The Madras High Court has ruled that digital assets qualify as property under Indian law, blocking crypto exchange WazirX from reallocating a user's XRP holdings to offset losses from a devastating 2024 cyberattack.

Justice N. Anand Venkatesh delivered the ruling on October 25, 2025, granting interim protection to an investor who sought to prevent the exchange from redistributing her 3,532 XRP tokens - worth approximately $9,400 - as part of a controversial "socialization of losses" scheme following the platform's $230 million hack in July 2024.

A Precedent-Setting Victory for User Rights

The case centered on Rhutikumari, who purchased her XRP tokens in January 2024 for approximately 198,516 rupees (about $2,400). When WazirX froze all user accounts following the massive breach, the investor argued that her holdings were fundamentally different from the stolen Ethereum-based tokens and should not be subject to platform-wide loss redistribution.

"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," the court observed.

The ruling establishes that cryptocurrency holdings possess "all the essential characteristics of property" despite being intangible and not recognized as legal tender. This classification means digital assets can be owned, enjoyed, and held in trust - a significant development for India's evolving crypto jurisprudence.

Understanding WazirX's Controversial Recovery Plan

Following the July 18, 2024 cyberattack, WazirX proposed a restructuring scheme that would spread losses proportionally across all users, regardless of whether their specific assets were affected by the breach. Under this "socialization of losses" approach, even users holding cryptocurrencies unrelated to the stolen ERC-20 tokens would absorb a portion of the platform's operational failures.

The exchange's parent company, Singapore-based Zettai Pte Ltd., secured approval from 95.7% of participating creditors for the restructuring plan through Singapore's High Court. However, the Madras High Court's decision demonstrates that Indian users may still seek domestic legal protection even when the company's legal seat lies abroad.

Justice Venkatesh firmly rejected the notion that unaffected user assets could be frozen to offset platform losses, calling the idea of "socializing" losses "unreasonable and unsupported by contract."

The $230 Million Hack That Shook India's Crypto Market

The security breach that triggered this legal battle occurred on July 18, 2024, when hackers exploited a vulnerability in WazirX's multi-signature wallet system, draining approximately $234.9 million in digital assets. The attack targeted wallets managed by custody provider Liminal, with WazirX attributing responsibility to the custodian - a claim Liminal contested.

The United States, Japan, and South Korea later confirmed in a joint statement that North Korea's notorious Lazarus Group orchestrated the attack. The statement emphasized that "the Democratic People's Republic of Korea's cyber programme threatens our three countries and the broader international community and, in particular, poses a significant threat to the integrity and stability of the international financial system."

The Lazarus Group, linked to North Korea's intelligence agency, has a documented history of targeting cryptocurrency platforms to fund the regime's weapons programs. Blockchain researchers identified the attack's characteristics as consistent with Lazarus operations, noting the methodical and sophisticated nature of the breach.

The hack forced WazirX offline for 16 months, freezing user withdrawals and triggering widespread debate about accountability and asset security in India's largely unregulated crypto market.

Legal Protections and Escrow Requirements

To enforce its ruling, the Madras High Court invoked the Arbitration and Conciliation Act, 1996, ensuring the user receives comprehensive legal safeguards until arbitration proceedings conclude. WazirX must either deposit 956,000 rupees (approximately $11,500) in escrow or provide a bank guarantee for the same amount as interim protection.

The court held that Indian courts can grant interim protection where assets located in India require safeguarding, even when related arbitration is seated abroad.

Since the investor's transactions originated from Chennai and funds were transferred from an Indian bank account, part of the cause of action arose within the Madras High Court's jurisdiction.

Building on Bombay High Court Precedent

The Madras ruling builds on recent precedent established by the Bombay High Court, which rejected similar loss-sharing measures in a case involving Bitcipher Labs (operating as CoinSwitch) against Zanmai Labs in October 2025.

Justice Somasekhar Sundaresan dismissed WazirX's challenge to arbitral tribunal orders, upholding directions to secure Bitcipher's cryptocurrency assets through bank guarantees and escrow deposits. The Bombay court noted that "the view that Bitcipher must be secured for its claim to its own assets, which were only stored on the WazirX Platform cannot be regarded as perverse or patently illegal."

Together, these decisions establish that cryptocurrency exchanges have a fiduciary duty to safeguard user assets held in trust and cannot unilaterally redistribute holdings to compensate for platform failures.

WazirX Resumes Operations Amid Legal Turbulence

The Madras High Court decision arrived on the same day WazirX officially resumed operations on October 24, 2025, marking its return after more than a year offline. The exchange restarted trading in phases over four days, with all cryptocurrency pairs available by October 27.

"Your support helped us accomplish the impossible task of restarting," WazirX co-founder Nischal Shetty wrote on social media. "Now we have the next step: creating more value for everyone who was impacted."

However, the reopening has been met with mixed reactions. While deposits in Indian rupees and cryptocurrencies have been reinstated, users report receiving only 30% of their expected funds amid locked accounts and ongoing customer verification delays. The platform has implemented zero-fee trading for at least 30 days as part of its recovery efforts and partnered with U.S.-based custodian BitGo to strengthen asset protection.

Implications for India's Crypto Regulatory Framework

The Madras ruling arrives at a critical juncture for Indian cryptocurrency regulation. While the government has imposed a strict 30% tax levy and 1% tax deducted at source (TDS) on crypto transactions, comprehensive legislation governing investor rights and asset ownership remains absent.

The court acknowledged this regulatory gap, noting that "India has the opportunity to design a regulatory regime that encourages innovation while protecting consumers and maintaining financial stability." Justice Venkatesh emphasized that "through each ruling, they are shaping a clearer picture of rights, responsibilities, and trust in the age of decentralization."

Legal observers view these recent court decisions as signals that Indian judiciary is proactively defining user protections in the absence of comprehensive legislation. The rulings could significantly influence how future disputes are adjudicated as India moves toward establishing a clearer regulatory framework for digital assets.

What This Means for Crypto Users

The Madras High Court's recognition of cryptocurrency as property establishes several important principles:

Ownership Rights: Users retain ownership of their digital assets even when stored on exchange platforms, similar to traditional property rights for stocks, bonds, or real estate.

Custodial Responsibility: Exchanges cannot dilute or redistribute user holdings to offset operational failures or security breaches unless explicitly authorized by contract.

Jurisdictional Protection: Indian users can seek domestic legal remedies even when exchanges operate under foreign jurisdictions, provided part of the cause of action arose within India.

Asset Segregation: Different cryptocurrency types must be treated as distinct assets. Losses affecting one category cannot automatically be applied to unaffected tokens held by users.

The ruling reinforces that custodial accountability extends beyond contractual obligations to fundamental property rights, potentially setting a powerful legal precedent for the entire South Asian region.

Final thoughts

As WazirX continues its phased reopening and works to rebuild trust with its user base, the legal landscape surrounding cryptocurrency ownership in India becomes increasingly defined through judicial intervention rather than legislative action.

For thousands of Indian users still waiting to recover their funds from the 2024 hack, the Madras decision marks the first tangible legal victory. While it doesn't eliminate the inherent risks in cryptocurrency trading, it establishes a clear framework for accountability and user protection.

The coming months will reveal whether these court decisions catalyze comprehensive crypto regulation in India or remain isolated judicial interpretations in an evolving legal frontier. What's certain is that Indian courts have firmly established cryptocurrency as a protected form of property - a development that strengthens investor confidence and holds platforms accountable for safeguarding digital assets.