Arbitration Update: Madras High Court Recognises Cryptocurrency As Property

Overview:

In a landmark judgment delivered by the Hon'ble Madras High Court in Rhutikumari v. Zanmai Labs Pvt. Ltd. & Ors., the Court recognised cryptocurrencies as 'property' under Indian law, capable of being held in trust and protected via interim measures. This decision, arising from a Section 9 application under the Arbitration and Conciliation Act, 1996 ("Arbitration Act"), addresses the fallout from a 2024 cyberattack on the WazirX crypto exchange. It clarifies the fiduciary nature of user-exchange relationships and limits the extraterritorial application of foreign restructuring schemes, drawing on principles from global precedents on digital assets. The ruling resolves ambiguities in crypto's legal status amid India's evolving regulatory landscape.

Brief background of the case:

The proceedings stem from a dispute between Rhutikumari ("Applicant") and Zanmai Labs Pvt. Ltd. ("WazirX" / "First Respondent"), along with its directors. The Applicant invested Rs 1,98,516 in January 2024 to purchase 3,532.30 XRP coins on the WazirX platform. Following a cyberattack that resulted in the loss of approximately USD 230 million (45% of platform assets) from multisig wallets managed by Liminal Custody, WazirX froze all user accounts, halted trades and withdrawals, and initiated restructuring proceedings in Singapore. Under a scheme of arrangement approved by the Singapore High Court on 13 October 2025, WazirX proposed pro-rata redistribution of remaining assets. The Applicant, governed by a WazirX user agreement with an arbitration clause under Singapore International Arbitration Centre ("SIAC") rules, filed for an interim injunction under Section 9 to prevent interference with her holdings, arguing they were held in trust.

Petitioner's Contentions:

1. The First Respondent holds cryptocurrencies as custodian and trustee for users, creating a fiduciary relationship; thus, the assets belong to users and cannot be redistributed without consent.
2. The proposed pro-rata apportionment or reallocation constitutes unlawful interference with the property rights.
3. The Singapore scheme of arrangement lacks jurisdiction over Indian users and cannot override their contractual rights under the user agreement, necessitating preservation of the status quo pending SIAC arbitration.

Respondent's Contentions:

1. WazirX does not act as custodian or trustee; the platform merely facilitates P2P trades, and users bear risks of hacks as per the user agreement, with no ownership transfer to the exchange.
2. Post-hack asset insufficiency (only 55% remaining) necessitates fair pro-rata distribution via the Singapore-approved scheme to equitably address all 4.3 million affected users' claims, binding under Singapore's Insolvency, Restructuring and Dissolution Act, 2018.
3. The Applicant's claim ignores the platform's operational structure (involving Singapore-based Zettai Pte. Ltd. as asset holder) and ongoing investigations; granting an injunction would prejudice the collective restructuring process.

Ruling:

1. The Madras High Court allowed the Original Application, granting an interim injunction restraining the Respondents from interfering with the Applicant's 3,532.30 XRP coins through redistribution, apportionment, or reallocation pending arbitration. The Court held that cryptocurrencies are 'property' under Indian law, akin to tangible assets, capable of being owned, transferred, and held in trust, rejecting WazirX's non-custodial stance.
2. The Court observed a clear fiduciary relationship, noting that user deposits create a trust obligation, and the hack does not absolve the exchange of liability. The Court further distinguished the Singapore scheme as non-binding on non-consenting Indian users without a proper jurisdictional nexus, emphasising party autonomy under the Arbitration Act.
3. Relying on global precedents and the interpretation of "property" under the Indian Law, the Court ruled, "there can be no doubt that cryptocurrency 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 ruling preserves the status quo, directing WazirX to maintain the Applicant's portfolio intact.

MHCOComment:

This judgment marks a significant shift in India's crypto jurisprudence, affirming digital assets as 'property' and reinforcing user protections against exchange failures, potentially setting a precedent for similar disputes amid regulatory uncertainty. However, it may complicate mass restructurings post-hacks, highlighting the need for balanced legislation to protect both users and exchanges while aligning with international standards.

This article was released on 4 November 2025.

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