Madras High Court Recognises Cryptocurrency as ‘Property’ – Implications for Arbitration, Asset Protection, and Cross-Border Restructuring

The Madras High Court in Rhutikumari vs. Zanmai Labs Pvt. Ltd. & Ors. marks a significant development in India’s treatment of cryptocurrency. The Madras High Court has held that tokens held on a crypto exchange constitute “property” that is capable of being the subject of trust obligations.

The judgement addresses three issues of growing significance viz the proprietary nature of crypto assets, the availability of interim relief in support of foreign-seated arbitrations and the responsibilities of custodial exchanges holding digital assets on behalf of users. The judgement also comes at a time when India has yet to adopt a comprehensive regulatory framework for cryptocurrency.

Against this backdrop, the Madras High Court’s decision provides useful guidance on how Indian courts may approach digital assets, custodial relationships, and interim protection of crypto holdings, while contributing to the broader international debate on the treatment of digital assets in cross-border disputes.  

Brief Background

The Applicant, Rhutikumari, invested in cryptocurrency through the WazirX platform, operated by the primary Respondent, Zanmai Labs Pvt. Ltd. (“Zanmai”). Upon onboarding onto the WazirX platform, she purchased 3,532.30 XRP tokens, which were held in custody by Zanmai pursuant to the platform’s custodial model, under which users retain beneficial ownership while the exchange controls the private keys.

On 18 July 2024, Zanmai announced a cyberattack on one of its cold wallets, resulting in the losses of approximately USD 230 million. Following the incident, multiple user accounts, including that of Rhutikumari, were frozen, thereby restricting access to her XRP holdings.

Following the cyberattack, a restructuring process was initiated before the Singapore High Court through a scheme of arrangement concerning the WazirX platform. The scheme contemplated the possibility of distributing losses across users, including those whose tokens were not directly affected by the breach. Rhutikumari contended that her XRP holdings, which were unaffected by the cyberattack, could not be subjected to such loss-sharing because her interest in the tokens was proprietary in nature.

The parties’ relationship was governed by the WazirX User Agreement dated 1 August 2023, which provided for arbitration under the Singapore International Arbitration Centre (“SIAC”) Rules, seated in Singapore. Notwithstanding the arbitration clause, Rhutikumari approached the Madras High Court seeking interim protection against any redistribution, reallocation or alteration of her digital assets.

In view of the above, the following issues arose for consideration before the Madras High Court.

Issue No. 1 - Whether a Section 9 Application is maintainable in India, despite the existence of a Foreign-Seated Arbitration Agreement?

Zanmai objected to the maintainability of the Section 9 Application, arguing that the seat and SIAC rules ousted the jurisdiction of the Indian courts. Since the parties had agreed to a Singapore seated arbitration under the SIAC Arbitration Rules procedure and considering that the wallet infrastructure was operated by a foreign entity, the application for interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) was not maintainable, rendering any protective order ineffective.

A Section 9 application of the Arbitration Act empowers Indian Courts to grant interim measures of protection, including reliefs such as injunctions, asset preservation orders, status quo directions, before or during the arbitration proceedings, or after an award but before its enforcement. Indian courts have extended such relief even in support of foreign-seated arbitrations, provided there is a sufficient territorial connection to India.

Rhutikumari contended that a part of the cause of action arose within the jurisdiction of the Madras High Court, considering that the payments originated from Chennai, India, and the WazirX platform was accessed from a residence within the Madras High Court’s territorial jurisdiction. In support of this, reliance was placed on the proviso to Section 2(2) of the Arbitration Act, under which Indian courts retain jurisdiction to grant interim relief in support of foreign-seated arbitrations in situations when assets or parties are located in India.

In support, reliance was placed on the Supreme Court’s observations in PASL Wind Solutions (P) Ltd. vs. GE Power Conversion India (P) Ltd., wherein the Supreme Court of India has recognised the power of the Indian Courts to grant interim relief in support of the foreign-seated arbitrations.

Considering the above factors and reasoning of the Supreme Court of India in the aforesaid judgement, Rhutikumari’s submissions were accepted. The Madras High Court held that the WazirX platform was used by Rhutikumari, it was accessed through her mobile phone from her ordinary place of residence, the digital assets were held and accessed in India via the platform, operated by Zanmai, an entity registered in India, and Rhutikumari had been prevented from dealing with her tokens. Thus, the requirements of the proviso to Section 2(2) of the Arbitration Act as also settled through PASL Wind Solutions were satisfied, and the Section 9 Application was held to be maintainable.

Issue No. 2 - Whether the Applicant’s Relationship with Zanmai created a proprietary interest in the cryptocurrency, or merely an investment-based contractual right?

Having established jurisdiction, the Madras High Court turned to the nature of Rhutikumari’s interest in the tokens.

A central question before the Madras High Court was whether Rhutikumari held a proprietary right over the 3,532.30 XRP tokens credited to her account. This distinction became critical in light of the modified scheme of arrangement approved by the Singapore High Court for the foreign entity managing and operating WazirX’s wallet infrastructure.

The Madras High Court noted that crypto exchanges typically operate on a custodial model, in which the exchanges maintain control over private keys, while users retain beneficial ownership of the underlying digital assets. In such arrangements, the exchange acts as a custodian rather than the owner of the assets.

The Madras High Court therefore considered whether Rhutikumari’s interest in her XRP tokens, held in a custodial wallet and traceable to specific transactions, constituted “property” capable of protection under Indian law. The determination would directly affect whether her claim survived independently of the foreign restructuring process and whether the interim protection could be granted pending arbitration.

Issue No. 3 - Whether Cryptocurrency constitutes “Property” Capable of Judicial Protection?

The Madras High Court analysed how digital assets function technologically. Each entry is associated with a pair of public and private keys. While the asset itself remains on the blockchain, access is exercised through these keys, typically stored in a digital wallet. The wallet, therefore, holds the keys, not the asset; the underlying crypto continues to reside on the distributed ledger.

A useful analogy was drawn with dematerialised securities held through depositories. In both systems, the user exercises beneficial interest through an access credential. However, demat securities represent real equity in a functioning corporate entity and are enforceable in liquidation. Cryptocurrency, by contrast, does not represent an equity interest or liability of a corporate issuer. This makes traditional legal pigeonholes imperfect for classifying digital assets.

The Madras High Court relied significantly on Ruscoe vs. Cryptopia Ltd. wherein the New Zealand High Court held that crypto assets constitute property capable of being held through depositories/on trust. Drawing from this reasoning, the Madras High Court treated cryptocurrency as a form of property capable of legal protection under Indian law.

In the Indian context, the Supreme Court of India in Internet and Mobile Association of India vs. RBI acknowledged the legitimacy of virtual currency operations, observing that the Reserve Bank of India may regulate the financial system but cannot impose disproportionate prohibitions where the underlying activity is not unlawful. Although Indian statutes do not define “property” universally, digital assets are treated as virtual digital assets under Section 2(47A) of the Income Tax Act, 1961, capable of being “held, traded and sold.”

A similar issue had previously arisen before the Bombay High Court, wherein the Bombay High Court held that virtual digital assets held electronically are intended to be held in trust, with fiduciary duties owed to the users. The Madras High Court expressly agreed with this reasoning. If a security breach causes erosion of user assets, that loss cannot automatically be apportioned across users without examining the contractual terms and the specific wallet architecture.

Issue No. 4 - Whether foreign restructuring proceedings could bind Rhutikumari and whether there was a sufficient intention to invoke arbitration

Zanmai argued that the Section 9 Application was not maintainable because Rhutikumari had not issued a trigger notice or taken steps towards arbitration. According to Zanmai, the absence of any manifest intention to arbitrate rendered the invocation of the Madras High Court’s jurisdiction under Section 9 of the Arbitration Act unsustainable.

The Madras High Court rejected this contention. It observed that following the freezing of the platform, stakeholders were closely monitoring the modified scheme of arrangement pending before the Singapore High Court. In these circumstances, the absence of a formal earlier trigger notice could not, by itself, negate Rhutikumari’s intention to arbitrate.

The Madras High Court therefore accepted that the requirement of a manifest intention to arbitrate stood satisfied, particularly since Rhutikumari’s rights and potential exposure became clearer only after the Singapore proceedings attained finality. The Madras High Court further clarified that broader questions regarding the binding effect of the Singapore scheme, including the argument that it had been approved by 95.7% of voting creditors and users, would ultimately fall within the domain of the arbitral tribunal.

Conclusion

The Madras High Court’s decision reflects India’s evolving approach to digital asset disputes and their intersection with cross-border arbitration. By recognising cryptocurrency as property capable of interim protection, the Madras High Court clarified that digital assets may be preserved through legal proceedings in the same manner as other forms of property.

Indian courts have consistently held that the choice of a foreign seat does not exclude the applicability of Section 9 of the Arbitration Act, a position that is consistent with several UNCITRAL Model Law jurisdictions. The present decision illustrates how such relief may be invoked to preserve digital assets held within India, even where the arbitration is seated abroad.

At the same time, the ruling raises important questions regarding the interface between judicial intervention and arbitral autonomy. Under the Arbitration Act, arbitral tribunals are empowered to grant interim measures, including orders for preservation of assets under Section 17 of the Arbitration Act. While Indian law permits court-ordered interim measures in support of arbitration under Section 9 of the Arbitration Act, such intervention is generally intended for situations where relief from the tribunal is ineffective or unavailable. In the absence of such constraints, recourse to Section 9 of the Arbitration Act may risk diluting the tribunal’s role. Clarifying this boundary is essential to maintaining coherence in India’s arbitration framework.