27 October 2025 Legal Updates

MADRAS HIGH COURT RECOGNISES CRYPTOCURRENCY AS PROPERTY, SAYS IT CAN BE “HELD IN TRUST”

(a) Case Title:

• Rhutikumari v. Zanmai Labs Pvt. Ltd. & Ors.

(b) Court:

• Madras High Court

(c) Date of Decision:

• 25th October 2025

(d) Bench:

• Justice N. Anand Venkatesh

Background

The applicant invested Rs. 1,98,516 in WazirX (a cryptocurrency exchange platform operated by Zanmai Labs) in January 2024. She purchased 3,532.30 XRP coins, which were held in custody by the platform. By January 2025, these coins were valued at Rs. 9,55,148.20

The Incident

On 18th July 2024, WazirX suffered a cyber attack on one of its cold wallets. Hackers stole approximately USD 234 million worth of cryptocurrency (specifically ETH-ERC 20 coins). Following the attack, WazirX froze all user accounts, preventing withdrawals or trading. Crucially, the applicant held XRP coins, which were NOT affected by the cyber attack (the attack targeted ERC-20 coins in a different wallet).

Issues Raised

• Jurisdiction: Whether the Madras High Court can entertain an application under Section 9 of the Arbitration and Conciliation Act, 1996, when the arbitration agreement specified Singapore as the seat of arbitration?
• Nature of Cryptocurrency: Whether cryptocurrency constitutes "property" capable of being held in trust?
• Binding Effect: Whether the Singapore High Court's scheme of arrangement approved on 13th October 2025 binds Indian users like the applicant?

Court's Analysis

1. On Jurisdiction (Section 9 Application):

• Section 9 of the Arbitration Act allows Indian courts to pass interim orders even in foreign-seated arbitrations if assets are located in India. The applicant operated the platform from Chennai, transferred money from her Kotak Mahindra Bank account in Chennai. The cryptocurrency holdings were accessible through the platform in India.
• Held: The application under Section 9 is maintainable before Indian courts

2. On the Nature of Cryptocurrency:

• The Court conducted an extensive analysis of cryptocurrency. It observed that cryptocurrency is not currency in the traditional sense (no official index of value). They are digital assets stored on blockchain with public and private keys. Value determined by willing buyer-seller transactions.
• With respect to whether cryptocurrency can be considered to be property, the Court observed that crypto has been recognized as “virtual digital assets”. Property has the widest import and includes every possible interest, it includes everything subject to ownership, tangible or intangible. Cryptocurrency is intangible property capable of being held in trust.
• Court's Finding: Cryptocurrency is property under Indian law—intangible, capable of being enjoyed, possessed beneficially, and held in trust. Under the Income Tax Act, 1961, Section 2(47A), it is recognized as a "virtual digital asset."
• Key Principles: Virtual digital assets held electronically must be held in trust with fiduciary duty owed to owners. The cyber-attack affected ERC-20 coins in one wallet. The applicant held XRP coins in a different wallet, which were NOT subject to the attack. Whether losses from a security breach in one type of cryptocurrency can be spread across all users holding different cryptocurrencies is a matter for arbitration

Decision

The Court ALLOWED the application and granted the following relief:

1. Interim Protection Granted:

The 1st respondent (Zanmai Labs) must either:

• Furnish a bank guarantee of Rs. 9,56,000 in favor of the applicant, renewable till arbitration concludes, OR
• Deposit the said amount in escrow for preservation until arbitration ends

2. Reasoning:

• The applicant is a "vulnerable party" whose assets stand frozen. The core question—whether the Singapore scheme binds her—must be decided by the Arbitral Tribunal. Pending arbitration, she's entitled to interim protection under Section 9.

3. On Intention to Arbitrate:

• The Court rejected the argument that the applicant lacked intention to arbitrate. She was waiting for clarity from Singapore proceedings (scheme was approved only on 13.10.2025). The Court directed that she may now issue a trigger notice for arbitration

Key Takeaways

• Arbitration Law: Indian courts have jurisdiction under Section 9 even in foreign-seated arbitrations if assets are located in India. Interim relief can be granted pending foreign arbitration.
• Property Law: Cryptocurrency qualifies as "property" under Indian law—intangible but capable of ownership and trust

FERA | ED CAN SEIZE INDIAN CURRENCY INTENDED FOR ILLEGAL PURCHASE OF FOREIGN EXCHANGE: DELHI HIGH COURT

(a) Case Title:

• Arjun Patil v. Union of India & Ors.

(b) Court:

• High Court of Delhi

(c) Date of Decision:

• 14th October, 2025

(d) Bench:

• Hon'ble Mr. Justice Subramonium Prasad and Hon'ble Mr. Justice Vimal Kumar Yadav

Brief Facts

On 16.02.1997, the Enforcement Directorate conducted a search at the appellant's business premises based on information about illegal foreign exchange business and made recoveries of Indian currency worth Rs. 12,31,000/-, Foreign currency worth USD 6,371/-, Four gold biscuits and two pieces of gold and various documents.

• Additional Recoveries: Two Nepalese nationals entered the premises during the search, from whom USD 9,700/- and USD 9,250/- were recovered respectively. Another person, Pramod Kumar, was found with 1 kg gold bar.
• Statements Recorded: The appellant and others gave statements under Section 40 of FERA admitting to illegal purchase and sale of foreign exchange and gold.
• Adjudication: The Deputy Director (Adjudicating Authority) confiscated the Indian currency and imposed a penalty of Rs. 40,000/- on the appellant for contravention of Sections 8(1), 8(2), and 64(2) of FERA, 1973.
• Appeal: The Appellate Tribunal confirmed the order. The appellant then approached the High Court.

Appellant's Main Contentions

• Retracted Confession: The confessional statement was obtained under duress and torture, and was retracted at the first opportunity. Medical examination showed injuries.
• No Legal Basis for Confiscation: There was no legal authority to confiscate Indian currency, and no evidence it was intended for illegal purchase.
• No 'Attempt': The allegations did not constitute an "attempt" under Section 64(2) of FERA as there was no actus reus.

Legal Issues

• Whether the appeal raises a "question of law" under Section 35 of FEMA/Section 54 of FERA?
• Whether retracted confessional statements can be relied upon?
• Whether Indian currency can be confiscated under Section 63 of FERA?
• Whether the appellant's conduct constituted an "attempt" under Section 64(2) of FERA?

Court's Holdings

1. Scope of Appeal (Question of Law):

• The Court held that under Section 35 of FEMA (similar to Section 54 of FERA), appeals to High Court are restricted to questions of law only. The High Court cannot interfere with findings of fact by the Adjudicating Authority or Appellate Tribunal.
• A question of law arises when: Construction of statute is required, Legal effect of facts found needs determination or finding of fact is unsupported by evidence or is perverse
• Applying this: The Court found that none of the appellant's three contentions raised pure questions of law—they were essentially questions of fact or mixed questions of law and fact.

2. Retracted Confessional Statements:

• The Court held a retracted confession can be relied upon if it is voluntary and corroborated. The burden is on the person alleging coercion to establish it
• In this case, there was sufficient corroboration through seizure of unaccounted currency, gold, and foreign exchange, statements of Nepalese nationals and documentary evidence
• The appellant failed to provide medical examination report despite claiming torture. Request for cross-examination was rejected due to repeated adjournments over 2.5 years without examining witnesses

3. Confiscation of Indian Currency:

• The Court held Section 63 of FERA clearly empowers confiscation of "any currency, security or any other money or property" involved in contravention
• The Explanation to Section 63(b) specifically includes "Indian currency" where property is converted into that currency. The language is unambiguous and needs no interpretation. The appellant failed to explain the source of Rs. 12,31,000/- or prove it was lawfully obtained.

4. Attempt under Section 64(2):

• The Court held "Attempt" is distinguished from mere preparation-—it is a direct movement toward commission after preparations are made. The recovery of large amounts of unaccounted cash, foreign exchange, and gold, coupled with lack of explanation, established the appellant had taken steps toward commission of the offence.
• Under Section 106 of Evidence Act, once foundational facts are established, the burden shifts to the accused to provide satisfactory explanation. The appellant failed to discharge this burden.

Important Legal Principles

1. Pure question of law:

• Construction of statute

2. Question of fact:

• Appreciation of evidence

3. Mixed question:

• Facts requiring legal principles for determination

4. Retracted Confessions:

• Can be relied upon if voluntary and corroborated

5. Burden of Proof:

• In criminal cases, burden on prosecution to prove guilt beyond reasonable doubt. Under special statutes, once foundational facts proven, burden shifts to accused (Section 106, Evidence Act)

6. Attempt vs. Preparation:

• Preparation: Devising means for commission
• Attempt: Direct movement toward commission after preparation
• Attempt has greater degree of determination than preparation

Conclusion

The appeal was dismissed. The Court upheld the confiscation of Rs. 12,31,000/- and the penalty of Rs. 40,000/- imposed on the appellant.