Introduction: The Definitional Crisis and the Judicial Response
The prolonged legal uncertainty surrounding Virtual Digital Assets (VDAs) in India established a paradoxical regulatory model: digital assets were formally brought under the tax ambit, but their proprietary status under civil law remained undefined.
This framework created a constitutional dilemma, as the state legally extracted value through the imposition of a 30% tax on profits under Section 115BBH of the Income Tax Act, 1961 (IT Act), without granting investors the fundamental proprietary protections accorded to other taxable assets. This imbalance left millions of investors exposed to significant risk in contractual disputes, enforcement actions, and recovery procedures.
A necessary resolution to this regulatory lacuna was delivered by the Madras High Court on October 25, 2025, in the landmark judgment, Rhutikumari v. Zanmai Labs Pvt. Ltd. (2025 SCC OnLine Mad 9290). This ruling, authored by Justice N. Anand Venkatesh, became the first judicial pronouncement in the country to unequivocally classify cryptocurrency as ‘property’ under Indian law. The decision transcended the immediate need for interim relief in the case, constructing a foundational legal structure for digital assets.
The judicial intervention effectively utilized the fact that legislative recognition for taxation purposes already existed in the IT Act, providing a strong basis for civil law property classification. This principled approach ensures that fiscal legitimacy, derived from taxation, now corresponds directly with necessary proprietary protections and ownership rights.
By affirming that crypto assets are protected property, the judiciary has aligned India with global digital asset jurisprudence practiced in common law jurisdictions like the UK and Singapore, thereby bolstering institutional confidence and enhancing clarity in cross-border disputes.
The Judicial Catalyst: Rhutikumari v. Zanmai Labs Pvt. Ltd. (2025)
The classification of cryptocurrency as property arose from a dispute that required the court to secure investor holdings in the face of exchange insolvency and cybercrime. The applicant, Rhutikumari, sought protection for her XRP holdings following a 2024 cyber-attack on the WazirX exchange, operated by Zanmai Labs Pvt. Ltd.. The subsequent freezing of all user accounts and the exchange’s move to initiate a scheme of arrangement under the Singapore Companies Act, 1967 prompted the investor to seek urgent legal remedy in India.
The Core Finding: Intangible Movable Property
The critical determination made by Justice Venkatesh was that cryptocurrency, although not recognized as legal tender or a physical asset, is a distinct form of intangible movable property. The judgment explicitly states that these assets are capable of being Owned, possessed (in a beneficial form), Transferred, and Protected through proprietary injunctions.
This designation was essential for the court to grant protection under Section 9 of the Arbitration and Conciliation Act, 1996 (the Act), which empowers courts to grant interim measures for “securing the amount in dispute”. By confirming the assets as property, the court secured the underlying value, directing Zanmai Labs to either furnish a bank guarantee or deposit the disputed amount (Rs 9,56,000) in an escrow account until the SIAC arbitration proceedings concluded.
Assertion of Domestic Jurisdiction
A crucial element of the judgment was the High Court’s determination regarding jurisdiction, establishing a precedent for asset location. The court held that the crypto assets held on the Indian exchange constituted an “Asset Situated in India”. This finding was based on the fact that the applicant, an Indian resident, held and operated the assets through her mobile phone from within India’s economic territory.
This jurisdictional assertion is a significant victory for investor protection, as it limits the efficacy of foreign restructuring schemes, such as the one pursued by Zanmai Labs in Singapore, against domestic assets. The ruling ensures that Indian investors have a remedy under Indian law, irrespective of the Virtual Asset Service Provider’s (VASP) complex offshore corporate structure.
Proprietary Protection and Fiduciary Duties
The property classification operates as a proprietary shield for investors. By classifying VDAs as property held in trust, the court ensured that the investor’s claim was treated as a proprietary claim against a fiduciary, rather than a mere unsecured contractual liability against the exchange’s general assets.
This means that the exchange, in its capacity as a custodian, owes fiduciary duties to the user, thereby elevating the standard of care and prudence required in safeguarding digital assets. The ruling explicitly clarified that a financial freeze on VASP operations does not equate to a right to reallocate user holdings, confirming that digital assets are intended to be protected during exchange insolvency, similar to segregated financial assets.
Statutory Grounding and Supreme Court Precedent
The High Court drew substantial authority for its expansive definition of property from established Supreme Court judgments. Supreme Court precedents have long expanded the definition of ‘property’ to include valuable rights and interests possessing exchangeable value. Specifically, Justice Venkatesh referenced precedents such as Jilubhai Nanbhai Khachar v. State of Gujarat, AIR 1995 Supreme Court 142, which defined property broadly as “every possible interest which a person can acquire, hold, and enjoy”.
The judicial classification finds legislative support in the IT Act, 1961. The Finance Act, 2022, introduced the definition of Virtual Digital Assets under Section 2(47A), subjecting them to the specific tax regime outlined in Section 115BBH. Justice Venkatesh recognized that this fiscal acknowledgment that VDAs possess valuable and transferable characteristics further supports their status as property for general civil law purposes. The use of fiscal recognition as a substantive legal basis effectively resolves the inconsistency of taxing an asset while denying its ownership rights, providing constitutional legitimacy to the VDA framework.
The Foundation of Arbitration Law
The court’s power to issue protective orders stemmed from Section 9 of the Arbitration and Conciliation Act, 1996.The entitlement to interim protection under this section hinges upon the existence of a subject matter that requires preservation. The property classification satisfied this prerequisite, enabling the court to prevent the dissipation or redistribution of the investor’s crypto holdings pending the final resolution of the arbitration.
Contextualizing the Supreme Court’s 2020 Ruling
The 2025 decision operates as a crucial complement to the Supreme Court’s 2020 judgment in Internet and Mobile Association of India (IAMAI) v. Reserve Bank of India (RBI), AIR 2021 Supreme Court 2720. In 2020, the Supreme Court lifted the RBI’s prohibitory circular, ruling that the ban on banking relationships for crypto entities was disproportionate given the absence of explicit legislative prohibition.
While the 2020 ruling affirmed the legality of crypto trading, the 2025 ruling grants proprietary protection to the resulting assets. Thus, India’s VDA legal framework is now built upon three integrated pillars: the Supreme Court’s decision validating trade, the executive’s fiscal recognition through the IT Act, and the High Court’s definitive establishment of proprietary rights.
The Supreme Court Context and the Legislative Mandate
The Madras High Court’s 2025 judgment is a powerful signal to the legislative wing of the Indian government, demanding a definitive and comprehensive regulatory framework. The court viewed its decision as an essential response to a regulatory vacuum, actively issuing a judicial appeal for the legislature to seize the opportunity to design a comprehensive legal framework. The court stressed that India can and must create a system that encourages innovation while simultaneously protecting consumers and maintaining financial stability.
This judicial pressure mandates a fundamental shift away from the previously fragmented approach of selective taxation toward an actively regulated ecosystem commensurate with the confirmed proprietary status of VDAs.
The ruling provides immediate context to the ongoing policy discussions within the government. The Parliamentary Standing Committee on Finance included a dedicated “Study on Virtual Digital Assets (VDAs) and Way Forward” in its 2024–2025 agenda, signaling a maturing, consultative approach to regulation.
While the Ministry of Finance has reportedly maintained caution, resisting a full, comprehensive framework due to systemic risk concerns, the High Court’s decision creates an undeniable pressure point. By legally establishing VDAs as secure property, the judiciary has eliminated the policy option of a complete ban, forcing the legislative discussion entirely toward granular sectoral classification and regulation.
Despite the significant clarity in civil law, regulatory ambiguities persist in other areas. The court was explicit that cryptocurrency is not recognized as legal tender or currency. This distinction is critical as it preserves the monetary sovereignty of the RBI. Furthermore, substantial uncertainty remains regarding cross-border transactions under the Foreign Exchange Management Act, 1999 (FEMA).
Transactions involving the purchase or sale of VDAs between residents and non-residents are not yet explicitly recognized under FEMA, perpetuating ambiguity around international remittance flows and investment. The need to harmonize proprietary rights under the TPA and civil law with existing foreign exchange controls presents the next major regulatory challenge.
Conclusion: Mandating Regulatory Maturity
The Rhutikumari v. Zanmai Labs Pvt. Ltd. judgment stands as an indelible milestone in India’s digital asset jurisprudence. By unambiguously defining Virtual Digital Assets as intangible movable property, the Madras High Court has resolved the foundational proprietary uncertainty that plagued the Indian fintech sector. This decision grants investors full-fledged ownership rights, placing their holdings beyond the reach of simple contractual claims and ensuring robust protection during exchange failures or insolvency.
The ruling elevates the legal standing of VDAs, strengthens the hand of enforcement agencies like FIU-IND, and imposes mandatory fiduciary accountability on VASPs. The judicial action, building upon the Supreme Court’s 2020 decision that legalized trade, creates a durable legal foundation for India’s digital economy.
The clear signal transmitted to Parliament is that the time for cautious inaction has concluded; the judiciary has built the legal base, and the legislature must now fulfill its mandate by designing a coherent, comprehensive, and intelligent regulatory structure that acknowledges and protects the proprietary status of digital assets in alignment with global best practices.
This judicial recognition of crypto as property naturally connects to India’s emerging compliance framework for Regulating Decentralized Exchanges (DEX).
