent, accountable crypto ecosystem in India. “This judgment reinforces that crypto investors have enforceable property rights and that exchanges bear a custodial responsibility,” says Edul Patel, CEO of Mudrex, a crypto exchange. “It ensures offshore structures cannot be used to escape accountability, and it lays the groundwork for a more secure, regulated and confidence-driven market for Indian investors.”
What’s the new jurisdictional/regulatory clarity?
Indian courts can claim jurisdiction in such matters For investors, this means more confidence Legal rights may be enforceable domestically
Are there are any caveats?
- The judgment is by one high court
- Could be appealed to the Supreme Court
- May not yet apply uniformly across India
- Crypto is still not legal tender in India
- The property recognition is about asset-status
What are the taxation implications?
Property status may not affect tax provisions
- Crypto should be treated like capital assets
Taxation scenarios:
- If crypto is held to be property: Gift or inheritance may trigger tax implications.
- Year-end valuation, asset disclosure: Crypto should be included in one’s “estate”
Regulations and recourse
The ruling has injected fresh momentum into India’s ongoing efforts to build a formal regulatory architecture for digital assets. While the ruling does not itself create new rules, it places greater responsibility on exchanges to act as custodians and strengthens investors’ legal rights over their holdings.
Industry leaders say the decision may accelerate government action, with a structured policy framework now increasingly expected. “We are expecting regulators to soon release a discussion paper outlining the framework and specific obligations that industry participants will need to follow,” says Patel. “This could include clearer norms around safeguarding customer assets, stronger reporting guidelines, and tighter KYC (Know your customer) and AML (anti-money laundering) standards. In time, we could see the bar for compliance rise on par with global regulations.” The new compliance burden may force weaker or non-compliant platforms out of the market, a development that ultimately benefits investors.
The ruling also strengthens recourse for investors in case of hacks, platform failures, or frozen withdrawals. With crypto recognised as property held in trust, customer assets cannot be pooled, diverted, or used to cover exchange losses. “If withdrawals are frozen or funds are impacted in a hack, investors now have a clearer legal recourse to claim their assets, which remain their property and not the exchange’s,” Patel explains. “Segregated wallets also give users priority in recovery, bringing accountability and transparency to the ecosystem.”
Takeaway for investors
While the ruling does not legalise crypto as currency, it affirms investors’ right to own and enforce claims over digital assets, and recognises exchanges and wallet platforms as fiduciaries rather than mere service providers. This distinction could significantly reshape the obligations of intermediaries in safeguarding user funds, especially in the wake of high-profile collapses like WazirX and FTX that left users scrambling for recovery.
Shilpa Mankar Ahluwalia, Partner at Shardul Amarchand Mangaldas & Co., notes that the ruling is pivotal because it “recognises crypto assets as intangible property capable of being enjoyed and possessed” and establishes that platforms holding these assets do so “in trust and in a fiduciary capacity.”
She adds, “While India still needs a comprehensive framework to regulate crypto assets, these principles can act as an important base for legislators.” By clarifying that crypto holdings are not speculative wagers or unregulated currency substitutes, the judgment strengthens investor rights in insolvency cases and cyber frauds.
Investors can now demand higher standards of custody, transparency and asset protection, and assert ownership during restructuring or recovery proceedings. Still, the ruling also underscores the need for policy clarity, particularly around token classification, taxation, and cross-border legal cooperation, critical challenges for a global, decentralised asset class.
Despite unresolved complexities, legal experts say the verdict improves investor confidence and lays groundwork for a structured regulatory path. As Ahluwalia emphasises, the decision “sets out a basis for regulating crypto assets” and highlights the urgency of a full framework to govern intermediaries and protect consumers in India’s growing digital-asset ecosystem.