Bombay High Court Upholds Arbitral Tribunal's Interim Measures in Cyber-Attack Dispute
Court Affirms Tribunal's Decision to Secure Claims Amid Controversy Over Cyber-Attack on Virtual Digital Assets
In a significant ruling, the Bombay High Court has upheld the interim measures ordered by the Arbitral Tribunal in the ongoing dispute between Zanmai Labs Private Limited and Bitcipher Labs LLP over a cyber-attack on virtual digital assets. The judgment, delivered by Justice Somasekhar Sundaresan, emphasized the limited scope of appellate review under Section 37 of the Arbitration and Conciliation Act, 1996, underscoring that interference is warranted only if the tribunal's decision is arbitrary, capricious, or perverse.
The case revolves around a cyber-attack on July 18, 2024, which compromised the 'ERC-20' tokens on the WazirX Platform, operated by Zanmai. Bitcipher, a broker on the platform, contended that its assets were frozen due to Zanmai's restrictions following the attack. The Arbitral Tribunal had directed Zanmai to provide security for the affected assets through bank guarantees or deposits in escrow.
Zanmai challenged the tribunal’s decision, arguing that the responsibility for cyber security lay with Binance, a third party involved in the User Agreement. However, the tribunal noted that Zanmai had undertaken to ensure uninterrupted performance under the Broker Agreement, making it synonymous with the WazirX Platform.
Justice Sundaresan, in his oral judgment, highlighted the tribunal's thorough analysis of contractual frameworks and the division of responsibilities. He pointed out that the tribunal reasonably adjusted for losses attributable to compromised assets, allowing a 45% haircut to Bitcipher's exposure to ERC-20 tokens, acknowledging the theft amounted to approximately USD 235 million.
The court found no merit in Zanmai's argument that the Broker Agreement was merely a tool to avoid double taxation. It emphasized that Zanmai, as custodian of assets, owed fiduciary duties to the asset owners and could not unilaterally impose losses on users without contractual backing.
Justice Sundaresan reiterated the appellate court's role in reviewing arbitral discretion as set forth in the Supreme Court's decision in Wander Ltd. v. Antox India (P) Ltd., stating interference is justified only if the tribunal's discretion was exercised arbitrarily, capriciously, or perversely. The court dismissed Zanmai's petitions, affirming the tribunal's protective interim measures.
The judgment highlights the complexities involved in digital asset management and the legal obligations of custodians in safeguarding assets against cyber threats. It underscores the importance of clear contractual agreements and the role of arbitral tribunals in resolving disputes arising from unforeseen cyber incidents.
The court has scheduled the contempt petitions related to the case for consideration on November 11, 2025, following the vacation. This ruling sets a precedent for handling cyber-attack disputes within the framework of arbitration in India, emphasizing the need for robust protective measures to secure affected parties' claims.
Bottom Line:
Arbitration and Conciliation Act, 1996 - Section 37 - Court's jurisdiction to interfere with arbitral tribunal's interim measures - The scope of appellate review under Section 37 is limited, and interference is warranted only when the arbitral tribunal's decision is arbitrary, capricious, or perverse.
Statutory provision(s): Arbitration and Conciliation Act, 1996 - Section 37
Zanmai Labs Private Limited v. Bitcipher Labs LLP, (Bombay) : Law Finder Doc Id # 2791793
