Cryptocurrency - Digital assets held electronically are deemed to be held in trust with a fiduciary duty owed to their owners.

Madras High Court Grants Interim Protection to Cryptocurrency Investor Amid Cyberattack Concerns. Court acknowledges cryptocurrency as property, mandates bank guarantee to safeguard assets pending arbitration

In a landmark decision, the Madras High Court has granted interim protection to Rhutikumari, a cryptocurrency investor, against Zanmai Labs Pvt. Ltd., following a cyberattack on the Wazir X cryptocurrency exchange platform. The judgment, delivered by Justice N. Anand Venkatesh, recognizes cryptocurrency as a form of intangible property held in trust, necessitating fiduciary duty towards the owners. The court directed Zanmai Labs to furnish a bank guarantee or deposit funds in escrow to preserve the subject matter pending arbitration proceedings.

The case centers on Rhutikumari's investment in 3,532.30 XRP coins via the Wazir X platform, operated by Zanmai Labs, a subsidiary of Zettai Pvt. Ltd., Singapore. The applicant's assets were frozen following a cyberattack on one of the platform's cold wallets, resulting in significant losses and operational challenges.

Despite the arbitration agreement designating Singapore as the seat, the Madras High Court asserted jurisdiction under Section 9 of the Arbitration and Conciliation Act, 1996. The court concluded that part of the cause of action arose within its jurisdiction, as the applicant used the platform and conducted transactions from Chennai.

Central to the ruling is the court's recognition of cryptocurrency as property capable of being owned and held in trust. Drawing parallels with global judicial perspectives, including notable cases in New Zealand and the United Kingdom, the court emphasized the fiduciary duty owed to cryptocurrency holders.

The court rejected Zanmai Labs' argument that the applicant should be bound by a scheme of arrangement approved by the Singapore High Court, which proposed a pro-rata distribution of assets affected by the cyberattack. Justice Venkatesh highlighted the vulnerability of the applicant's specific holdings, which were stored in a separate wallet unaffected by the cyberattack.

The judgment also addressed complex issues surrounding the classification and regulation of cryptocurrencies, acknowledging their evolving role in modern finance and the need for judicial understanding in this dynamic domain.

In conclusion, the Madras High Court's decision underscores the importance of safeguarding digital assets and affirms the applicability of interim protections under Indian law, setting a precedent for similar cases involving cryptocurrency disputes.

Bottom Line:

Cryptocurrency - Digital assets held electronically are deemed to be held in trust with a fiduciary duty owed to their owners. Interim protection granted under Section 9 of the Arbitration and Conciliation Act, 1996 due to vulnerability caused by asset freezing and cyberattack affecting the platform operations.

Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9, Income Tax Act, 1961 Section 2(47A)

Rhutikumari v. Zanmai Labs Pvt. Ltd., (Madras) : Law Finder Doc Id # 2798615