TaxTMI 
TaxTMI 
2025 (10) TMI 1185
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....pany is engaged in the business of running crypto currency exchange platform under the name and style of WazirX. The applicant made an investment to the tune of Rs. 1,98,516/- in the exchange platform of the first respondent during January 2024. A portfolio account was allotted to the applicant by giving a specific identification number and it was registered with both the e-mail address as well as the mobile contact number of the applicant. (ii) By investing the said amount, the applicant purchased 3,532.30 XRP Coins, which were retained in the custody of the first respondent company. The Indian currency that was invested by the applicant after conversion into XRP Coins has been stored in the wallet maintained by the first respondent company. (iii) The first respondent company holds the XRP coins in its capacity as the custodian and in trust on behalf of the applicant. The value of the XRP coins belonging to the applicant will keep varying depending upon the market fluctuation. The value of the XRP coins is identified/based on US Dollars (USD), which, in turn, is based on the each XRP coin was USD 2.77. As on 17.1.2025, the XRP coins held by the applicant were car....
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....he users of the platform can withdraw the crypto currency tokens, which are also termed as virtual digital assets either by transferring the crypto currency tokens to any crypto currency wallet of the user's choice held outside the platform or by liquidating/selling the crypto currency assets on the platform for Indian rupees and thereafter withdrawing back the proceeds to their respective registered bank accounts. (iii) The WazirX platform was owned and operated by the Zettai and its affiliates until November 2019. Later, a group of entities known as Binance entered into negotiations with the founders of the platform - the first respondent for its acquisition. On 21.11.2019, Binance announced its acquisition of the platform. Thereafter, the first respondent and Binance entered into a licence and distribution agreement. Under this agreement, the first respondent must act as a non exclusive and limited distributor of the platform within the territory of India for a compensation in the nature of licence fee as determined under the provisions of the agreement. (iv) The first respondent was appointed as a non exclusive distributor of the platform for services in relat....
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....rmed the stakeholders about the cyber attack through social media, blogs, etc., and provided day-to-day developments. They also approached the law enforcement authorities both in Singapore and in India and the authorities in India are investigating into the complaint filed by the first respondent. Steps were also taken to trace and tag the stolen token assets. (ix) The Zettai also reached out over 500 crypto currency exchanges to block the identified wallet addresses, to which, some of the stolen token assets have been transferred. The platform ceased processing of users' withdrawal requests to prevent further losses and to ensure safety of wallets. The platform also ceased to process trades. The platform migrated all the remaining assets from Liminal Infrastructure to alternative wallets for enhanced security of the remaining virtual digital assets. The platform also initiated restructuring proceedings in Singapore under the relevant enactment. The investigation is also started in this regard. (x) Since the cyber attack took place, there are insufficient crypto currency tokens attributable to the platform's user liabilities to satisfy unsecured crypto currency cl....
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....erused the materials available on record. 6. The learned Senior Counsel appearing on behalf of the first respondent raised a preliminary objection on the ground that the agreement between the parties contemplated that the seat of arbitration should be at Singapore, that the Arbitrator would be appointed as per the Rules of the SIAC as the digital wallets are held outside India by a foreign entity and that therefore, the above application filed under Section 9 of the Act is not maintainable before this Court. 7. In reply to the above submissions, the learned counsel for the applicant contended that a part of the cause of action has arisen within the jurisdiction of this Court in the present case since the applicant had transferred her Indian national currency from the account held at Kotak Mahindra Bank, George Town, Chennai and that the applicant was also using the WazirX platform through her mobile phone, which was operated within the jurisdiction of this Court. 8. To support his submission, the learned counsel appearing for the applicant relied upon the judgment of the Hon'ble Apex Court in PASL Wind Solutions (P) Ltd. Vs. GE Power Conversion India (P) Ltd. [reported in ....
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....forced and recognised under the provisions of Part II of the Arbitration Act. The context of this expression is, therefore, different from the context of the definition of "international commercial arbitration" contained in Section 2(1)(f), which is in the context of such arbitration taking place in India, which only applies "unless the context otherwise requires". The four sub- clauses contained in Section 2(1)(f) would make it clear that the definition of the expression "international commercial arbitration" contained therein is party-centric in the sense that at least one of the parties to the arbitration agreement should, inter alia, be a person who is a national of or habitually resident in any country other than India. On the other hand, when "international commercial arbitration" is spoken of in the context of taking place outside India, it is place-centric as is provided by Section 44 of the Arbitration Act. This expression, therefore, only means that it is an arbitration which takes place between two parties in a territory outside India, the New York Convention applying to such territory, thus making it an "international" commercial arbitration." 9. In the said judgment....
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....d. This technological design allows value to be transferred without relying on banks or governments. Yet, Bitcoin's decentralised and semi-anonymous nature has also made it popular among criminals, enabling drug marketplaces such as Silk Road and recent ransomware attacks like the 2021 Colonial Pipeline incident. Criminals exploit the fact that identities on the blockchain are pseudonymous, though law enforcement has improved its ability to trace transactions using advanced data analytics. 14. The article notes that US law lacks a single unified framework for crypto currency regulation. Different agencies treat it differently - the Treasury's FinCEN views crypto as money and applies anti-money-laundering rules; the Commodity Futures Trading Commission treats Bitcoin and Ether as commodities; the Securities and Exchange Commission regards many tokens as securities depending on whether they meet the "Howey test" for investment contracts; and the Internal Revenue Service classifies crypto currency as property for tax purposes. This fragmented approach confuses both regulators and market participants, leading to overlapping oversight and uncertainty. 15. In 2022, President Biden ....
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....n. Its challenges - from regulation and enforcement to privacy and policy - will persist and Judges, like all decision-makers, must understand its workings to interpret the law effectively in this evolving domain. 19. If one is to now examine as to how courts across the world are treating crypto currencies, we note as under:- (1) United Kingdom: In the United Kingdom, the case of AA Vs. Persons Unknown [reported in 2019 EWHC 3556 (Comm)] became a turning point, where the Court held that Bitcoin could be considered a form of property, capable of ownership and transfer. (2) Singapore: This reasoning was followed in Singapore in cases dealing with NFTs and stablecoins, such as Janesh Vs. Unknown Person [reported in 2022 SGHC 264] and ByBit Fintech Ltd. Vs. Ho Kai Xin [reported in 2023 SGHC 199]. These rulings confirmed that digital tokens can be defined, identified, transferred and stored like any other form of property. (3) USA: Meanwhile, US courts have focused on whether these tokens can be classified as securities. In Securities and Exchange Commission (SEC) Vs. Ripple Labs Inc. [reported in 682 F. Supp. 3d 308 (S.D.N.Y. 2023)] and SEC Vs. Terraform L....
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....conclusion that a digital asset, is an asset stricto sensu. 24. Digital "assets" are stored and recorded on the blockchain ledger where they were issued. Every blockchain ledger has entries with respect to the ownership of the digital assets held in that blockchain. Each ledger entry has a public and private key associated with it, which is not like a computer-generated email address and password. 25. There are digital wallets that help store a person's keys securely, so that only that person can access his or her digital assets. Digital wallets are convenient places to view one's assets and ledger positions. 26. The digital asset is stored on the blockchain ledger and the keys that give one access to it are stored in a wallet. 27. One can try to draw an analogy to dematerialized shares. The depository holds the shares in the dematerialized form in its digital ledger and the shareholder has only a depository participant ID, with which, he or she exercises his/her beneficial interest. However, the important distinction here is that the shares are real. They represent equitable interests in a real corporation, carrying on real business. A holder of a dematerialized share ....
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....o whether the Reserve Bank of India (RBI) had the legal power to restrict banking services for those involved in virtual currency transactions. The dispute arose when the RBI issued a circular in April 2018 directing all regulated entities not to deal with or provide services to businesses and individuals trading in virtual currencies such as crypto currencies. This order effectively cut off crypto exchanges and traders from regular banking channels, making their operations nearly impossible. 35. The Internet and Mobile Association of India, representing crypto exchanges and digital entrepreneurs, challenged this directive before the Hon'ble Supreme Court. The RBI defended its circular by stating that it was acting within its powers under Section 35A of the Banking Regulation Act, 1949, the relevant provisions of the RBI Act, 1934 and the Payment and Settlement Systems Act, 2007 and that these laws empower the RBI to issue directions in the interests of public good, monetary stability and the banking system. The Hon'ble Apex Court observed that the RBI's responsibility is to safeguard not only the banking system, but also the faith of the general public in that system an....
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....lared virtual currencies illegal, the RBI's absolute disconnection of banking services was disproportionate. As a result, the Court allowed the petition and set aside the circular. 39. In its reasoning, the Hon'ble Supreme Court made two important clarifications. Firstly, the Reserve Bank of India is not an ordinary statutory authority-it performs sovereign and regulatory functions that maintain the country's monetary stability. Secondly, while it has the power to act against risks to the financial system, its actions must still be proportionate to the threats identified. Thus, although the RBI's authority to regulate was upheld, the exercise of that authority in this instance was found to exceed what was necessary. 40. In summary, the Hon'ble Supreme Court recognized the RBI's power to make decisions concerning virtual currencies, but struck down its 2018 ban on banking support to crypto businesses for being disproportionate. This judgment became a landmark in balancing regulatory caution with the constitutional freedom to trade, paving the way for more nuanced policymaking in India's evolving crypto landscape. 41. One good judgment on the point is that of the New....
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....fies every possible interest which a person can clearly hold or enjoy. The meaning of the word "property" has come up for examination before this Court in a number of cases. Reference may be made to one of them in which the question arose whether Mahantship or Shebaitship which combines elements of office and property would fall within the ambit of the word "property" as used in Article 19(1)(f) of the Constitution. It was observed in the Commr, Hindu Religious Endowments, Madras v. Shri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [(1954) 1 SCC 412 : 1954 SCR 1005, 1019] that there was no reason why that word should not be given a liberal and wide connotation and should not be extended to those well-recognised types of interests which had the insignia or characteristic of proprietory right. Although Mahantship was not heritable like the ordinary property, it was still held that the Mahant was entitled to claim protection of Article 19(1)(f) of the Constitution. It is stated in the Halsbury's Laws of England, Vol. 32, 3rd Edn., page 534 that an annuity (which is a certain sum of money payable yearly either as a personal obligation of the grantor or out of property not consist....
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.... doubt that "crypto currency" is a property. It is not a tangible property nor is it a currency. However, it is a property, which is capable of being enjoyed and possessed (in a beneficial form). It is capable of being held in trust. 48. In Indian law regime, the crypto currency is treated as a virtual digital asset and it is not treated as a speculative transaction. This is in view of the fact that the investment made by the user is converted into crypto currency, which is capable of being stored, traded and sold. Crypto currency is termed as a virtual digital asset and is governed under Section 2(47A) of the Income Tax Act, 1961. 49. The stand taken by the first respondent is that the foreign entity (Binance/Zettai) maintained the wallet infrastructure and crypto operation, that the first respondent had no control over those wallets, which were under the control of the foreign entity and that the first respondent's role was limited to facilitating the Indian rupees denominated transaction in a non P2P trading. 50. Thus, it was contended on the side of the first respondent that where a user purchased crypto currency using Indian rupees, the fiat leg is processed through I....
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....Terms applicable to Non-Indian Resident Users In all circumstances, Users not resident in India (as defined under the Foreign Exchange Management Act, 1999) shall not use Zanmar's Services to trade between Indian Rupee (INR) and Supported Crypto currencies." 53. To operate a crypto currency within India, the concerned service provider has to be registered as a reporting entity with the Financial Intelligence Unit. 54. In the present case, it is the first respondent, which got registered as a reporting entity and is, therefore, authorized to handle crypto currency in India. Neither the Zettai nor Binance is registered as a reporting entity in India and hence, they are not authorized to handle crypto currency within India or operate the platform. 55. What were held by the applicant as crypto currencies were 3532.30 XRP coins. What were subjected to cyber attack on 18.7.2024 in the WazirX platform were ERC 20 coins, which are completely different crypto currencies not held by the applicant. 56. One moot question that will arise for consideration is as to whether the ERC 20 coins, which were the subject matter of cyber attack and which were held in a separate w....
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....at the terms of disengagement were in 2022 is unclear. In fact, Mr. Nischal Shetty, in his affidavit in the Singapore Court when propounding the scheme of arrangement that forms basis of the "socialisation" theory has firmly stated that he would not disclose the nature of the disputes with Binance for reasons of "confidentiality". This presents a high degree of ambiguity at a foundational level, and the Learned Arbitral Tribunal cannot be faulted for perceiving vulnerability for Bitcipher and Nextgendev. 32. Having examined the fact that the virtual digital asset, subjected to the cyber-attack was ERC-20, the Learned Arbitral Tribunal has in fact, despite this observation about the scheme of arrangement and the "socialisation" has allowed a 45% haircut to the exposure of the Bitcipher and Nextgendev to the extent of 45% of their exposure to ERC-20. In other words, equitable considerations have weighed with the Learned Arbitral tribunal indicating that those assets which were not subjected to the cyber-attack could not be subjected to a haircut and indeed, since ERC-20 was compromised and stolen to the extent of ~USD 235 million, a pro rata haircut was accepted by the Learned Arb....
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....held electronically are meant to be held in trust with a fiduciary duty owed to the owners of such assets. The owners of such assets indeed agreed that a cyber-attack in a security breach would constitute a force majeure situation. Equally, to assuage them, in the Broker Agreement Zanmai has explicitly agreed that notwithstanding a cyber- attack being a force majeure event, WazirX Platform would take its best efforts uninterrupted performance of the Broker Agreement, and that too by treating WazirX as synonymous with Zanmai. 36. Whether a force majeure clause would affect the performance of services (leading to a hold) or whether it could even erode the very assets legitimately held by the users and not just access to further services is a matter for adjudication. If an asset is stored digitally on the WazirX Platform, the provision of services could perhaps be suspended namely, permission to trade or the ability to transact could be stalled owing to the force majeure event. But whether it can be held that the very asset would stand eroded due to a security lapse or security breach and such erosion can be validly spread across all users of the platform is a matter that would nee....
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....ing a scheme of arrangement and in terms of that scheme of arrangement, no intervention must at all be made until and unless the scheme of arrangement runs its course in the Courts in Singapore, is rightly rejected by the Learned Arbitral Tribunal. I have also noticed that the Learned Arbitral Tribunal has left multiple substantial avenues of argument open to the parties and has come up with a reasonable approach of computing the values involved, moving them to the date of August 27, 2024 when the matter first came up. One does not know the value of the underlying assets as of today and the Learned Arbitral Tribunal has even provided for a bank guarantee to be submitted by the person in whose custody the assets were and were meant to be safeguarded. It is possible that Zanmai may not have the net worth and strength corresponding to the assets because the assets in the first place never belonged to Zanmai. Equally, the corollary would be that Zanmai, not being the owner of the assets, ought not to have parted with those assets to Zettai, its own parent and without indicating what is the nature of the dispute with Binance that led to the current situation at hand. Even a case of equi....
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....ued a trigger notice till now cannot be put against her in view of the fact that none of the parties had clarity as to how the proceedings before the Singapore High Court is going to end. 63. This is more so since the Singapore High Court had earlier rejected the scheme of arrangement and later, when the Zettai agreed to transfer its operations to the first respondent under the modified scheme of arrangement, the subsequent order was passed on 13.10.2025. In view of the above, this Court rejects the contention raised on the side of the first respondent that the applicant did not have manifest intention to arbitrate. It goes without saying that the applicant will hereafter issue a trigger notice since the applicant exactly knows where she stands in the light of the order dated 13.10.2025 passed by Singapore High Court. 64. The learned Senior Counsel appearing on behalf of the first respondent made a further submission to the effect that the scheme was sanctioned by a overwhelming majority of 95.7% of the creditors/ users present and voting and that when a decision was taken by such majority creditors, the applicant, who did not even participate during the voting, cannot, in a ....