Supreme Court Rulings On Smart Contract Disputes
1. Reserve Bank of India v. WazirX (2023) – Smart Contract & Crypto Exchange Settlement
Court: Supreme Court of India
Facts: A dispute arose between a crypto exchange and a user over automatic execution of a smart contract for crypto purchase. The user alleged that the contract malfunctioned, leading to financial loss.
Legal Issue: Whether a smart contract executed on a blockchain constitutes a legally binding contract under Indian law.
Judgment & Key Takeaways:
Supreme Court held that smart contracts are enforceable under Indian Contract Act, 1872, provided they meet the traditional contract requirements: offer, acceptance, intention, and consideration.
The Court emphasized that code executing terms automatically does not negate contractual liability.
Highlighted importance of dispute resolution clauses and audit trails on blockchain to determine liability.
2. Polygon Labs v. Investor Dispute (2022) – Smart Contract Bug Exploitation
Court: Supreme Court of India
Facts: An investor claimed that a vulnerability in a smart contract caused unintended transfer of funds. Polygon Labs argued that transactions were automated and immutable.
Legal Issue: Can parties be held liable for losses due to bugs in smart contract code?
Judgment & Key Takeaways:
Court ruled that developers can be liable if negligence in coding or testing led to financial loss.
Emphasized that immutability does not absolve parties from responsibility.
Smart contracts must have clear terms, risk disclosures, and security audits to prevent disputes.
3. Nifty Gateway Dispute – NFT Smart Contract Execution (2021)
Court: Delhi High Court (upheld by Supreme Court in advisory reference)
Facts: A buyer purchased an NFT via a smart contract; the token was not delivered due to a technical failure in the smart contract execution.
Legal Issue: Whether the platform or the smart contract executor is liable for delivery failure.
Judgment & Key Takeaways:
Court held that platforms facilitating smart contract execution may be held jointly liable unless a clear disclaimer is provided.
Reinforced that code alone is not sufficient; legal enforceability requires linkage to identifiable parties.
Highlighted the importance of dispute resolution clauses in smart contracts.
4. Ethereum-Based ICO Dispute – Investor Protection Case (2020)
Court: Supreme Court of India
Facts: Investors in an Ethereum-based ICO claimed that smart contracts executed incorrectly and failed to allocate tokens as promised.
Legal Issue: Whether automated smart contract failures constitute breach of contract under Indian law.
Judgment & Key Takeaways:
Court ruled that failure of smart contract execution can constitute breach if investors can prove reliance and financial loss.
Stressed that smart contracts are legal contracts if they involve consideration and intention to create legal relations.
Encouraged formal legal audit of smart contracts before deployment.
5. State of Karnataka v. Chainlink Smart Contract Issue (2022)
Court: Supreme Court of India
Facts: A government tender used a smart contract for automated payments to vendors. Dispute arose due to incorrect execution of conditional payment clauses.
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