Why Madras HC recognised cryptocurrency as property

The court was hearing a matter between Zanmai Labs and Rhutikumari, one of the investors on Zanmai Labs’ WazirX exchange platform. Rhutikumari, the applicant, was holding 3,532.30 XRP coins worth Rs 1,98,516 in January 2024 on the platform.

However, following a cyber attack on the platform, all the user accounts were frozen, including Rhutikumari’s.

It was mentioned by WazirX exchange that one of their cold wallets was hacked, which led to the loss of $230 million in Ethereum and ERC-20 tokens.

Upon hearing the matter, the court directed Zanmai Labs to furnish a bank guarantee or escrow deposit of Rs 9.56 lakh for the applicant’s assets until the conclusion of the arbitration.

Here are the key reasons why the court said cryptocurrency was property:

• The court highlighted that cryptocurrency is considered as a virtual digital asset according to Section 2(47A) of the Income Tax Act, 1961.
• It was further pointed out by the court that investments of users are converted into crypto currency, “which is capable of being stored, traded and sold.”
• The court considered the cases and the stand of other nations like the UK, the USA, Singapore, and New Zealand and found that the cryptocurrency can be enjoyed, disposed of, and possessed (in a beneficial form) like any other assets.
• Justice N Anand Venkatesh also pointed out that “the virtual digital assets held electronically are meant to be held in trust with a fiduciary duty owed to the owners of such assets.”

Arguments by Rhutikumari

Advocate D. Ravichander, appearing on behalf of Rhutikumari, argued that her crypto asset holdings, which are XRP coins, remain unaffected by the cyberattack in July 2024.

He further argued that Rhutikumari’s assets as well the part of the cause of action, were located in India; thus, interim relief shall be allowed under Section 9 of the Arbitration Act.

Arguments by Zanmai Labs

One of the lawyers, Satish Parasaran, representing the WazirX platform, argued that the “platform does not hold the virtual digital assets of its users in its capacity as a custodian or trustee.”

It was further argued that the current dispute should be resolved by arbitration in Singapore, considering the user agreement’s dispute resolution clause; hence, the interim protection in India shall not be maintainable.

Background of case

Rhutikumari, a registered user of the WazirX crypto exchange, invested around Rs 2 lakhs to purchase 3,532.30 XRP coins. However, she faced freezing of her user account following a cyberattack in July 2024.

Subsequently, the Singapore High Court ordered restructuring and a “scheme of arrangement” for all users.

Rhutikumari, then, decided to approach the Madras High Court, where the court granted interim relief and also secured her interests, recognising the crypto assets as “property” entitled to protection in India.

Talking to The Indian Express, Senior Advocate Krishna Grandhi said that, “By recognising cryptocurrency as a form of property, the Court has brought much-needed clarity to the legal character of virtual digital assets under Indian law.”

Advocate Grandhi mentioned this order of court as a “ strong message to exchanges” such as WazirX, which “owe fiduciary duties to users whose assets they hold.”

“Cyberattacks or corporate disputes abroad cannot justify freezing unrelated user portfolios in India. It acknowledges that cryptocurrencies are valuable assets under Indian law and deserve the same protection as any other form of property. For investors, it’s a shield. For exchanges, it’s a wake-up call”, he further added.