Cryptocurrency Classified As Property In India, Says Madras High Court

The Madras High Court has decided that digital assets can be classified as property under Indian law, allowing for ownership, beneficial enjoyment, and the establishment of trusts. The judgment was delivered in Rhutikumari vs Zanmai Labs Pvt Ltd, which involves an investor who approached the court seeking interim relief in a platform-related dispute.

The Madras High Court underscored that digital assets, though intangible, possess the essential characteristics of property, Justice N Anand Venkatesh noted:

"There can be no doubt that 'cryptocurrency' 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."

According to Bar & Bench, the petition was filed by an investor whose holdings of 3,532.30 XRP coins, purchased for Rs 1,98,516 in January 2024 on the WazirX platform operated by Zanmai Labs, were frozen following a cyberattack later that year. The applicant maintained her digital assets through her portfolio account, which was linked to her email address and mobile number. To avoid interference or reallocation of her holdings, she went to court to request protection.

Zanmai Labs opposed the plea, arguing that the matter fell under arbitration in Singapore and that a court-approved restructuring scheme there would determine the distribution of assets. Also, the company claimed that it just operated the wallets in India and did not directly own them.

The High Court noted that the purchase and access of assets occurred in India by establishing jurisdiction. The court further explained:

"In the Indian law regime, the cryptocurrency 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."

It also clarified that the applicant's XRP holdings were distinct from the Ethereum-based tokens affected by the cyberattack.

The Madras High Court observed, as reported by Bar & Bench, that Zanmai Labs is a registered reporting entity with India's Financial Intelligence Unit (FIU) and is authorised to handle cryptocurrency in India. While the court emphasised the court's domestic jurisdiction over the matter by pointing out that Binance and its Singapore-based parent, Zettai Pte Ltd, were not registered under Indian law at the time of the proceedings.

The court issued an interim order prohibiting Zanmai Labs and its directors from interfering with redistributing or reallocating the investor's interests until the arbitral panel resolved the matter.