Exploring Remedies for Indian Users amidst WazirX’s Moratorium in Singapore

Prominent Indian cryptocurrency exchange platform, WazirX was hit by a massive security breach in July 2024, resulting in the theft of cryptocurrency worth USD 230 million. This sent Indian wallet holders (“users”) in turmoil since WazirX primarily catered to Indian investors and was one of the few Financial Intelligence Units registered crypto-exchanges in India.

Interestingly, WazirX’s parent company, Zanmai Labs Pvt. Ltd. (“Zanmai”) is a wholly owned subsidiary of the Singapore based Zettai Pte. Ltd. (“Zettai”). The User Agreement at the time of the security breach stood such that Zanmai operated the INR related services and Zettai operated the cryptocurrency related services.

The cyberattack reportedly resulted in a loss of about 45% of the customers’ funds and created a wave of panic. This prompted Zettai to approach the Singapore High Court seeking a six-month moratorium under Section 64 of the Singapore Insolvency, Restructuring and Dissolution Act, 2018 (“SIRDA”), which granted a four-month conditional moratorium on September 26, 2024. This, however, involved an immediate halt in cryptocurrency and INR withdrawals from the platform.

As per the proposal, the users were classified as ‘contingent’ unsecured creditors, meaning even though the users had a claim on the assets of the company, their recoveries would be ‘contingent’ on the outcome of the ongoing disputes. On February 12, 2025, Zettai announced its plan of voting on its scheme to distribute assets proportionate to user’s balances valued as of July 18, 2024. It also stated that if users reject the scheme, they will have to wait until 2030 for a full recovery.

This has raised several concerns, especially regarding security risks associated with cryptocurrency. The reluctance of many countries, including India, to recognize and regulate cryptocurrencies has led to significant decline in investor confidence.

Firstly, a primary concern pertains to the legal status of the holders of digital wallets. Cryptocurrency contained in the wallets of the users may not appropriately be classified as part of the "estate" or “property” of WazirX. Secondly, there arises the question of why WazirX has opted to pursue a Scheme of Arrangement in Singapore rather than seeking recourse under Indian law, given that the majority of users and creditors are situated within India. Lastly, what legal recourse is available to Indian users, should the restructuring efforts fail to make the investors whole?

WazirX decided to prefer a moratorium before the Singapore High Court, instead of opting for relevant recourse under Indian laws, stating that the incorporation of its ultimate parent company in Singapore necessitated the application in Singapore, and called it the most effective recourse to safeguard user interests.

This attracted wide criticism from users who perceived it primarily as a measure to protect the interests of the company’s directors rather than the users. The Scheme of Arrangement affords the management considerable leeway to restructure the distressed company, while the moratorium shields the company from any coercive actions by creditors.

The primary concern of users, many of whom are small-scale traders, is their inability to pursue appropriate remedies in India. Although WazirX conducted several town hall meetings, these users lacked the capacity to initiate legal actions prior to the imposition of the moratorium, primarily due to geographical constraints. Be that as it may, two interesting questions arise:

i. User Agreement and the corporate structure of WazirX

WazirX’s own submissions before the Singapore High Court state that even after the incorporation of Zettai in Singapore, its Indian subsidiary, Zanmai continued to play a role in its operation. Specifically, Zanmai operated INR-related services on the platform, while Zettai operated the cryptocurrency-related services.

This begs the question: if Zanmai is responsible for the INR services of WazirX, what authority does WazirX possess to restrict users' cash withdrawal? The moratorium order does not clarify whether it also extends to Zanmai. Notably, Section 65 of the SIRDA empowers the court to extend a moratorium to subsidiaries of the debtor. However, this requires an application alongside the request under Section 64 and must be explicitly stated in the moratorium order. At present, this aspect has not been tested in courts, either in India or in Singapore.

In fact, the User Agreement, last revised on August 1, 2023, exists solely between the users and Zanmai, with no direct contractual relationship with Zettai. Consequently, it can be contended that various legal proceedings pertaining to the INR services provided by Zanmai to users under the User Agreement may be pursued against Zanmai in accordance with the applicable laws in India.

ii. Platform as a custodian or debtor – question of asset ownership

While it is true that the moratorium does not affect the substantive rights of the users, the classification of users as ‘unsecured creditors’ merits further discussion.

The transactions conducted by users on WazirX do not entail an outright transfer of title of cryptocurrency in favour of WazirX. This is because WazirX is does not possess any authority over the cryptocurrency. Further, the cryptocurrency held by users in their wallets do not appear on WazirX's balance sheet, as the platform merely acts as a “trustee” for these assets. Users retain the right to make decisions regarding the transfer of their crypto-assets, and WazirX is obligated to execute user instructions in the ordinary course of business. Therefore, any movement of crypto-assets must be characterized as a ‘transmission’ rather than a ‘transfer’ by an intermediary.

These factors were taken into consideration in the case of Cryptopia, which held that a user of the cryptocurrency platform was not a creditor, but only a client and thus, being so, should be able to obtain their crypto-assets, regardless of moratorium. Restricting users from withdrawing their own assets from the platform, deviates from the previously accepted principle that cryptocurrency platforms hold assets in trust for their users.

Indian users are not entirely without recourse or reliant solely on the success of restructuring proposals. There are remedies available, stemming from the nature of their relationship with WazirX.

These stem from the User Agreement between the users and Zanmai. Since the moratorium applies only to Zettai, Zanmai remains unaffected without any similar order under Section 65 of the SIRDA. This privity of contract, coupled with Zanmai’s responsibility for INR related services, offers a basis of legal action within India.

Consequently, any legal action can be taken against Zanmai, bypassing the moratorium order. However, the arbitration clause in the User Agreement, which stipulates the seat and place of arbitration as Singapore continues to pose a procedural hurdle. Nonetheless, the users may approach domestic forums with exclusive jurisdiction over certain subject matters in India.

i. Recourse in insolvency laws                    

Any recourse within the framework of the Insolvency and Bankruptcy Code, 2016 (“IBC”) is contingent on whether the nature of the transaction can be categorized as a “debt”. More particularly, whether the relationship of the user and WazirX can be considered as an “operational debt” under Section 5(21) of the IBC.

Users deposited funds with the platform for trading in currency. Therefore, WazirX's facilitation of such transactions constitutes a “service,” thereby rendering the transfer of funds from the user to the platform an “operational debt.”

ii. Recourse in consumer laws

Another viable option is the pursuit of a joint complaint before the consumer forum. As the users avail services of WazirX, they qualify as “consumers”. Given that Zanmai maintains direct contractual privity with the users through the User Agreement, the exclusive jurisdiction of consumer forums could be invoked. While there are reports of a consumer class action complaint being filed against Zanmai, the outcome continues to be pending.

iii. Arbitration proceedings against Zanmai

Clause 14 of the User Agreement outlines an arbitration clause with Singapore as the seat of arbitration. In the absence of a moratorium order against Zanmai in Singapore, arbitration proceedings should, in principle, remain unaffected. Consequently, users may pursue claims for damages and seek a valuation of their cryptocurrency based on the date of the award rather than the date of the cyberattack.

The emergence of cryptocurrency as a financial asset is now an undeniable reality. However, the lack of a clear regulatory framework in India has compelled many homegrown cryptocurrency exchange platforms to relocate their operations abroad. This has also led to the investors being exposed to risks, with few legal protections to safeguard their interests.

The prevailing ambiguity has resulted in Indian law being unequipped to deal with such disputes and unable to adequately protect Indian investors. As outlined above, the potential remedies are still subject to judicial interpretation, and no Indian court has yet rendered a definitive ruling on the classification of cryptocurrencies or clarified the nature of transactions involving them. Thus, without a comprehensive legal framework and clear judicial guidance, Indian investors remain vulnerable in an increasingly complex and evolving digital landscape.

About the authors: Shashwat Mukherjee is an Associate and Mohit Goel is a Partner at Sim & San.

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