Introduction:

The Madras High Court recently delivered a landmark ruling on the legal status of cryptocurrency in India, recognizing it as a form of property that can be owned and held in trust. The decision was passed by Justice N Anand Venkatesh in an arbitration plea seeking interim relief, specifically in the case of Rhutikumari v. Zanmai Labs Pvt Ltd and Ors (Original Application No.194 of 2025). The petitioner, Rhutikumari, an investor who had purchased 3,532.30 XRP coins for approximately Rs 1.98 lakh on the WazirX platform (operated by Zanmai Labs Pvt. Ltd.) in January 2024, approached the court seeking protection for her investment. Her assets, along with those of other users, had been frozen following a massive cyberattack in July 2024 that reportedly wiped out nearly USD 230 million worth of Ethereum-based tokens from the exchange’s wallets. Rhutikumari argued that her specific XRP holdings were separate from the stolen assets and should not be affected by the platform-wide freeze. The court’s order not only granted her interim protection but also established a significant legal precedent by defining the nature of digital assets under Indian law.

Arguments on behalf of the Applicant (Rhutikumari):

The core of the applicant’s plea, represented by Advocate D Ravichander, rested on two main pillars: the legal right to her asset and the maintainability of her petition in an Indian court despite an international arbitration clause.

• Segregation of Assets and Protection of Investment: The applicant contended that her investment, consisting of XRP coins, was distinct and separate from the Ethereum-based tokens that were compromised in the July 2024 cyberattack. As her specific digital asset was not directly affected by the breach, freezing her account and preventing her from accessing her property was unwarranted and amounted to a violation of her rights. She sought the court’s intervention to protect her investment and prevent its value from eroding while the underlying dispute was being resolved.
• Maintainability of the Interim Relief Application: Despite the user agreement mandating arbitration in Singapore, the applicant argued that the Madras High Court had the jurisdiction to grant interim measures under Section 9 of the Arbitration and Conciliation Act, 1996. This argument was grounded in the principle that Indian courts can pass interim orders to protect assets located in India, even if the primary arbitration is to take place abroad. Her cryptocurrency, being held and accessible through the WazirX platform in India, constituted an asset within the court’s protective jurisdiction.

Arguments on behalf of the Respondents (Zanmai Labs Pvt Ltd and Ors):

The primary respondent, Zanmai Labs Pvt. Ltd. (represented by Senior Advocate Satish Parasaran and Advocate Vishnu Mohan), strongly contested both the maintainability of the case in India and the premise of the applicant’s claim for asset protection.

• Jurisdiction and Maintainability: Zanmai Labs argued that the applicant’s case was not maintainable in India. They pointed to the user agreement, which explicitly stipulated that any disputes must be resolved through arbitration in Singapore. Furthermore, they asserted that a Singapore court-approved restructuring plan was already in place to govern user redress following the cyberattack.
• Non-Trustee Relationship and Asset Management: The company contended that it did not hold users’ cryptocurrencies in trust. They claimed that the actual management and custody of the digital assets were handled by foreign entities, including Binance and later Zettai Pte. Ltd., thereby distancing Zanmai Labs from the direct responsibility for asset protection.
• “Socializing Losses”: Zanmai Labs indirectly suggested that the losses resulting from the massive hack should be spread across all users of the platform, an implicit argument for a collective distribution of the financial impact. The company seemed to imply that the platform-wide freeze was a necessary measure to manage the fallout of the security breach.
• Nature of Cryptocurrency: While not explicitly denying it, the company’s arguments, particularly regarding foreign custody and the application of a foreign restructuring plan, implicitly treated the digital assets as complex financial instruments whose control lay outside the immediate domestic jurisdiction and legal purview.

Court’s Judgement and Rationale:

Justice N Anand Venkatesh’s ruling systematically addressed each of the respondent’s objections and established several key legal positions regarding cryptocurrency and the maintainability of interim relief applications in India.

1. Recognition of Cryptocurrency as “Property”:

This is the most significant legal finding of the judgment. The court, to determine the fundamental nature of the asset in question, relied on two seminal Supreme Court rulings: Ahmed G.H. Ariff v. Commissioner of Wealth Tax and Jilubhai Nanbhai Khachar v. State of Gujarat. These precedents provided a broad definition of “property.”

The court definitively held:

“Judging from the above two decisions, 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.”

The court also fortified this classification by noting that under Indian law, cryptocurrency is already recognized as a “virtual digital asset” and is not treated as a speculative transaction under Section 2(47A) of the Income Tax Act, 1961. By declaring cryptocurrency as “property,” the court brought it under the protective umbrella of general property law and reinforced the investor’s right to seek legal remedies for its protection.

2. Maintainability of Interim Relief Application:

The court rejected Zanmai Labs’ argument that the case was not maintainable in India due to the Singapore arbitration clause. Referring to earlier precedents of the Supreme Court, the Madras High Court affirmed the principle that:

Indian courts can indeed pass interim orders to protect assets located in India even if the arbitration is scheduled to take place abroad.

The court held:

“prima facie, it must be held that the asset namely the crypto currency was held by her in India by means of WazirX platform and that the applicant has been prevented from using the platform since it has been frozen. Therefore, in the light of the said judgment of the Hon’ble Apex Court, the above application filed under Section 9 of the Act is maintainable before this Court.”

This decision underscores the court’s proactive role in preserving the subject matter of a dispute, ensuring that the arbitration proceedings, wherever they may occur, do not become infructuous due to the dissipation of assets.

3. Rejection of “Socializing Losses”:

The court firmly rejected the company’s implied claim that losses from the cyberattack could be fairly spread across all users of the platform, a concept often referred to as “socializing losses.”

Citing observations made by the Bombay High Court in a similar case, the court ruled that this idea had no basis in the user agreement and, critically, violates the trust owed to investors. The court further questioned the logic of eroding an investor’s asset (like the applicant’s XRP) due to a security lapse that did not directly affect that specific wallet, especially when that asset was stored digitally on the WazirX platform. This part of the judgment reinforces the principle that a platform cannot arbitrarily penalize unaffected investors for a security breach that should be their own responsibility to mitigate.

4. Interim Protection Granted:

Based on the finding that the applicant had a prima facie case, the court ruled that the petitioner-investor was entitled to interim protection. To safeguard the value of the applicant’s cryptocurrency until the completion of the foreign arbitration proceedings, the court issued a protective order.

The final direction to Zanmai Labs Pvt. Ltd. was to furnish a bank guarantee or deposit a sum of Rs 9.56 lakh in escrow. This amount was determined to preserve the value of the applicant’s digital asset, ensuring that her property remained protected while the underlying contractual and liability issues are adjudicated through the agreed-upon arbitration process in Singapore.