Madras High Court On Cryptocurrency As Property And Trust
The judgment delivered by the Madras High Court in Rhutikumari v. Zanmai Labs Pvt. Ltd. & Ors. is a decisive step in India’s journey towards legal clarity with respect to virtual digital assets. The dispute involved Rhutikumari, an investor in the WazirX cryptocurrency exchange platform run by Zanmai Labs, whose portfolio account held 3,532.30 XRP coins valued at approximately Rs. 9,55,148.20. The controversy emerged in the wake of a devastating cyberattack in July 2024, which caused the compromise of one of WazirX’s cold wallets and brought about a loss pegged at a staggering USD 230–234 million worth of Ethereum-based tokens (ERC 20 coins). Following the breach, Zanmai Labs, through its Singapore-based parent company, Zettai, froze all user accounts and pursued a restructuring scheme towards the “redistribution or reallocation” of the remaining assets toward liabilities. Arguing that her XRP holdings were fundamentally different from the compromised ERC 20 assets, Rhutikumari approached the Madras High Court seeking interim relief under Section 9 of the Arbitration and Conciliation Act, 1996, to preserve her assets pending arbitration. This case put the Court, to tackle for the first time some of the most basic questions regarding cross-border arbitration jurisdiction, the legal definition of digital property, and the fiduciary responsibility of exchanges in the lines of the volatile crypto sector, thereby seamlessly connecting technology law with established constitutional jurisprudence.
Jurisdiction and Maintainability: The Asset in India
The main opposition by Zanmai Labs was to the jurisdiction of the Indian court itself. The respondent referred to the WazirX user agreement, which provided for disputes to be settled by arbitration in terms of the Rules of the SIAC, with the contractual seat of arbitration stipulated as at Singapore. The respondents argued that a foreign seat automatically divested Indian courts of their power to grant interim relief under Section 9 of the Arbitration Act.The Madras High Court, however, upheld the maintainability of the application by strictly applying the dictum laid down by the Supreme Court in PASL Wind Solutions (P) Ltd. Vs. GE Power Conversion India (P) Ltd. It observed that the Proviso to Section 2(2) of the Arbitration Act was incorporated to soften the severity of the rule that Part I applies only in cases where the seat of arbitration is in India. This Proviso, in express words, has given the power to Indian Courts to grant interim relief under Section 9 in an international commercial arbitration, which is seated outside India, so long as “assets of one of the parties are situated in India and interim orders are required qua such assets”. This legal mechanism ensures that domestic parties are not made remediless solely because they have agreed to a foreign arbitration seat in circumstances when vulnerable assets are located within the economic borders of India.
The critical threshold requirement was, thus, the proof that the applicant’s crypto holding represented an “asset in India.” The Court established a strong territorial link by describing the actual working reality of the transaction: the applicant transferred fiat currency from her Indian bank account (Kotak Mahindra Bank, Chennai), operated the WazirX platform on her mobile phone from her usual place of residence, and the eventual restraint (the freezing of her account) occurred within the jurisdiction. Furthermore, the Court found that Zanmai Labs, the first respondent, was the entity registered as the Reporting Entity with the Financial Intelligence Unit (FIU) of India and was, therefore, the lawfully recognized service provider of crypto transactions in India, as opposed to the foreign parent or former partner, Zettai or Binance. The Court, therefore, held that aided by the regulatory footprint and by the user continuing to access it from within India, there was sufficient material before it to arrive at a prima facie conclusion that the crypto currency was “held by her in India by means of WazirX platform”. This finding is important in the context of cross-border crypto disputes because it clearly states that the intangible and digital nature of the asset does not undermine its legal situs, when tied to domestic financial operations and licensed regulatory compliance.
Nature and Legal Status of Cryptocurrency: Beyond ‘Neti Neti’
After confirming its jurisdiction, the Court continued to address the fundamental legal ambiguity with respect to cryptocurrencies. The court began this review by noting the conceptual difficulty surrounding virtual currency that had stumped the Supreme Court in Internet and Mobile Association of India v. RBI, where the definition of virtual currency was aptly analogized to the Vedic philosophical analysis of negation, “neti, neti” (not this, not that). The Court explained that while crypto is not “currency” stricto sensu because its value is determined only by willing buyers and sellers and not a central bank, and is not a tangible object, it should have a recognizable legal definition to warrant protection.
It referred, in the first instance, to Ahmed G.H. Ariff Vs. CWT, wherein it had been held that “property” is a word of the “widest import,” meaning “every possible interest which a person can clearly hold or enjoy,” and possessing the intrinsic “insignia or characteristic of proprietory right”. Then, the Court referred to the broad definition laid down in Jilubhai Nanbhai Khachar Vs. State of Gujarat to the effect that property encompasses an “aggregate of rights which are guaranteed and protected by law,” including everything “corporeal or incorporeal, tangible or intangible, visible or invisible”.
The test was whether the interest has an “exchangeable value or which goes to make up wealth or estate or status”. It is through this strong constitutional integration that the Court reached a seminal conclusion anchoring digital assets in Indian jurisprudence: “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.” This move is groundbreaking, shifting Virtual Digital Assets (VDA) from merely a category defined for the purposes of taxation under Section 2(47A) of the Income Tax Act, 1961, to a recognized proprietary class. The judgment intrinsically imposes a fiduciary duty upon crypto exchanges for crypto assets as being property held in trust, meaning owners have rights that are enforceable and legitimate legal recourse, hence legitimizing the asset class under India’s established legal and ethical frameworks.
Implications and Broader Observations: Fiduciary Duty and Socialisation of Losses
The proprietary recognition of cryptocurrency directly informed the Court’s approach to the more controversial issue of “socialisation of losses.” After the hack, Zanmai’s parent company, Zettai, formulated a scheme of arrangement in Singapore, which would have the effect of distributing the losses caused by the ERC 20 token theft equally across the holdings of all users, including the applicant’s unaffected XRP coins. This would, in other words, compel Rhutikumari to “take a haircut” on her assets to pay for liabilities in respect of classes of assets entirely unrelated to her own.
The High Court of Madras rejected this attempt to foist the scheme upon the applicant in no uncertain terms. Factually, the Court noticed a critical difference between the class of coins, ERC 20 coins, that were targeted by the cyberattack, which were completely different from the applicant’s 3,532.30 XRP coins held in a separate wallet and not affected by the breach.
Most importantly, court sealed his argument with an avowal of “complete agreement” with parallel findings by the Bombay High Court in Zanmai Labs Pvt. Ltd. v. Bitcipher Labs LLP (2025). The Bombay High Court had already deconstructed the ‘socialisation’ model, finding it without foundation in the underlying contractual relationship between the exchange and its users, only describing it as a voluntary “group insurance of a self-help group”. Both courts reached a point on the essential proposition: “Digital assets, being electronic in nature, are to be held in trust with a fiduciary duty owed to the owners of such assets.” This legal imperative override attempts by exchanges to invoke foreign restructuring schemes or force majeure events as justification for draining customer funds.The Court further dismissed the contention of Zanmai that the scheme, having been approved by 95.7% of the creditors in Singapore, was binding on the applicant as a matter of course. It held that whether the order of the Singapore High Court had any binding force on Rhutikumari was itself a complex, core question to be decided by the Arbitral Tribunal. In deducing this, the Madras High Court aligned itself with the reasoning of the Bombay High Court and raised the bar for platform accountability and investor protection, making it clear that the custodial duty of the exchange extends to the specific assets held by users. Therefore, to preserve the subject matter of the proposed arbitration, Zanmai Labs was ordered to provide a bank guarantee or deposit the entire amount of Rs. 9,56,000/- into an escrow account.
The judgment in Rhutikumari v. Zanmai Labs provides a crucial threefold affirmation of Indian technology law and clarity wherever regulatory vacuums appeared to exist. It emphatically upheld the maintainability of Indian jurisdiction under Section 9 of the Arbitration Act by applying the Proviso to Section 2(2) to ensure that Indian investors retain an essential judicial remedy for the protection of assets linked with the domestic economy, even when a foreign arbitration seat exists.
Going beyond the “neti, neti” conceptualization and synthesizing global precedents with the expansive proprietary definitions provided by the Indian Constitution, the court managed to hold that cryptocurrency was property “capable of being held in trust”. Anchoring digital ownership in the familiar terrain of fiduciary law, the designation sets a high custodial duty on exchanges. This principled approach, along with the judicial refusal to sanction the unilateral “socialisation of losses” scheme a position strongly in sync with the observations of the Bombay High Court safeguards individual investor rights robustly against operational failures and fluid corporate structures of cross-border platforms. The Court’s measured tone, blending legal rigor with an ethical sensibility towards digital fairness, signals India’s mature and sensitive move toward legalization and regulation of the decentralized ecosystem.
In giving law to the virtual world, the Court did more than decide a dispute; it redefined what it means to own, trust, and protect in the age of code.
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