The global cryptocurrency market operates on a fragile foundation of faith. Investors pour billions of dollars into digital exchanges, assuming that the Bitcoin or Ethereum they see on their screen actually belongs to them. They believe that the exchange is merely a digital vault, a custodian that holds their assets for safekeeping. But what happens if that company fails? Or if the vault is breached?
The Madras High Court’s recent judgement in Rhutikumari vs Zanmai Labs has brought these terrifying questions to the fore. In a significant ruling involving a cyber-attack on the platform of WazirX, a trading app, the court challenged the fatalistic view that investors are helpless. When the court observed that the virtual digital assets are ‘meant to be held in trust with a fiduciary duty owed to their owners’, it did much more than resolve an investor-promoter dispute.
The judgement is best understood as part of a broader global conversation about what happens when crypto platforms fail. The central legal inquiry that the courts are wrestling with is: whether the relationship between a cryptocurrency exchange and its user is fiduciary in nature, thereby creating a ‘trust’, or whether it is merely contractual in nature, thereby creating a ‘debt’? This distinction is not just a matter of semantics but of asset survival.
The High Court of New Zealand’s decision in Ruscoe & Moore vs Cryptopia (2020) anchors the pro-investor perspective. Viewing the inquiry practically, the court confirmed that cryptocurrencies are a form of ‘property’ and satisfied the three certainties required for establishment of a trust. On the certainty of the subject matter and objects, the court had observed that online exchange Cryptopia had segregated coins into currency-specific wallets and the internal database recorded precisely how many units of currency stood in each account.
On certainty of intention, the court relied on Cryptopia’s customer service manuals, financial statements that excluded user coins from the company’s assets, and terms explicitly stating assets were ‘held on trust’. Taken together, the court ruled that these demonstrated a custodial, trust‑based relationship, as opposed to a debtor-creditor arrangement.
In stark contrast, the jurisprudence emerging from Asian financial centres has prioritised the contractual terms much to the detriment of the retail investor. In the decision rendered by the Hong Kong Court of First Instance in Gatecoin (2023), although it acknowledged that cryptocurrency could theoretically form the subject matter of a trust, it ruled that in that case, the certainty of intention to create a trust was absent. The court’s reasoning hinged on a rigorous analysis of the company’s terms and conditions. The terms explicitly permitted the platform to commingle customer funds with its own and, critically, to use those funds for its own proprietary purposes.
This contract-first doctrine was also reinforced by Singaporean courts. In Quoine (2020), the country’s Court of Appeal overturned the high court’s finding of a trust, holding that the platform’s business model—operating as a ‘market maker’, freely trading and lending pooled customer assets and expressly warning in its risk disclosure statement that assets might not be returned on bankruptcy—was fundamentally inconsistent with an intention to create a trust. Similarly, in Taylor (2025) the Singapore High Court declined to entertain the plea that the exchange operator held the assets in trust. Despite the ‘custodial asset’ language being used in the company’s terms, the court held that the customers retained both legal and beneficial title, with the digital exchange operator merely facilitating transactions on their instructions. The judgement reaffirms that mere trust labels in the exchange’s documents cannot displace a carefully drafted allocation of proprietary risk.
The classification of digital assets—as trust property or unsecured debt—is the decisive factor governing financial recovery during insolvency. For investors, this distinction dictates their standing within the rigid hierarchy of India’s Insolvency and Bankruptcy Code (IBC), 2016. The outcome hinges on whether assets fall within the corporate debtor’s ‘liquidation estate” under Section 36.
If the contract-strict view prevails, users will be classified merely as unsecured creditors, and their assets will be absorbed into the company’s general pool of assets. Consequently, under Section 53’s ‘waterfall mechanism’, these investors would stand relegated to the bottom of the distribution ladder. In the event of a crypto exchange collapse, where customer assets often represent the only remaining value, this subordination would typically result in a total loss of capital.
However, if the trust interpretation is adopted, as strongly indicated by the reasoning in the Rhutikumari and Cryptopia judgements, the trajectory of recovery changes fundamentally. Section 36(4) of the IBC specifically excludes ‘assets held in trust for any third party’ from the liquidation estate. In this scenario, the investor’s funds stand fully protected and they cannot be diluted to form part of the company’s assets.
Therefore it is clear that ‘trust’ is not a default protection but a specific legal construct that must be explicitly engineered. For investors, this creates a perilous landscape where their recovery rights hinge on the specific jurisdiction and the granular drafting of user agreements they likely never read. As the crypto insolvency wave continues, it serves as a stark reminder that in the eyes of the law, the fine print is often all that matters.
Anirudh Krishnan & Sriram Venkatavaradan | Advocates, Madras High Court
(Views are personal)