The digital asset landscape in India has recently experienced a significant legal precedent with the Madras High Court’s decision to block WazirX from redistributing a customer’s XRP holdings. This ruling follows a devastating hack in July 2024, which resulted in losses amounting to $230 million for the exchange.
On October 25, Justice N. Anand Venkatesh ordered WazirX’s Indian operator, Zanmai Labs, to issue a bank guarantee valued at around $11,500—equivalent to the frozen XRP tokens belonging to a user named Rhutikumari. This landmark decision underscores the court’s recognition of cryptocurrency as property capable of being held in trust, affirming that these digital assets are owned by users rather than the exchange.
Rhutikumari, a long-time user of WazirX, contested the exchange’s attempt to redistribute her XRP tokens as part of its proposed loss socialization plan. This plan, associated with the undergoing restructuring by Singapore-based parent company Zettai Pte Ltd, aims at compensating users through a combination of recovery tokens and partial repayments.
The court’s ruling is particularly significant as it provides robust legal protection for Indian users, asserting jurisdiction over them despite WazirX’s restructuring plan being based in Singapore. Justice Venkatesh rejected the exchange’s argument that the foreign restructuring should govern Indian users, stating that Rhutikumari engaged with WazirX from her residential location in India.
The judgment highlighted how she was unable to trade or liquidate her frozen assets. By establishing that crypto assets accessed in India fall under its jurisdiction, the court has defined a framework for user protection that could reshape the cryptocurrency landscape.
Justice Venkatesh elaborated that the loss socialization plan resembled a “group insurance of a self-help group,” and ruled it unenforceable against Indian users as it was not part of the contractual agreement between the exchange and its users. His emphasis on treating user-held cryptocurrency as client property held in trust marks a crucial development in crypto regulations.
This decision solidifies the classification of crypto assets as property eligible for ownership and safeguarding under Indian law. Sudhakar Lakshmanaraja, founder of Digital South Trust, noted that this clarity would enhance consumer protection for crypto holders and affirm their rights as asset owners. This ruling is anticipated to lead to more structured regulatory frameworks within India’s evolving crypto sector.
Vikram Subburaj, CEO of Giottus, described the ruling as a foundational piece of crypto jurisprudence, signaling the need for high regulatory standards in the burgeoning digital economy. The decision aligns with a broader trend, as Indian courts are increasingly clarifying user protections while the government trails in creating comprehensive regulatory policies.
India’s current crypto policy focuses predominantly on tax collection, with a hefty 30% tax and a further 1% tax deducted at source. However, definitions surrounding investor rights and asset ownership remain nebulous.
As of the same day as the court’s decision, WazirX resumed operations, securing 95.7% creditor approval. Despite this, user reports indicate that many have only received about 30% of their expected funds, coupled with delays in account verification and access.
