IBC Claims for Digital Assets and Token-Based Obligations

Introduction : Increasing use of cryptocurrency and tokens with digital wallets has brought different kinds of assets in business dealings. Companies now deal in these blockchain based transactions more often. Insolvency and Bankruptcy Code from 2016 does not cover them explicitly. These assets can be pseudonymous and change value fast. They move across borders depending on private keys or custodians for access. Token holders might not qualify as creditors and the way claims are to be valued becomes uncertain. Securing and tracing such digital assets like cryptocurrency, digital tokens become difficult when they have been moved outside India. The existing framework does not deal with them explicitly. Their character of being extremely volatile stands out as another hurdle to deal with. It creates challenges how the admission of these claims are assessed, this significant gap to actually realize the value of assets makes the issue complex.

Legal Provisions

The Insolvency and Bankruptcy Code, 2016

Section 18(1)(f) requires resolution professionals to take control and custody of the assets of the corporate debtor. It deals with assets relevant to securing cryptocurrency, digital wallets, private keys and assets held through exchanges or custodians. 

Section 36 deals with liquidation of estate, it is relevant to determine whether digital assets belonging to corporate debtors can form part of liquidation estate and subsequently be realised for the benefit of creditors.

Sections 234-235 comes into play where digital assets are held through foreign exchanges, custodians or other entities outside India. These sections provide mechanisms to deal with an asset involving foreign jurisdictions, making them relevant for cross border enforcement problems of digital assets.

Legal Analysis

Whether Digital Assets and Token-Based Obligations Are Recognised Under the IBC

The question of digital assets under the insolvency code comes down to whether cryptocurrency and tokens fit into the existing ideas of property or assets. The rules do not set up any special category for them so it is unclear if they count when a corporate debtor is involved. It seems the broad wording might still pull them in if they have economic value even in digital form. That would mean the resolution professional could control them as part of the estate. Token holders raise a separate point though. A token can stand for access to something or maybe a repayment consideration and that changes everything. It decides if there is a real claim or debt. Some holders might end up as financial creditors while others would not and it is not always straightforward. This part gets complicated without looking at each case.

Whether the Existing IBC Framework Can Accommodate Digital Assets and Token-Based Obligations

A difficulty arises in determining whether a digital asset legally belongs to the corporate debtor and can therefore form parts of the insolvency estate. Cryptocurrency and tokens are held through personal wallets, exchanges or custodians, while access is dependent on private keys. This may create difficulties for resolution professionals in identifying, securing and taking control of such assets, where private keys are withheld, lost or held by directors, employees or third parties. Digital assets create difficulties in tracing transactions and establishing claims, when assets move across multiple wallets or platforms. Blockchain records transactions, they do not establish the legal identity of the custodian or ownership obligation of the corporate debtor.  Where such assets form part of the insolvency estate, it remains necessary to determine whether they should be retained, transferred under a resolution plan or converted into physical currency. Uncertainty arises where a token represents a technological or contractual right that cannot be transferred readily.

Problems in Accommodating Digital Assets and Token-Based Obligations Under the Existing IBC Framework

Difficulty concerns the custody and control of digital assets forming part of a corporate debtor’s estate. Cryptocurrencies and tokens are digital currencies held through private wallets, cryptocurrency exchange, custodians or other intermediaries. Once insolvency proceedings commence, resolution professionals must identify and secure the assets, but the existing IBC framework does not provide a mechanism for taking custody of such digital assets. Such problems create uncertainty for resolution professionals to take control of the asset and prevent their transfer during insolvency proceedings.

Private keys further become a challenge because possession of cryptographic keys are essential to access and transfer a digital asset. When the cryptographic keys are held by corporate debtor’s directors, employees or third-party custodians, the resolution professional faces difficulties to exercise effective control over the asset and obtain them. Concealment, unauthorised transfer of private key or loss would ultimately prevent recovery of an asset forming part of insolvency estate. IBC does not address such technological problems.

Tracing digital assets presents another problem where assets have been transferred through multiple blockchain addresses, wallets or exchanges before commencement of insolvency proceedings. Blockchain may leave a permanent transaction record, identifying the person or entity controlling a private wallet is not straightforward. Digital assets may also be transferred across jurisdiction or converted into different tokens. 

Extreme volatility of digital assets creates a distinct problem in determining the value of claims and assets during insolvency proceedings. When a creditor’s claim is denominated in cryptocurrency or linked to the value of a token, its monetary value may fluctuate between the date of default, insolvency commencement, claim verification and eventual distribution. Absence of digital asset specific valuation methodology under the IBC raises the questions of which date should determine value of such claim, and whether subsequent fluctuations should affect creditor’s entitlement.

Digital assets are inherently borderless and may be held, transferred or traded across multiple jurisdictions without being physically located in any particular country. A corporate debtor’s cryptocurrency may be maintained through foreign exchange or custodian, while its creditors and insolvency proceedings are taking place in India. This raises questions regarding the jurisdiction over the asset, recognition of foreign insolvency proceedings, cooperation between insolvency authorities, recovery of digital assets located outside India. The existing cross border framework under IBC, faces practical challenges dealing with decentralised assets and foreign digital asset Intermediaries. The borderless nature of such assets consequently exposes a significant gap between territorial operation of insolvency law and global accessibility of blockchain-based assets.

Practical Implications

The Need for a Specific Insolvency Framework for Digital Assets

Absence of a specific framework for digital assets creates uncertainty for resolution professionals and liquidators in identifying, securing, valuing and realising such assets. Clear provisions and rules would be required on disclosure of digital asset holdings, access to wallets and private keys, appointment of specialized custodians or valuers, tracing of digital assets during liquidation. Without such mechanism, valuable assets may remain inaccessible, be dissipated before recovery or be incorrectly valued, potentially affecting the overall value.

Specific rules are necessary to provide certainty to creditors and resolution applicants. A defined framework for determining when token holders qualify as creditors, how digital asset claims are valued, and how such claims participate in the insolvency process would reduce disputes during claim admission and distribution. Similarly, resolution applicants would require clarity regarding the ownership, transferability, encumbrances and valuation of digital assets before incorporating them into a resolution plan. This would make the insolvency process more predictable and reduce transaction costs.

Framework must address the cross border and technological nature of digital assets. Mechanisms for cooperation with foreign exchange, custodians and insolvency authorities would be necessary where assets or their controllers are located in India. Specific obligations concerning blockchain records, wallet addresses, private keys and tracing of transactions. 

Relevant Case Laws

In Rhutikumari v. Zanmai Labs Pvt. Ltd., it directly talks about the core systematic vulnerabilities regarding the custody, asset tracing, and cross- border enforcement issues. Addressing the nature of digital value, the judgment highlighted that digital currencies replace institutional trust with technology, creating challenges for judiciary to deal with them as they are intangible assets bound to private keys and borderless blockchains rather than physical jurisdictions. The court formally addressed the ownership ambiguity by holding that cryptocurrency constitutes “property” capable of beneficial enjoyment and being held on trust. Exchanges hold these virtual digital assets in fiduciary capacity, meaning operational losses or hacks on separate token wallets cannot be unilaterally used to erode or “socialize” unaffected user holdings.

The judicial recognition exposes a major gap between standard corporate asset management and practical reality of insolvency proceedings. Crypto assets in India operate through split structure, fiat transactions are handled locally, but digital token custody remains locked with offshore entities, creating complex cross border friction. During insolvency the resolution professional faces hurdles to take control of the assets. Where courts globally struggle to enforce governance, trace private key access, and prevent offshore dissipation without clear statutory mechanism. Analysis of the court in this judgment highlights that Indian jurisprudence recognizes crypto currency as recoverable property held in trust, the IBC framework still lacks the technological mechanism to deal with, cross border regulations, and specialized custody rules to realize, value, distribute these assets effectively.

Conclusion

Increasing use of such cryptocurrencies, tokens, and blockchain based assets raises several issues that are not dealt with by the IBC framework explicitly. While the framework deals with concepts like “claims”, “debt”, “assets” and “property” may provide basis to recognize them but digital assets, token-based obligations remain a challenge. Difficulties relating to ownership, custody, private keys, tracing, valuation, creditor classification and cross-border recovery can hinder their administration during insolvency. The existing framework does not adequately address the distinctive character of digital assets. Need for a specialised framework becomes necessary for identification, preservation, valuation, realisation and distribution, also addressing cross-border enforcement. Clear rules and regulations would provide much more clarity to the resolution professional to deal with such assets.

Author: Shrunkhal Dhopte 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

Endnotes

1. Insolvency and Bankruptcy Code 2016, s 18(1)(f).

2. Insolvency and Bankruptcy Code 2016, s 36.

3. Insolvency and Bankruptcy Code 2016, s 234.

4. Insolvency and Bankruptcy Code 2016, s 235.

5. 2025 SCC OnLine Mad 9290

6. Bhonsle, T., & Mishra, A. (2024). Cryptocurrencies Decrypted: Deciphering the Riddle of Insolvency Laws and Crafting a Regulatory Tapestry. RGNUL Student Rsch. Rev., 10, 52.

7. Kumari, P. (2026). Cryptocurrency Regulation in India: Legal Uncertainty, Financial Stability, and Digital Sovereignty. Minnesota Journal of Business Law and Entrepreneurship, (1), 1466-1476.

8. Desikan, S. H. (2022). Critical Analysis of the Position of Virtual Currency under IBC. Issue 2 Indian JL & Legal Rsch., 4, 1.