Crypto Currency is 'Property' Capable of Trust, Madras HC Orders ₹9.56 Lakh Security
“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 Madras High Court, in a landmark ruling, has categorized crypto currency as a form of property capable of being held on trust, thereby granting an injunction that requires the crypto exchange, Zanmai Labs Pvt. Ltd. (WazirX), to furnish a bank guarantee or deposit ₹9,56,000 as security to protect a user's digital assets.
The applicant, Rhutikumari, had invested Indian Rupees to purchase 3,532.30 XRP coins, which were held in her portfolio on the WazirX platform (managed by the Zanmai Labs [respondent]).
Following an announcement of a cyber attack in July 2024 that resulted in a loss of approximately USD 234 Million in ERC 20 coins, the exchange froze all user accounts, preventing Rhutikumari from trading or liquidating her holdings.
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Zanmai Labs argued that the crypto assets were held by its parent foreign entity (Zettai) and that Rhutikumari's claim should be subject to a scheme of arrangement approved by the Singapore High Court, which involved a pro-rata 'haircut' (reduction) across all user holdings.
The Bench comprising Justice N. AnandVenkatesh examined the global and domestic legal status of crypto currencies and noted the fragmented regulatory landscape in the US (where it is treated as money, commodity, property, or security, depending on the agency).
The Bench relied heavily on the New Zealand High Court case of Ruscoe v Cryptopia Ltd, where it was held that crypto currencies are a form of intangible property capable of being held on trust.
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Applying the wide connotation of the term "property" as established by the Supreme Court of India in cases concerning Article 300A, the bench ruled that "Judging from the above two decisions, there can be no doubt that ‘crypto currency’ is a property”.
The court also observed that “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 relied on a significant prior observation by the Bombay High Court in Zanmai Labs Private Limited Vs. Bitcipher Labs LLP to reject the exchange's proposal for a "socialization of losses," wherein the losses from the ERC 20 coin theft would be spread across all users holding different crypto currencies (like Rhutikumari’s XRP coins).
The Court highlighted the duty owed to the user/owner, concluding that whether an asset can be "eroded due to security lapse or security breach and such erosion can be validly spread across all users of the platform" is a matter for the Arbitral Tribunal.
The High Court held that the application for interim relief under Section 9 of the Arbitration and Conciliation Act was maintainable, and the assets (digital assets/property) were effectively held by the user in India.
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The Court directed Zanmai Labs Pvt. Ltd. to either furnish a bank guarantee for ₹9,56,000 (the approximate value of the XRP coins as of January 17, 2025) or deposit the said sum in an escrow account for the preservation of the subject matter until the arbitration proceedings conclude. The application of the petitioner was allowed.
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