For those caught in last month’s $230 million cyberattack on the cryptocurrency exchange Wazirx, recovering lost funds could be a complex and costly endeavor. The fine print in Wazirx’s user agreement restricts the available options for dispute resolution, potentially placing investors in a difficult position.
Zanmai Labs, which operates as Wazirx in India, mandates that investors must first give the company a chance to resolve any claims by contacting them via their website, mobile, or desktop applications. According to the user agreement, if the firm cannot resolve disputes within 60 days, investors may then 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,” the Wazirx user agreement states.
Moreover, the arbitration agreement requires that disputes be handled individually, preventing class or consolidated actions. This could further disadvantage retail investors, as noted by legal experts.
“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,” explained Navodaya Singh Rajpurohit, legal partner at Coinque Consulting and founder of Pravadati Legal. He highlighted that investors would also need to bear legal counsel fees and possibly additional arbitration expenses.
Wazirx did not respond to Business Standard’s inquiries before the publication deadline. The company currently 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,” said Russell A Stamets, partner at Circle of Counsels. “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.”
Some experts suggest that investors might consider seeking compensation through consumer courts in India or by filing a civil suit against the company. However, Wazirx could contest such cases, referring to 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.
On the social media platform X, Wazirx stated that it was working with legal experts to “formulate an effective method for enabling withdrawals.” Users have called on the company’s founder and chief executive officer to disclose the firm’s holdings in Indian rupees and provide a breakdown of the stolen cryptocurrency and the remaining assets.
Legal experts have urged users to carefully review the terms of use before investing in unregulated sectors like cryptocurrency. “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 cryptocurrency platforms, such as Coinswitch, emphasize 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.
