The Delhi High Court has issued notices to the Enforcement Directorate (ED) and the Financial Intelligence Unit (FIU) to determine whether it can initiate an official investigation into WazirX’s management. Additionally, the court has directed the Intelligence Fusion and Strategic Operations Unit (IFSO) of the Delhi Police to submit a status report regarding the ongoing investigation. It has classified the matter as a civil dispute.
The court was hearing a petition filed by investor Jaivir Bains where the petitioner raised allegations of financial mismanagement following the hacking incident on July 18, 2024, reports LiveBeat. In response to the hack, the company allegedly decided to merge affected and unaffected funds, distributing the losses across all users to equalise the impact and prevent any one group from bearing the brunt of the incident.
However, Bains argued that such a move unfairly penalised those whose funds had not been compromised. Bains invested INR 22 lakh in the exchange and contended that WazirX’s decision violated the company’s user agreements and was an attempt to cover up the full extent of the financial damage.
The petition detailed the gravity of the hacking event, revealing that the stolen funds had reportedly been transferred to Singapore, raising alarm about the likelihood of recovery. According to Bains, the absence of a formal investigation into the breach left investors vulnerable, as no recovery mechanisms had been established.
The investor’s attempts to withdraw funds following the hack were repeatedly denied, with WazirX citing FIU guidelines through a whistleblower, prompting further concerns about transparency.
A key allegation in the case is the involvement of high-ranking government officials in the regulatory response — or lack thereof. The petitioner claimed he had been informally told that the matter would not be pursued due to the involvement of IAS officers in the government, fuelling suspicions of political interference.
The court directed the police to investigate the allegations and decide whether external actors orchestrated the hack or whether it was a self-inflicted incident aimed at manipulating investor funds.
However, the court clarified that much of the dispute between Bians and WazirX fell under civil law, particularly regarding the alleged merging of funds and user agreement violations. The court advised Bains to seek redress in civil court to resolve contractual issues surrounding the withdrawal of funds and distribution of losses.
The petition raised broader concerns about the effectiveness of regulatory bodies such as the FIU and ED in preventing and responding to large-scale financial crime in the cryptocurrency space. While Bains urged a thorough investigation into WazirX’s practices, the court noted that such an inquiry would require substantive evidence beyond mere suspicion.
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