Cryptocurrency as 'Property' Entitled to Protection: Madras High Court Grants Interim Relief Under Section 9 Arbitration Act Against Zanmai Labs

In a significant ruling addressing the intersection of digital assets and traditional commercial law, the High Court of Judicature at Madras, presided over by Justice N. Anand Venkatesh, has declared cryptocurrency to be "property" capable of being held in trust. The order comes amidst a legal battle involving WazirX platform users and Zanmai Labs Pvt. Ltd., establishing that a foreign scheme of arrangement cannot unilaterally erode the property rights of Indian users without proper adjudication.

Case Background: A Digital Standoff

The applicant, Rhutikumari, invested Rs. 1,98,516 in the WazirX platform in January 2024, acquiring 3,532.30 XRP coins. Following a massive cyber attack on the platform in July 2024, which decimated the company's ERC-20 token holdings, Zanmai Labs froze user accounts, citing a "socialisation of losses" plan sanctioned by a scheme of arrangement in the Singapore High Court under the Zettai Group. The applicant sought an injunction to prevent the redistribution or freezing of her XRP coins, which were held in a separate, non-compromised wallet.

Arguments: Custody, Trust, and Jurisdiction

Zanmai Labs argued that the platform’s operations moved under the Singapore-based Zettai Group following a breakdown in relationship with Binance. They maintained that the platform did not hold assets in custody as a trustee and that all users were bound by the Singapore-sanctioned restructuring plan.

Conversely, the applicant argued that her assets were rightfully held by the platform in India, and that her ability to trade was frozen by an entity—Zanmai—that, despite its disclaimers, effectively held her assets in trust. The applicant contended that the "socialisation" of losses—using her XRP holdings to cover theft in an entirely different crypto category (ERC-20)—was legally untenable.

Legal Analysis: Defining Digital 'Property'

Justice N. Anand Venkatesh emphasized that while crypto currency may not be a "currency" strictly defined by fiscal data, it functions as a digital asset capable of possession and enjoyment. Drawing on precedents such as Ahmed G.H. Ariff Vs. CWT and Ruscoe v Cryptopia Ltd , the Court held that the broad import of the term "property" in Indian law encompasses such intangible assets.

The Court scrutinized the "socialization" of losses, noting that "the basis of such a proposition is not any term in the contractual framework between the parties." Importantly, the Court observed that the Respondent could not unilaterally shift the burden of a cyber attack occurring in a specific wallet category (ERC-20) onto users who held completely different assets (XRP), essentially treating innocent users as insurers for the platform’s security lapses.

Key Observations

The judgment features critical reflections on the nature of digital assets:

• On the definition of property: "Property is a term of the widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold or enjoy."
• On the duty of the exchange: "The virtual digital asset held electronically are meant to be held in trust with a fiduciary duty owed to the owners of such asset."
• On the limits of corporate restructuring: "To use those assets not belonging to Zanmai... and to utilize them for covering losses attributable to other users is not something even on the face of it lends itself to a reasonable acceptance."
• On judicial oversight during hacking: "If the asset is stored digitally on the WazirX platform... whether it can be held that the asset will stand eroded... is a matter to be adjudicated."

The Final Order

The Madras High Court allowed the Section 9 application, ruling that the applicant is entitled to interim protection. Justice N. Anand Venkatesh ordered the respondent to furnish a bank guarantee of Rs. 9,56,000 in favor of the applicant or deposit the equivalent sum in an escrow account. This ensures that the subject matter of the dispute—the value of the XRP coins—is preserved pending the outcome of formal arbitration proceedings. This ruling serves as a stark reminder to digital platforms that domestic user rights and fiduciary obligations persist regardless of international restructuring efforts.