Quick Summary: The Bombay High Court handled a complicated case involving Zanmai Labs, Bitcipher Labs, and Nextgendev Solutions. The court decided not to change a previous decision made by a group of arbitrators about a cyber-attack on the WazirX platform, which caused a big loss of cryptocurrency.
Zanmai Labs, known for the WazirX trading platform, faced a legal challenge from Bitcipher Labs and Nextgendev Solutions. The problem started after a cyber-attack on July 18, 2024, which affected crypto assets, particularly the ERC-20 tokens. This attack led to a loss of about USD 235 million.
Bitcipher Labs had deposited Rs. 5 crores with Zanmai Labs for trading on WazirX. After the attack, Zanmai Labs limited access to assets on the platform, saying the cyber-attack was an unexpected event beyond their control. This led to a disagreement over who was responsible for the security breach.
"The theft of ERC-20 assets is said to have had an impact of approximately USD ~235 million."
The group of arbitrators told Zanmai Labs to secure certain amounts through a bank guarantee. Zanmai Labs challenged this, arguing that they weren't responsible for the cyber-security aspect, which was supposedly handled by Binance.
Zanmai Labs claimed that Binance, which had acquired WazirX in 2019, was responsible for security. However, Binance distanced itself from WazirX in 2022, leaving Zanmai Labs to manage the platform. Zanmai Labs argued that the arbitrators wrongly held them accountable.
Justice Somasekhar Sundaresan looked at the agreements and found that Zanmai Labs, by taking over Binance's role, was responsible for securing the platform. The court noted that Zanmai Labs' idea to spread out the loss among users was not supported by their contract.
"The Learned Arbitral Tribunal has indeed taken into account the division of labor and the devolution of responsibilities that existed between Binance and Zanmai Labs."
The court upheld the decision made by the arbitrators, stressing that Zanmai Labs needed to secure Bitcipher Labs' assets. It pointed out that Zanmai Labs' duties under the Broker Agreement included ensuring security, despite the unexpected event clause.
"The protective measure adopted by the Learned Arbitral Tribunal, for the reasons set out above, cannot be faulted."
The court's decision highlights the importance of having clear responsibilities in contracts, especially in the unpredictable world of cryptocurrency trading.
