Madras High Court Declares Cryptocurrency as Property, Setting Major Precedent for Investor Rights and Regulation

In a landmark ruling with far-reaching implications for India's digital economy, the Madras High Court has formally recognized cryptocurrency as "property" under Indian law. The decision provides critical legal clarity in a regulatory vacuum, strengthening investor rights and establishing the jurisdiction of Indian courts over crypto-related disputes, even those involving foreign arbitration clauses.

The judgment, delivered by Justice N Anand Venkatesh in the case of Rhutikumari v. Zanmai Labs Pvt Ltd and Ors , addresses the fundamental legal nature of virtual digital assets (VDAs) and the fiduciary duties of cryptocurrency exchanges. By classifying crypto as an asset capable of being owned, possessed, and held in trust, the court has built a foundational block for jurisprudence in a sector that has long been characterized by legislative inaction.

"There can be no doubt that cryptocurrency is a property," Justice Venkatesh observed. "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 Factual Matrix: A Cyberattack and Frozen Assets

The case arose from a plea by an investor, Rhutikumari, who sought interim protection for her holdings of 3,532.30 XRP coins on the WazirX platform, operated by Zanmai Labs. Following a significant cyberattack in July 2024 that resulted in the loss of approximately $230 million in Ethereum-based tokens from the exchange's wallets, WazirX froze all user accounts, including the applicant's.

Rhutikumari argued that her XRP holdings were distinct from the stolen assets and were held in trust by the exchange, thus they should be protected. Zanmai Labs countered, arguing that its Singapore-based parent company was undergoing a court-approved restructuring that included a "socialisation of losses" scheme, which would spread the losses among all users. The company also contested the court's jurisdiction, citing a user agreement that mandated arbitration in Singapore.

Defining the Indefinable: Cryptocurrency as Property

At the core of the judgment is the court's examination of the nature of cryptocurrency. Acknowledging the definitional challenge, Justice Venkatesh drew upon the expansive interpretation of "property" established by the Supreme Court in Ahmed G.H. Ariff v. CWT and Jilubhai Nanbhai Khachar v. State of Gujarat . These precedents define property as an "aggregate of rights" encompassing "every species of valuable right and interest."

Applying this broad principle, the court concluded that despite being intangible "streams of 1s and 0s," cryptocurrencies possess the essential characteristics of property: they can be owned, transferred, stored, and have exchangeable value. The court also noted that Indian law already acknowledges VDAs under Section 2(47A) of the Income Tax Act, 1961, which treats them as assets for taxation purposes, not speculative transactions.

This judicial affirmation aligns with a growing global consensus, as the court cited similar findings from high courts in the UK ( AA vs. Persons Unknown ), New Zealand ( Ruscoe vs. Cryptopia Ltd ), and Singapore ( ByBit Fintech Ltd v. Ho Kai Xin ), all of which treated crypto tokens as a form of intangible property.

Upholding Indian Jurisdiction and Fiduciary Duty

The court decisively addressed two other critical legal questions: the jurisdiction of Indian courts and the nature of the relationship between an exchange and its users.

• Jurisdiction in Cross-Border Disputes : Zanmai Labs' contention that the Singapore-seated arbitration clause ousted the jurisdiction of Indian courts was firmly rejected. Citing the Supreme Court's ruling in PASL Wind Solutions Pvt Ltd v. GE Power Conversion India Pvt Ltd , Justice Venkatesh affirmed that Indian courts can grant interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, to protect assets located within India. The court held that since the applicant's transactions originated in India and involved an Indian bank, her assets were effectively held within the court's jurisdiction, making the application for interim protection maintainable.

• Exchanges as Fiduciaries : The court dismantled the argument that exchanges are mere facilitators. Placing reliance on a Bombay High Court decision in a related matter ( Zanmai Labs Private Limited Vs. Bitcipher Labs LLP ), Justice Venkatesh held that crypto exchanges hold user assets in trust and owe a fiduciary duty to their clients. This finding was crucial in rejecting the "socialisation of losses" scheme proposed by the exchange. The court reasoned that since the applicant's XRP holdings were not part of the assets affected by the cyberattack on Ethereum-based tokens, she could not be compelled to share in the losses resulting from a security breach affecting other users.

"The asset that was possessed by the applicant will stand eroded due to security lapse or security breach," the court noted, adding that whether such erosion "can be validly spread across all users" is a matter to be adjudicated.

A Nudge to the Legislature Amidst a Regulatory Void

The judgment is also a powerful commentary on the persistent legislative and regulatory vacuum surrounding digital assets in India. Since the Supreme Court struck down the RBI's banking ban in Internet and Mobile Association of India v. RBI (2020), there has been no comprehensive regulatory framework. Instead, the government has introduced a stringent tax regime, effectively legitimizing VDAs for revenue purposes while failing to provide a legal structure for consumer protection or industry governance.

Justice Venkatesh noted this dichotomy, observing that while the government taxes VDAs and applies anti-money laundering laws through the PMLA, it has left millions of investors vulnerable. The judgment serves as a "nudge to the legislature," highlighting the urgent need to "design a regulatory regime that encourages innovation while protecting consumers and maintaining financial stability."

Broader Implications for the Legal Landscape

The Rhutikumari ruling is poised to become a foundational precedent in Indian crypto jurisprudence with wide-ranging consequences:

• Investor Protection : It provides a clear legal basis for investors to seek remedies against exchanges for frozen funds, security breaches, or arbitrary actions.
• Insolvency and Bankruptcy : Defining crypto as property means it can be treated as an asset of the holder in insolvency proceedings, protecting it from being co-mingled with an exchange's corporate assets.
• Inheritance and Estate Planning : The ruling clarifies that cryptocurrencies can be part of an estate and be bequeathed, providing certainty for succession planning.
• Contractual Disputes : It solidifies the legal standing of cryptocurrencies in contractual agreements, including their use as collateral.
• Corporate Governance : The judgment implicitly calls for higher standards of corporate governance, security, and prudential norms for crypto platforms, likening their responsibilities to those of other financial institutions handling public funds.

By ordering Zanmai Labs to furnish a bank guarantee or deposit a sum equivalent to the value of the applicant's holdings in escrow pending arbitration, the court provided tangible relief while setting a powerful legal standard. The decision marks a pivotal moment where the Indian judiciary has stepped in to provide clarity and protection where legislative and executive branches have hesitated, shaping the rules for an increasingly decentralized financial world.