Customer Wallets In Insolvency : Who Own The Money When The Platform Fails?

Introduction : Digital platforms have fundamentally changed the way consumers pay for goods and services. A customer could top up a wallet on the platform, purchase a prepaid credit, pay in advance for travel, or receive a refund or gift voucher. Such vouchers and credits could sometimes take the form of store deposits or balances.

While these are relatively straightforward in the case of a solvent platform, the position can sometimes be less clear if the platform becomes insolvent. A customer walking away from a ₹5,000 balance in a wallet might reasonably assume that the money is “theirs”. The critical question from the perspective of the corporate debtor is whether the customer holds an entitlement to a fund on a proprietary basis or merely a contractual right to receive money or services from the company.

This is not an inconsequential point, given the relevance of the Insolvency and Bankruptcy Code, 2016 (“IBC”) in the matter. If the customer holds a mere contractual right to receive money or services from the corporate debtor, he would need to be treated as a financial creditor. On the other hand, if the customer can demonstrate that the money belongs to him on a proprietary basis, the situation could be entirely different. Indian law does not provide a blanket solution or a universal test for any of the scenarios described commercially as a wallet. Instead, the nature of the underlying right, if any, and the applicable regulatory framework, if any, must be explored in each case.

In this regard, the recent judgment of Telecom Regulatory Authority v. Reliance Telecom Ltd is particularly pertinent as it examines the position of unspent subscriber balances in the context of a company’s insolvency. The discussion is especially relevant to prepaid balances, where a separate proprietary interest is not evident.

Legal Provisions

Insolvency and Bankruptcy Code, 2016

The IBC, as the primary legislation governing the subject of insolvency in India, is foundational to the discussion. It is relevant to first examine Section 3(6) and Section 3(11), which define the expression “claim” and “debt”, respectively. Additionally, Sections 5(20) and 5(21) of the IBC are pertinent to the discussion of a customer’s right to receive services or money in an operational capacity.

The distinction between a financial and an operational creditor can be particularly material in the case of a customer who has made an advance payment for goods or services that remains unpaid.

In Consolidated Construction Consortium Ltd v. Hitro Energy Solutions Pvt Ltd, the Supreme Court affirmed the expansive interpretation of operational debt while construing the expression. In particular, the Court examined advances made by the plaintiff with a view to receiving goods or services and concluded that such advances could constitute operational debt under Section 3(11) of the IBC. It follows that the mere fact that a customer has made an advance payment does not necessarily make him a financial creditor.

The discussion in Consolidated Construction is further supplemented by Punj Lloyd Aviation Ltd v. Chipsan Aviation Pvt Ltd, where the Supreme Court examined the nature of an advance payment for services rendered. The NCLAT had concluded that the advance payment constituted operational debt, but the Supreme Court remanded the matter for further consideration on other grounds. In particular, the Court flagged the relevance of Section 5(21) of the IBC in determining whether an advance payment for aviation services could constitute operational debt. Once again, it appears that the mere fact that a customer has made an advance payment does not automatically render him a financial creditor. On the contrary, a closer examination of the terms of the underlying transaction is required to determine whether the transaction falls within the definition of operational debt.

Finally, Section 18 of the IBC is relevant to the extent that it examines the position of a resolution professional who takes possession and control of the property of the corporate debtor. It must be noted that not all property in possession of the corporate debtor automatically constitutes its property. The same applies to a customer’s proprietary rights in the wallet balance. In particular, it is relevant to bear in mind Section 36 and 53 of the IBC, which govern the liquidation estate and its distribution, respectively. Simply put, the waterfall distribution under Section 53 of the IBC must not automatically apply to every dispute over a customer wallet balance. On the contrary, liquidation professionals must be aware that the customer could hold a proprietary interest in the funds, which would affect his position in the liquidation estate. With this background, it is important to determine whether the customer’s position against the corporate debtor is that of a mere unsecured creditor or a proprietor in the funds.

It is also relevant to bear in mind that the IBC, in Section 238, states that, in the event of inconsistency between the IBC and any other law, the provisions of the IBC shall prevail.

Payment and Settlement Systems Act, 2007

The Payment and Settlement Systems Act (“PSS Act”), 2007 is the designated legislation that governs payment systems in India. In particular, Section 23A of the PSS Act, which deals with directions to system providers, is relevant to the discussion.

In brief, the Reserve Bank of India (“RBI”) can, under certain conditions, require a system provider of a ‘designated payment system’ to “hold funds of the clearing members or the participants or the account holders in separate accounts or in the form of liquid instruments with the system provider”. By way of exception, Section 23A(3) of the PSS Act provides that any person ‘entitled to receive payment’ holds a “first and paramount charge” over the aforesaid balance. This charge is expressly ‘notwithstanding anything’ contained in the IBC and other laws.

Plainly, this provision can have profound implications for the position of funds in a clearing system. To reiterate, the expression “any person entitled to receive payment” is wide, and, by virtue of the aforesaid provision, such a person is entitled to a first and paramount charge over the relevant balance. While the express language of the PSS Act must be respected, it is also important to remember that Section 23A of the PSS Act cannot simply apply to every transaction described commercially as a wallet. On the contrary, it is the nature of the underlying transaction, as well as the PSS Act and the RBI’s regulatory framework, that must be examined in each case.

RBI Prepaid Payment Instruments Framework

The RBI regulates certain Prepaid Payment Instruments (“PPIs”), which are essentially a form of prepaid wallets. The current framework governing PPIs is captured in the RBI’s Master Directions on Prepaid Payment Instruments, 2021, as amended on December 27, 2024.

The aforesaid directions classify PPIs into closed-system and open-system PPIs. A closed-system PPI is issued by an entity for the purchase of goods/services from that entity and cannot be used for cash withdrawal or to make payments to other entities.

The aforesaid distinction is critical to the extent that a “closed-system” PPI cannot be redeemed for cash. On the contrary, the PPI can only be used to obtain goods or services from the issuer. It follows that a digital wallet platform that describes its in-platform store-credit as a “closed-system wallet” cannot simply treat it as a PPI merely on the basis of commercial terminology.

The Payment Aggregator Directions, 2025 issued by the RBI also contain an important escrow-related framework that is relevant to the discussion.

Legal Analysis

Customer Wallets as Ordinary Claims

The simplest analysis of a transaction under a digital wallet is that the customer holds a mere contractual right to obtain services or goods from the platform. In other words, the mere fact that the money is in the customer’s wallet does not make it his property.

A customer who deposits ₹5,000 into the platform’s wallet cannot necessarily claim that this money belongs to him merely on the basis that it is in his wallet. To the contrary, if the terms of the agreement so state, he could be treated as a proprietor in the goods or services under the platform’s control. The discussion in Consolidated Construction appears particularly relevant to such a scenario. In particular, the analysis conducted by the Supreme Court in Consolidated Construction suggests that it is necessary to determine whether the money paid by the customer falls under the definition of operational debt before classifying the customer as a financial creditor.

This view is supported by Punj Lloyd Aviation Ltd v. Chipsan Aviation Pvt Ltd, where the Supreme Court examined the position of an advance payment for services rendered. The aforesaid Court concluded that the mere fact that a customer has made an advance payment does not necessarily make him a financial creditor. In fact, the Court found that an advance payment of this nature could fall under the definition of operational debt under Section 5(21) of the IBC.

The Importance of TRAI v. Reliance Telecom

The most relevant case to the discussion of customer balances is Telecom Regulatory Authority v. Reliance Telecom Ltd decided by the National Company Law Appellate Tribunal (“NCLAT”) on November 6, 2024.

In brief, the matter concerns the unspent subscriber balances and refundable deposits in the context of Reliance Telecom’s insolvency. The Telecom Regulatory Authority of India (“TRAI”) argued that the beneficial interest in the unspent subscriber balances belonged to the subscribers by virtue of a trust or contract and should, therefore, not be treated as part of the insolvent estate of Reliance Telecom. On the other hand, the resolution professional argued that no trust account had been created and that the unspent subscriber balances formed part of the insolvent estate of the corporate debtor.

The NCLAT examined the submissions in detail before concluding that TRAI had failed to demonstrate that the unspent subscriber balances in the hands of Reliance Telecom were trust property. While the NCLAT agreed with the resolution professional that no trust account had been created, it concluded that the unspent subscriber balances formed part of the operational liabilities of Reliance Telecom.

The aforesaid case is particularly relevant to the discussion of customer wallets in the context of insolvency. In particular, it reinforces the view that the mere fact that money belongs to a customer does not necessarily make it his property. On the contrary, the nature of the transaction, and particularly the degree to which it meets the definition of operational debt, must be examined in each case. It is also important to determine whether the corporate debtor has received the consideration in trust or whether it can be treated as its own property.

That said, the TRAI v. Reliance Telecom decision should not be treated as a universally applicable rule. In particular, telecom subscriber balances belong to a particular statutory and regulatory framework that is different from that which applies to most other digital platforms. On the contrary, a company holding funds in a separate escrow account or a separate statutory framework may offer materially different protections to its customers.

When Can a Customer Claim Proprietary Ownership?

The analysis conducted in TRAI v. Reliance Telecom suggests that a customer is unlikely to succeed in his claim of proprietary ownership over a corporate debtor’s funds unless he can demonstrate that the funds are held on trust in a separate account or subject to specific statutory escrow requirements. In particular, as noted in the aforesaid decision, the mere fact that the money is held in a subscriber wallet on a day-to-day basis is not sufficient to establish proprietary ownership.

That said, the value of such a proprietary claim for the customer cannot be understated. In particular, a customer who can demonstrate a proprietary interest in the funds would not be treated as an unsecured financial creditor. Instead, the customer would be entitled to a preferential claim against the funds, which would have implications for his position in the liquidation or resolution process.

To elaborate, the value of the customer’s entitlement would depend on the nature and terms of the underlying transaction. In particular, the following factors should be examined:

• Whether the funds are held in a separate escrow account in the name of the customer;

• Whether the statutory framework requires the funds to be held in a separate account;

• Whether the funds are subject to any trust or proprietary claim;

• Whether the customer is using the funds in accordance with the terms of the agreement.

As noted in TRAI v. Reliance Telecom, the failure to segregate funds or the use of customer funds for the corporate debtor’s benefit could be a decisive factor in determining the entitlement of the customer.

Escrow and Statutory Protection

There are situations in which Parliament or the RBI have mandated that certain funds be separated to protect the customers. In particular, Section 23A of the PSS Act, as discussed earlier, provides that any person “entitled to receive payment” holds a first and paramount charge over the relevant balance. This charge is expressly “notwithstanding anything” contained in the IBC or other laws.

In particular, the Delhi High Court in Lotus Pay Solutions Pvt Ltd v Union of India examined the relevant RBI directions applicable to payment aggregators and the impact of Section 23A of the PSS Act on the entitlement of the customer. In brief, the aforesaid decision is useful in understanding the implications of escrow arrangements and customer deposits in the context of insolvency.

The aforesaid decision also demonstrates why a customer who has made a payment to a platform in the ordinary course of business cannot necessarily rely on the provisions of the PSS Act to protect his entitlement. On the contrary, it is the nature of the relationship between the customer and the platform that is relevant to the discussion. To put it another way, a customer payment to a payment aggregator received in the ordinary course of business cannot be treated in the same way as a customer payment received by a payment aggregator in accordance with the express instructions of the RBI.

Case Laws

Consolidated Construction Consortium Ltd v Hitro Energy Solutions Pvt Ltd : This Supreme Court decision, reported at (2022) 7 SCC 164, examines the position of advances made by a company with a view to obtaining goods or services. The decision is relevant to the discussion of a customer’s right to receive goods or services in the context of a digital wallet.

Punj Lloyd Aviation Ltd v Chipsan Aviation Pvt Ltd : This Supreme Court decision examines the position of an advance payment for airline services that were not rendered. This decision is useful insofar as it examines the position of a customer’s advance payment and considers whether it qualifies as operational debt.

Lotus Pay Solutions Pvt Ltd v Union of India : This Delhi High Court decision examines the regulatory framework applicable to payment aggregators. In particular, the aforesaid decision considers the rights of a customer in the context of a payment aggregator’s escrow account. This decision is particularly useful in the context of determining the position of a customer under a payment aggregator.

Telecom Regulatory Authority of India v Reliance Telecom Ltd : This is the most relevant decision insofar as it examines the position of unspent subscriber balances in the context of a telecom company’s insolvency. The aforesaid decision highlights the position of unspent subscriber balances and examines whether they qualify as trust funds in respect of which a separate entitlement in favour of the subscriber exists.

Corob India Pvt Ltd v Birendra Kumar Agrawal : This NCLAT decision concerns the entitlement of a customer in respect of a security deposit. The decision can be useful in determining whether a particular deposit in favour of a platform qualifies as a trust, which would affect the entitlement of the customer.

Enmas India Pvt Ltd v Sabash Engineering (Chennai) Pvt Ltd : This NCLT Chennai decision considers the position of advances in respect of engineering services. The decision, delivered on April 28, 2026, can be useful in the context of determining whether such advances would be considered operational debt. While the decision is not binding on higher courts, it should nevertheless be considered as supporting authority.

Practical Implications

For Customers

In light of the aforesaid discussion, it is important for a customer to determine the position of his entitlement to a wallet balance, refundable deposit, or any other store-credit against a corporate debtor. In particular, the customer should ensure that he possesses evidence of the following:

• Statements or proof of money in the wallet;

• Payment records;

• Invoices, including proof of booking or other services rendered;

• Refund statements, if any.

In addition, it is important for the customer to determine the applicability of the aforesaid laws to his case. In particular, a regulated PPI or a statutory escrow arrangement should not be treated as ordinary store-credit.

While it is natural for a consumer to believe that his entitlement would be prioritised in the event of the platform’s insolvency, it is important for the consumer to understand that a consumer’s status as a consumer does not necessarily grant him priority over other creditors.

For Digital Platforms

As noted in the aforesaid discussion, it is critical for a digital platform to determine the nature of a customer’s entitlement. In particular, the platform must ensure that it complies with all applicable legal and regulatory requirements, including any escrow or segregation requirements.

It is also important for the platform to maintain proper records in respect of the customer’s entitlement. This can help establish the position of the customer in the event that the platform enters insolvency proceedings. Clear contractual terms can further help determine whether a balance represents a right to obtain goods or services, a right to repayment, or funds subject to a separate regulatory arrangement.

For Resolution Professionals and Liquidators

For resolution professionals and liquidators, the first step should be to identify the legal character of the customer’s entitlement before applying the insolvency distribution mechanism. The relevant contractual terms, the purpose of the payment, the applicable regulatory framework, and any escrow or segregation arrangements should be examined.

The existence of a customer wallet should therefore not, by itself, result in all balances being treated in an identical manner. Where a customer asserts a proprietary interest, the basis for that assertion and the treatment of the relevant funds should be examined before concluding that the amount forms part of the general pool of assets available to creditors.

Recent Developments

The regulatory framework surrounding customer-held funds continues to develop. The RBI’s Payment Aggregators Directions, 2025 provide a consolidated framework for payment aggregators and their escrow arrangements. This development is relevant because the protection of customer-related funds may depend upon the capacity in which the platform receives and holds those funds.

The insolvency framework has also undergone amendments in 2026. Consequently, any assessment of customer claims during liquidation should be made with reference to the current IBC and the latest IBBI regulations rather than relying solely on older commentary.

The RBI also issued draft directions relating to Prepaid Payment Instruments in 2026. Since these were issued as draft directions, they should not be treated as final operative law unless and until they are formally notified in that form.

These developments demonstrate the increasing overlap between insolvency law and financial regulation. As digital platforms continue to use prepaid balances and other forms of stored customer value, the classification of such balances is likely to remain an important issue.

Conclusion

The insolvency treatment of customer wallets in India cannot be determined simply by asking whether a company calls an arrangement a “wallet”.

The more important questions are why the customer paid the money, what contractual right arose from that payment, whether the amount constitutes operational debt, whether statutory segregation or escrow applies, and whether the customer can establish a proprietary interest in identifiable funds.

The existing jurisprudence indicates that prepaid balances can become claims against the corporate debtor where the underlying arrangement does not establish a separate proprietary interest. Telecom Regulatory Authority of India v. Reliance Telecom Ltd provides an especially relevant illustration, while Consolidated Construction Consortium Ltd v. Hitro Energy Solutions Pvt Ltd and Punj Lloyd Aviation Ltd v. Chipsan Aviation Pvt Ltd demonstrate the importance of examining advances through the concept of operational debt.

At the same time, Section 23A of the Payment and Settlement Systems Act, 2007 demonstrates that certain regulated customer funds can receive specific statutory protection. This makes it important to distinguish ordinary platform wallets from regulated payment arrangements and escrow-backed funds.

Ultimately, the Indian position is better understood as one of classification rather than a universal “wallet rule”. The same commercial label may conceal very different legal structures. As digital commerce continues to expand, clearer treatment of customer-held value in insolvency could provide greater certainty to customers, businesses and insolvency professionals alike.

Author: Raghav Sharma in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney

References

1. Insolvency and Bankruptcy Code 2016.

2. Payment and Settlement Systems Act 2007.

3. Reserve Bank of India, Master Directions on Prepaid Payment Instruments, 2021, updated December 27, 2024.

4. Reserve Bank of India, Regulation of Payment Aggregators Directions, 2025.

5. Consolidated Construction Consortium Ltd v Hitro Energy Solutions Pvt Ltd (2022) 7 SCC 164; 2022 INSC 150.

6. Punj Lloyd Aviation Ltd v Chipsan Aviation Pvt Ltd, Civil Appeal No 306 of 2023 (SC, January 27, 2023).

7. Lotus Pay Solutions Pvt Ltd v Union of India, W.P.(C) 8215/2020 (Delhi HC, September 15, 2022).

8. Telecom Regulatory Authority of India v Reliance Telecom Ltd, Company Appeal (AT) (Insolvency) Nos 273 and 355 of 2024 (NCLAT, November 6, 2024); 2024 SCC OnLine NCLAT 1264.

9. Corob India Pvt Ltd v Birendra Kumar Agrawal, Company Appeal (AT) (Insolvency) No 749 of 2024 (NCLAT, November 8, 2024).

10. Enmas India Pvt Ltd v Sabash Engineering (Chennai) Pvt Ltd, CP(IB)/271(CHE)/2024 (NCLT Chennai, April 28, 2026).