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2025 (10) TMI 1364
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.... Learned Arbitral Tribunal contained in two orders passed under Section 17 of the Act dated December 16, 2024 and March 12, 2025 (collectively, "Impugned Order"). The Learned Arbitral Tribunal has directed that certain specified amounts be secured by way of provision of a bank guarantee or deposit in escrow as a measure of preservation of the subject matter of the arbitration agreement. 2. It would be necessary to have a brief overview of the facts involved. The Petitioner, Zanmai Labs Private Limited ("Zanmai") provides services connected with a trading platform called WazirX ("WazirX Platform"). Zanmai is a subsidiary of a company incorporated in Singapore, called Zettai Pte Ltd., Singapore ("Zettai"). Zanmai is founded by one Mr. Nishchal Shetty who is also a deponent of affidavits filed in Courts in Singapore on behalf of Zettai in a scheme of arrangement sought to be propounded by Zettai, which is stated to have implications for the matter at hand. 3. The two Respondents are Bitcipher Labs LLP (" Bitcipher") in Commercial Arbitration Petition (L) No.11646 of 2025 and Nextgendev Solutions Pvt. Ltd. ("Nextgendev") in Commercial Arbitration Petition (L) No.11975 of 2025. Bi....
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....urts. By this measure, each and every user of the WazirX Platform would bear a share of the burden of the theft that arose due to the cyber-attack. 8. The security features of the digital holdings of virtual digital assets on the WazirX Platform is overseen by an entity called, Answer Eleven Pte. Ltd. ("Liminal). The four-signature wallet system that was compromised, entailed three signatures under the control of Zanmai and one under the control of Liminal, whose role came into being. 9. At the relevant time, Bitcipher is said to have held assets on the WazirX Platform of a total value of approximately Rs.59.34 crores excluding the additional Rs. 5 crores deposited on July 15, 2024 - a valuation based on the value attributed on the WazirX Platform to the virtual digital assets as of August 27, 2024. 10. Initially, after hearing the parties, the Learned Arbitral Tribunal directed Zanmai by an order dated December 16, 2024, to provide security by deposit of Rs. 45.38 crores and an additional Rs. 5 crores in favour of Bitcipher and a similar deposit of Rs. 11.92 crores in the case of Nextgendev. The newly deposited Rs. 5 crores amount is said to have been refunded in the cour....
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....on (or rather an ultimatum) to cease its connection with the WazirX Platform by February 3, 2023. Therefore, it is stated by Zanmai that under protest, Zettai that took over the operations that were until then being handled by Binance. In respect of digital asset management service, in view of the absence of Binance, it is stated by Zanmai that an arrangement was entered into with Liminal and it was Liminal that would provide the management services including security features, that had until then been provided by Binance. 15. The upshot of this presentation of the framework by Zanmai is that the Learned Arbitral Tribunal has lost sight of the fundamental difference between tripartite User Agreement and the bipartite Broker Agreement, to treat Zanmai as being synonymous with WazirX Platform, which has led to wrongly laying the accountability and responsibility at Zanmai's doorstep. The liability arising out of the cyber-attack on the WazirX Platform which squarely fell in the component of work not covered by the responsibilities devolving on Zanmai, the Impugned Order is said to be perverse. 16. This is countered by Bitcipher, contending that the Broker Agreement was a su....
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....e to examine the Impugned Order and juxtapose the contents with the material on record, to ascertain whether a case has been made out for an intervention by this Court in exercise of jurisdiction under Section 37 of the Act. 21. The Learned Arbitral Tribunal has examined in great detail, the contractual framework set up between the parties including the User Agreement and the Broker Agreement. The Learned Arbitral Tribunal indeed examined the recitals and the prime operating provisions of the User Agreement to note that depending on the service in question i.e. services under Clause 5 (provided by Binance) or services under Clause 6 (provided by Zanmai), the terms "WazirX Platform" for purposes of the User Agreement would interchangeably be Binance or Zanmai. The Learned Arbitral Tribunal also noticed that the security breaches and cyber-attacks indeed within the ambit of force majeure event under the User Agreement and in the event of such a cyber-attack, the obligations to provide services under the User Agreement would be excused. 22 The Learned Arbitral Tribunal also analysed the Broker Agreement (executed on August 18, 2022 with a marginally retrospective effect from Jul....
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.... disassociating itself from the WazirX Platform in August 2022. It is on August 18, 2022 that Zanmai and Bitcipher entered into the Broker Agreement, contracted to take effect from July 1, 2022. It is also an admitted position that Binance completely abandoned WazirX Platform in February 2023, and that too through social media posts, disclaiming responsibility for virtual digital assets stored on the WazirX Platform, which would have no association with Binance. 27. In my opinion, the contemporaneous execution of the Broker Agreement is consistent and contemporaneous with these substantive developments and it would be difficult to accept Zanmai's contention that the Broker Agreement was merely a simple instrument solely aimed at obviating double deduction of tax at source. Seen in this light, the substantive and significant interventions made in the Broker Agreement into the contractual arrangement between the parties cannot lend themselves to being regarded as a mere titular framework only to provide a means of obviating double deduction of tax at source. 28. Zettai, according to the Learned Arbitral Tribunal was never in the picture in the contract between the parties. ....
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....on" 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 Arbitral Tribunal in the value of exposure to ERC-20. 33. Towards this end, taking the total value of the assets held by the Bitcipher and Nextgendev on the WazirX Platform, a 45% haircut has been applied ....
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....itute 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 need to be adjudicated in terms of the User Agreement and the Bipartite Agreement. Pending such adjudication, the vulnerable party whose assets stand frozen is indeed entitled to protection. The Learned ....
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.... 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 equity is not made out for interfering with the Impugned Order. All that Zanmai has to do is regain control over the assets of its users and provide assurance that they are secure. 41. It is now ....