Petition against WazirX forces them to restore user portfolios post hack

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As a seasoned analyst with over two decades of experience in the financial and tech sectors, I’ve seen my fair share of ups and downs in the digital asset space. The recent turn of events at WazirX, India’s largest crypto exchange, has left me somewhat skeptical but cautiously optimistic.

Following the significant WazirX crypto hack, the exchange declared on Thursday that they will reinstate the balances for all accounts and reverse transactions made on their platform since the halt of withdrawal services. This decision was announced amidst a legal petition lodged against them at an Indian tribunal court.

WazirX described the resumption of withdrawals as “limited” due to feedback from many users, which necessitated this action.

Notification: We’re Actively Responding to Your Feedback!

— WazirX: India Ka Bitcoin Exchange (@WazirXIndia) August 8, 2024

Nevertheless, some critics argue that the move by WazirX may have been prompted due to a fraud allegation made against its parent company, Zanmai Labs, and its leaders. This accusation was presented in a petition to the National Company Law Tribunal (NCLT) on August 5.

Summary of Fraud Petition Against WazirX & Its Founder

A fraudulent complaint has been lodged against WazirX, India’s leading cryptocurrency exchange, at the National Company Law Tribunal (NCLT) in Indore, following an alleged theft of approximately $230 million worth of cryptocurrencies. This petition was submitted by Gauransh Vyas, a law student from Indore, on August 5, 2024. His LinkedIn profile reveals that he is currently interning with the Supreme Court of India.

A fraudulent petition was submitted to the National Company Law Tribunal (NCLT) against Zanmai Labs, the parent company of Wazirx, and its founders on August 5th. The Ministries of Home Affairs, Finance, and Corporate Affairs were listed as respondents in this case.

— Crypto India (@CryptooIndia) August 8, 2024

In this case, the plea calls upon Sections 213(b) and 221 of the Companies Act, 2013, which enable an examination into the company’s activities when there are indications of mismanagement or fraud. Additionally, these sections authorize the temporary freezing of the company’s assets while the investigation is ongoing. The individuals mentioned in the petition as respondents are:

  • Zanmai Labs Private Limited,
  • Gauransh Vyas,
  • Liminal Custody Through Its Director Mahin Gupta 
  • First Answer India Technologies Private Limited 
  • Codigami Technologies Private Limited
  • Crowdfire India Private Limited
  • Shibuya Labs Llp
  • Qizil21 Softwares Private Limited 
  • Frabaer Labs Private Limited, Sameer Hanuman Mhatre 
  • Nischal Shetty
  • Ministry Of Home Affairs Through Principal Secretary 
  • Ministry Of Finance Through Principal Secretary 
  • Tushar Laljibhai Patel and Muthuswamy Nagarajan Iyer 
  • Ministry Of Corporate Affairs Through Principal Secretary
  • Serious Fraud Investigation Office

WazirX has confirmed receiving the petition and is pursuing appropriate legal measures, stressing that no fraudulent actions have occurred. They’ve also submitted a police report concerning the security breach and are working closely with authorities to conduct an in-depth investigation.

A representative from WazirX responded to the inquiry about the issue, stating, “We acknowledge the petition lodged against us at the National Company Law Tribunal, Indore. We’re actively addressing this matter through appropriate legal channels. We firmly refute all accusations of fraud.”

The representative explained that we’ll act according to the legal guidelines for the given situation in front of the National Company Law Tribunal (NCLT), and it will be their role to evaluate the merit of our case based on its legal standing.

WazirX Announces Balances Restored, Withdrawals Still Closed

On August 8th, WazirX disclosed significant changes to address ongoing platform problems following the cyber-attack on July 18th, 2024. To respond to user input and maintain fairness across the board, WazirX has chosen to reinstate all account balances and reverse any trades executed on their platform after 1 PM (Indian Standard Time) on July 18th, 2024.

To clarify, many individuals misunderstood this as the restart of the withdrawal process. However, let me stress that withdrawals have not resumed yet. This restoration is not about reopening withdrawals; rather, it’s part of an ongoing process where trading and withdrawals continue to be temporarily suspended.

Here are the Key Points of the Announcement:

  • Balance Restoration: All users’ portfolio balances on the WazirX platform will be restored to what they were at 1 PM IST on July 18, 2024. This process will be completed over the next few days, and affected users will receive an email notification detailing any affected trades.
  • Trade Reversal: All trades executed after the specified time will be undone, and any associated fees and referrals will be reversed.
  • Impact on Transactions: All ongoing or pending transactions will be cancelled, and portfolios will be restored to their status as of July 18, 2024, 1 PM IST. This applies to both INR and crypto balances. Also, TDS linked with the affected trades will be credited back to affected users.

In my analysis, I didn’t find a particular date stated in the announcement regarding the implementation of this clause. Rest assured, users will receive an email notification once the restoration process is underway. For reference, you can check the status of your affected trades on the WazirX platform.

Final Words 

After WazirX reported a cyber attack on their multisig wallet, the Delhi Police quickly responded by filing an official complaint on August 5, 2024, at the Special Cell and Lodhi Colony police station in New Delhi. This swift action was supported by the Intelligence Fusion & Strategic Operations (IFSO) unit of the Delhi Police.

In response to escalating user discontent, it’s essential that the developers of WazirX uphold openness and collaborate diligently to restore users’ assets.

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2024-08-09 05:40