CoinSwitch Vs WazirX: Bombay HC Quashes Zanmai Labs’ Appeal

SUMMARY

The HC upheld the arbitration tribunal's order, which also directed Zanmai Labs to provide bank guarantees to the tune of INR 45.38 Cr to CoinSwitch

Bitcipher had challenged Zanmai’s move to freeze its assets, arguing that their agreements did not authorise WazirX to undertake a “socialise” losses across all users

At the time of restrictions, CoinSwitch’s parent entity Bitcipher had crypto assets worth INR 59.34 Cr (as per value on August 27, 2024) on WazirX

The Bombay High Court (HC) has dismissed an appeal filed by WazirX’s operator Zanmai Labs against an arbitral tribunal order, which affirmed rival CoinSwitch’s rights to secure its assets held on the embattled crypto platform.

In a judgment dated October 7, a single-judge bench of Justice Somasekhar Sundaresan upheld the arbitration tribunal’s order, which also directed Zanmai Labs to provide bank guarantees to the tune of INR 45.38 Cr to CoinSwitch.

“I see no reason to make an intervention, disturbing the interim arrangement propounded by the learned arbitral tribunal… The petitions filed under Section 37 of the Act (Arbitration and Conciliation Act, 1996), and all the attendant interim applications are dismissed,” read the HC order.

The ruling protects CoinSwitch’s ability to recover its frozen assets held on the WazirX. In case of an adverse ruling, CoinSwitch would have had to accept a loss on its assets alongside other creditors under Zettai’s proposed loss distribution scheme.

The directions come more than a year after WazirX was hit by a cybersecurity attack, which saw hackers stealing $235 Mn worth of crypto assets from the troubled crypto platform’s multi-signature wallets. The incident primarily targeted ERC-20 tokens.

The aftermath saw WazirX imposing restrictions on withdrawals of balances, and proposing a plan to distribute the impact of the theft across all users of the platform. At the time, CoinSwitch’s parent entity Bitcipher had assets worth INR 59.34 Cr (as per value on August 27, 2024) on WazirX, excluding an additional INR 5 Cr deposited by the former later on.

Subsequently, Bitcipher challenged Zanmai’s move through arbitration, arguing that their broker and user agreements did not authorise the company to redistribute losses in the aforementioned manner.

Subsequently, the arbitral tribunal, in a March 2025 order, directed Zanmai to provide INR 50.38 Cr in security, via escrow deposits or bank guarantees, for the majority of Bitcipher’s lost assets. It was this order that Zanmai before the Bombay HC.

What Did The Bombay HC Rule?

Justice Sundaresan rejected Zanmai’s contention that it shouldn’t be held accountable because the cybersecurity of the platform was allegedly managed by its alleged acquirer Binance.

Zanmai claimed before the HC that Binance acquired WazirX in 2019. However, the Court filings noted that Binance shelved the plan and announced a decision to cease its connection with the WazirX in 2023.

However, the HC refuted the contention saying that Zanmai, following Binance’s exit, became fully responsible for user and broker assets under the terms of its contracts.

“If assets are held in the custody of a person under an agreement, it is for the person in whose custody those assets are held to be accountable for the custody of those assets”.

The court also found that CoinSwitch’s 2022 broker agreement with Zanmai treated “WazirX as synonymous with Zanmai” and included provisions requiring WazirX to “take best efforts to ensure uninterrupted performance” despite force majeure events like cyberattacks.

That said, the HC will now hear contempt proceedings in the matter on November 11.