Madras High Court Declares Cryptocurrency as Property in Landmark WazirX Ruling

CHENNAI – In a judgment with far-reaching implications for India's burgeoning digital asset ecosystem, the Madras High Court has definitively ruled that cryptocurrency constitutes "property" under Indian law. The landmark decision, delivered by Justice N Anand Venkatesh in Rhutikumari v. Zanmai Labs Pvt Ltd , not only solidifies the legal status of virtual digital assets but also reinforces the jurisdiction of Indian courts to protect investors' interests against actions by cryptocurrency exchanges, even amidst complex international restructuring proceedings.

The 54-page judgment grants interim protection to an investor whose XRP holdings on the WazirX exchange were frozen following a major cyberattack. In doing so, the Court meticulously dismantled the exchange's arguments, establishing a robust precedent for the proprietary rights of crypto holders and the accountability of platform operators in India.

The Factual Matrix: A Hack, a Freeze, and a Cross-Border Dispute

The case originated from a plea filed under Section 9 of the Arbitration and Conciliation Act, 1996. The applicant, an investor, had purchased 3,532.30 XRP coins, worth approximately ₹1,98,516, in January 2024 on the WazirX platform, which is operated by Zanmai Labs Pvt Ltd.

On July 18, 2024, WazirX disclosed a severe security breach, announcing that a cyberattack on one of its cold wallets had resulted in the loss of Ethereum and Ethereum-based (ERC-20) tokens valued at around US$230 million. In response, the exchange froze all user accounts, including the applicant's, thereby preventing her from accessing or trading her XRP holdings.

The applicant contended that her assets were distinct and entirely separate from the stolen tokens. She argued that her XRP coins were not affected by the hack and that WazirX held them in a custodial capacity, creating a trust relationship. She sought an injunction to prevent the exchange from redistributing or reallocating her portfolio as part of any loss recovery plan.

Zanmai Labs and its directors, including co-founder Nischal Shetty, opposed the plea. They argued that the exchange's Singapore-based parent company, Zettai Pte Ltd, had initiated restructuring proceedings following the cyberattack. A scheme of arrangement, purportedly approved by the Singapore High Court, mandated that all users share the losses on a pro-rata basis. The respondents claimed that Zanmai Labs merely handled the Indian rupee transactions, while the crypto wallets were maintained by Zettai, placing the matter under the purview of the Singaporean proceedings.

Judicial Analysis: Defining Digital Assets as Property

The core of the judgment rested on the fundamental legal question: What is cryptocurrency in the eyes of Indian law? Justice Venkatesh provided a clear and unequivocal answer.

"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."

Drawing upon established Indian jurisprudence, including Ahmed GH Ariff v. CWT and Jilubhai Nanbhai Khachar v. State of Gujarat , the Court affirmed that the term "property" encompasses "every species of valuable right and interest."

Justice Venkatesh's analysis extended to the global legal consensus, referencing key international precedents like Ruscoe v. Cryptopia Ltd (New Zealand) and AA v. Persons Unknown (UK). These cases established that cryptocurrencies possess the essential characteristics of property: they are definable, identifiable through the blockchain, transferable, and capable of exclusive control via private keys.

Further anchoring the decision in domestic law, the Court highlighted Section 2(47A) of the Income Tax Act, 1961, which officially recognizes cryptocurrencies as "virtual digital assets." Justice Venkatesh noted: "In Indian law regime, the crypto currency is treated as a virtual digital asset and it is not treated as a speculative transaction... it is capable of being stored, traded and sold." This statutory recognition, the Court reasoned, lent significant weight to its classification as property.

Piercing the Corporate Veil: Jurisdiction and Regulatory Standing

WazirX's attempt to deflect jurisdiction to Singapore was decisively rejected. Relying on the Supreme Court's authoritative ruling in PASL Wind Solutions Pvt Ltd v. GE Power Conversion India Pvt Ltd (2021) , Justice Venkatesh held that Indian courts retain the power to grant interim relief under Section 9 of the Arbitration Act to safeguard assets located within India, irrespective of a foreign-seated arbitration clause.

The Court found that a significant part of the cause of action arose within its territorial jurisdiction, as the applicant transferred funds from her Chennai-based bank account and accessed the WazirX platform from India.

Crucially, the judgment scrutinized the operational structure of the exchange. The Court observed that Zanmai Labs was registered as a reporting entity with India’s Financial Intelligence Unit (FIU), a mandatory requirement for entities handling virtual digital assets. In contrast, neither its Singaporean parent, Zettai Pte Ltd, nor its former partner, Binance, held such registration.

“In the present case, it is the first respondent [Zanmai Labs], which got registered as a reporting entity and is, therefore, authorized to handle crypto currency in India. Neither the Zettai nor Binance is registered as a reporting entity in India and hence, they are not authorized to handle crypto currency within India or operate the platform,” the Court recorded.

This finding was pivotal, as it established Zanmai Labs as the legally recognized and responsible entity for the applicant's assets within the Indian regulatory framework, preventing it from offloading its duties onto an unregistered foreign parent.

Segregation of Assets and the Flaw in Pro-Rata Loss Sharing

The Court found the exchange’s plan to apply the Singapore restructuring scheme and impose pro-rata losses on all users to be fundamentally unjust and unsustainable in this case. The judgment emphasized a critical technical distinction: the applicant’s assets were different from those stolen in the hack.

"What were held by the applicant as crypto currencies were 3532.30 XRP coins. What were subjected to cyber attack on 18.7.2024 in the WazirX platform were ERC 20 coins, which are completely different crypto currencies not held by the applicant."

This distinction underscored the principle of asset segregation. The Court implicitly supported the view that an investor's specific assets, identifiable on the blockchain, should not be co-mingled and used to socialize the losses from a hack that affected a completely different category of assets.

By granting the injunction, the Court protected the applicant from having her distinct property eroded to cover losses she had no connection to, deeming her "a vulnerable party, who will be entitled for a protection."

Implications for the Indian Crypto Industry and Legal Practitioners

This ruling by the Madras High Court is a watershed moment for digital asset law in India.

1. Legal Certainty: By classifying cryptocurrency as property, the judgment provides a solid legal foundation for resolving disputes related to ownership, theft, inheritance, and contractual obligations involving digital assets.
   
   
2. Investor Protection: It significantly strengthens the rights of Indian crypto investors, affirming that their holdings are not mere entries in a database but are proprietary assets deserving of legal protection.
   
   
3. Accountability of Exchanges: The decision holds Indian-registered entities accountable, preventing them from using complex international corporate structures to evade domestic jurisdiction and responsibility. It signals that operational control and regulatory registration matter more than contractual fine print about foreign parents.
   
   
4. Guidance for Future Regulation: The Court’s emphasis on governance standards, asset segregation, and regulatory compliance, referencing global exchange failures like Mt. Gox and FTX, serves as a strong nudge for regulators to formulate comprehensive rules that prioritize investor protection.
   
   
5. Arbitration and Interim Relief: The ruling reinforces the broad powers of Indian courts under Section 9 of the Arbitration Act, providing a vital recourse for parties seeking to protect assets in India pending the outcome of international arbitration.

The injunction restrains Zanmai Labs and its directors from touching the applicant's XRP holdings until a final decision is reached by the arbitral tribunal. For legal professionals and the millions of crypto investors in India, this judgment marks a critical step towards integrating digital assets into the established principles of property law and ensuring that the virtual world remains firmly tethered to the rule of law.