Source: - The Indian Express 

Introduction 

The National Consumer Disputes Redressal Commission (NCDRC) recently dismissed a class action lawsuit against cryptocurrency exchange WazirX filed by 40 individuals seeking recovery after a $233 million hack in July 2024. This ruling highlights India's regulatory challenges regarding cryptocurrencies, with significant implications for consumer protection in digital asset markets. 

What was the Background of WazirX Case and Court Observations? 

Case Background: 

• On July 18, 2024, cryptocurrency exchange WazirX suffered a security breach resulting in the unauthorized withdrawal of approximately $233 million from one of its multisignature wallets. 
• The amount stolen represented about 45% of WazirX's total digital asset holdings, with most losses occurring in Ether, the world's second-most valuable cryptocurrency after Bitcoin. 
• WazirX immediately suspended all withdrawals on its platform following the security breach, preventing users from accessing their remaining funds. 
• In September 2024, WazirX's Singapore-headquartered parent entity, Zettai Pte Ltd, filed for a moratorium against legal prosecution through Singaporean courts. 
• WazirX later attributed the attack to the North Korea-based Lazarus Group, a hacking organization known for targeting cryptocurrency platforms. 
• In October 2024, senior executives at WazirX claimed they were working with investigation agencies to recover the stolen funds and searching for a "white knight" to take over the business, including its liabilities. 
• A group of 40 affected individuals filed a class action lawsuit with the National Consumer Disputes Redressal Commission (NCDRC) on October 26, 2024, seeking recovery of damages worth close to $1 million. 
• The complainants alleged that WazirX had defrauded its customers in India and exhibited a deficiency in services by failing to implement adequate security measures. 
• WazirX subsequently promised to return 85% of all lost assets to investors through its Singapore court-approved restructuring plan and conducted eight online town halls with customers to discuss recovery efforts. 
• The company has not yet announced a definitive timeline for returning the promised funds to affected users, leaving approximately 4 million Indian customers in uncertainty. 

Court Observations: 

• The National Consumer Disputes Redressal Commission (NCDRC) dismissed the class action lawsuit on April 3, 2025, issuing a 20-page verdict explaining its decision. 
• The NCDRC noted that cryptocurrencies are neither legal tender nor permitted as investment assets in India, concluding that the primary complaint of "financial fraud" alleged against WazirX does not find legal ground in the country. 
• The Commission determined it lacked jurisdiction to adjudicate the matter because complainants had signed WazirX's terms and conditions agreeing to pursue resolutions to corporate conflicts under Singapore's law. 
• The NCDRC stated that consumer forums "may not be that well equipped to carry out investigations into the alleged breach," suggesting that either the legislature or higher courts would need to declare jurisdiction before consumer courts could hear such cases. 
• While not definitively ruling on cryptocurrency's status as "goods," the Commission acknowledged that cryptocurrencies come under the definition of goods under the Consumer Protection Act and fall under the ambit of property under the Income Tax Act. 
• The NCDRC characterized the connection between virtual digital assets and consumer services as "still in a nebulous state" and noted the lack of clear regulatory frameworks for addressing cryptocurrency disputes. 
• The Commission observed that the Reserve Bank of India "has not yet taken any responsibility" by regulating platforms like WazirX, "even though concerns have been raised about financial crisis occurring in the offing." 
• The NCDRC indicated that depending on the nature of the deception alleged, the Prevention of Money Laundering Act could potentially apply to aspects of the case. 
• The Commission did not comment on WazirX's security measures or potential liability for the breach, focusing instead on jurisdictional matters. 
• The NCDRC noted there are no specific laws to "regulate or even provide legal measures for tackling such claims" in India's current regulatory environment. 

What is the Legal Status of Cryptocurrencies in India? 

• Crypto currencies are not recognized as legal tender in India. 
• No legislation explicitly prohibits the possession or trading of cryptocurrencies in India. 
• The Reserve Bank of India (RBI) attempted to restrict cryptocurrency trading in 2018 by prohibiting regulated financial institutions from dealing with virtual currency businesses. 
• The Supreme Court struck down the RBI's 2018 notification in 2020, ruling that the blanket restriction disproportionately impacted constitutional rights under Article 19(1)(g). 
• The Supreme Court affirmed the RBI's authority to regulate virtual currencies despite invalidating its specific prohibition. 
• Cryptocurrencies are classified as "Virtual Digital Assets" (VDAs) under the Income Tax Act, 1961 and subject to a 30% tax rate since April 2022. 
• The NCDRC has acknowledged that cryptocurrencies may be considered "goods" under the Consumer Protection Act, creating partial recognition in consumer law. 
• The governance regime for cryptocurrency in India remains "nebulous" according to the NCDRC's April 2025 ruling. 
• Parliament has not passed any comprehensive legislation specifically governing cryptocurrencies and related transactions. 
• "The Cryptocurrency and Regulation of Official Digital Currency Bill" proposed in 2021 was never discussed in Parliament and has not progressed legislatively. 
• The proposed bill would have banned "private" cryptocurrencies while establishing a Central Bank Digital Currency and regulatory board. 
• Consumer protection mechanisms for cryptocurrency users remain limited, with the NCDRC ruling that consumer courts may not be equipped to handle disputes involving cryptocurrency exchanges. 
• The RBI maintains a cautious stance on cryptocurrencies, expressing concerns about their potential risks to financial stability. 
• Cryptocurrency exchanges operating in India exist in a regulatory gray area without specific oversight frameworks. 
• The lack of clear regulations creates significant challenges for consumers seeking legal remedies for losses incurred through cryptocurrency platforms. 

Is Cryptocurrency Classified as "Goods" Under Consumer Protection Law? 

• Section 2(21) of the Consumer Protection Act, 2019 (CPA) defines "goods" as "every kind of movable property." 
• The NCDRC bench reportedly stated that cryptocurrencies "come under the definition of goods under the Consumer Protection Act." 
• Cryptocurrencies fall under "the ambit of property under the Income Tax Act, 1961" according to the Commission. 
• The Commission characterized the connection between VDAs and consumer services as "still in a nebulous state." 
• This creates a paradoxical situation where cryptocurrencies may be considered "goods" but consumers lack appropriate forums for remedies. 
• The NCDRC did not definitively clarify crypto's status as a good in its ruling. 
• The Commission noted there are no laws to "regulate or even provide legal measures for tackling such claims." 
• The ruling did not address WazirX's alleged security failures that allowed the cyberattack. 
• The NCDRC did not comment on potential remedies for investor losses. 
• The ruling focused primarily on jurisdictional issues rather than substantive consumer protection concerns. 

Conclusion  

The WazirX case exposes critical gaps in India's cryptocurrency regulatory framework, leaving consumers with limited recourse in cases of exchange failures or security breaches. Despite partial recognition of cryptocurrencies as "goods" under consumer protection law, jurisdictional complexities and regulatory ambiguity create significant barriers to effective remedies. The forthcoming Supreme Court approach may establish important precedents for similar cases, potentially accelerating the development of comprehensive cryptocurrency regulations in India.