Legal bind for cryptocurrency investors caught in WazirX's fine print

For investors on the cryptocurrency exchange platform WazirX, retrieving funds lost in last month’s $230 million cyberattack could prove to be a tedious and costly process if they choose the legal route.

The fine print in WazirX’s user agreement limits the options available for dispute resolution.

Zanmai Labs, operating as WazirX in India, mandates in its user agreement that investors must first provide the company “an opportunity to resolve any claims by contacting them via their website, mobile, or desktop applications”.

If the firm fails to resolve disputes within 60 days of a user’s initial contact, they may seek relief through arbitration under the rules of the Singapore International Arbitration Centre (SIAC).

"...You agree to first give us an opportunity to resolve any claims by contacting us on our website / mobile / desktop applications. If we are not able to resolve your claims within 60 days of receiving the notice, you may seek relief through arbitration as set forth below," said the WazirX user agreement. 

It further says, "If we are not able to resolve your claims within 60 days of receiving the notice, you may seek relief through arbitration as set forth below. Either you or Zanmai may submit a dispute (after having made good faith efforts to resolve such dispute) for final and binding resolution by arbitration under the arbitration rules of the Singapore International Arbitration Centre (“SIAC”)."

To compound their woes, the arbitration agreement stipulates that disputes will be handled individually, eliminating the possibility of class or consolidated actions.

Legal experts believe that the costs and time required for litigation could exceed the investments of many retail investors on the platform.

“Assuming someone invested a small amount in crypto, the minimum cost to approach the SIAC would be over 7,500 SGD (Singapore dollars) individually. This includes average arbitrator fees and SIAC’s minimum administration fees of 3,800 SGD,” said Navodaya Singh Rajpurohit, legal partner at CoinQue Consulting and founder of Pravadati Legal.

He noted that beyond these costs, investors would also need to cover legal counsel fees and potentially additional expenses for the arbitration.

WazirX did not respond to Business Standard’s queries by the time of going to press.

The company serves a user base of 16 million investors.

“An individual retail investor is usually at a tremendous disadvantage in a private arbitration against a well-funded company. These arbitration agreements force each investor to fight their cases and hinder investor solidarity. While Singapore is a premier location for commercial arbitration, it is not practical or affordable for most retail investors,” said Russell A Stamets, partner at Circle of Counsels.

Experts suggest that investors might seek compensation by approaching consumer courts in India or filing a civil suit against the company. However, WazirX could contest such cases, referencing its user agreement and dispute resolution procedures.

“In a civil suit or consumer court, WazirX might object under Section 8 of the Arbitration and Conciliation Act, 1996, arguing that the dispute resolution must follow SIAC rules. This would mean that the dispute would ultimately be referred to the SIAC,” Rajpurohit added.

In a post on social media platform X, WazirX said that the firm was working with legal experts to “formulate an effective method for enabling withdrawals”.

Users have requested that the company’s founder and chief executive officer disclose the firm’s holdings in Indian rupees and provide a breakdown of the stolen crypto and the remaining assets.

Legal experts have advised users to review the terms of use before investing in unregulated sectors like crypto.

“Investing in crypto is akin to entering an alternative universe, with real-world consequences and lacking traditional investor protections. Users who accepted the risks may face losses from unforeseen risks, and the company must be held accountable for its failure to provide adequate security for investor funds,” Stamets added.

Other crypto platforms, such as CoinSwitch, have emphasised that their dispute resolution processes are governed by Indian law.

“Our terms of service are governed by the laws of the country. In the event of disputes, users are encouraged to first contact our customer support for a swift resolution. If necessary, the matter can be escalated to formal dispute resolution according to Indian law, with jurisdiction in Bengaluru,” said Balaji Srihari, business head at CoinSwitch.

CoinDCX did not respond to Business Standard’s queries about its dispute resolution processes by press time.

Tough road ahead
 

16 mn: User base of  WazirX
 

$230 mn: Money that the crypto platform lost in a cyberattack last month  
 

Cost, complex nature of litigation major legal challenges for affected customers
 

Company user agreement waives scope for class or consolidated action
 

Others crypto players say their dispute resolution processes would have India as the legal jurisdiction