Key Takeaways
- The court held that it agreed with the Bombay High Court’s earlier findings that virtual digital assets are held in trust by exchanges and that fiduciary duties are owed to users.
- The court directed the crypto exchange to furnish a bank guarantee for Rs 9,56,000 or deposit the same in an escrow account until the conclusion of arbitration proceedings.
In a major development, the Madras High Court has granted interim protection to a WazirX user by restraining the exchange from reallocating her XRP holdings to absorb losses from its $230 million hack.
In an order passed on October 25, Justice N. Anand Venkatesh directed the crypto exchange to furnish a bank guarantee for Rs 9,56,000 or deposit the same in an escrow account until the conclusion of arbitration proceedings. The ruling came in the matter of Rhitukumari vs. Zanmai Labs Private Limited. Escrow is referred to as financial arrangement where a neutral third party, holds funds or assets during a transaction
The court held that it agreed with the Bombay High Court’s earlier findings that virtual digital assets are held in trust by exchanges and that fiduciary duties are owed to users. It stated that the applicant’s 3,532 XRP coins, worth about $9,400, could not be redistributed to compensate for the company’s broader losses.
However, Justice Venkatesh ruled that the plan could not apply to the applicant, since the stolen assets in the July 18, 2024, hack were ERC-20 tokens — completely different cryptocurrencies. “What was held by the applicant as cryptocurrencies were 3,532.30 XRP coins. What were subjected to a cyberattack on 18.7.2024 in the WazirX platform were ERC-20 coins, which are completely different cryptocurrencies not held by the applicant,” the court noted.
The court observed that if the scheme led to the applicant’s assets being eroded, she would be a “vulnerable party entitled to protection.” It therefore granted interim protection under Section 9 of the Arbitration and Conciliation Act.
WazirX’s July 2024 exploit, one of the biggest crypto hacks in India, resulted in losses worth a staggering $230 million. The exchange has since said it will distribute recovery tokens to creditors within 10 business days under its modified scheme approved in Singapore on October 13.
Earlier this week, WazirX announced that it had resumed operations after completing a restructuring process approved by the High Court of Singapore. The restructuring plan, supported by over 95% of creditors, proposed to “socialize losses,” including for users who did not hold ERC-20 tokens.
