WazirX Faces Scrutiny Over 1100% Payment Hike To Founder's Firm

WazirX, a prominent cryptocurrency exchange, has come under intense scrutiny following the disclosure of a significant payment in its parent company, Zanmai Labs' latest annual report. The report revealed that WazirX made a payment of ₹342.28 crore in 2021-22 to Qizil21 Software Pvt Ltd, a private entity controlled by WazirX co-founder Nischal Shetty and his wife, Moujhuri Guha. This amount is an eleven-fold increase from the ₹28 crore paid to the same company in the previous year, raising questions about the exchange's governance and financial management.

The report also highlighted payments to another entity, Shibuya Labs LLP, which is also linked to Shetty and Guha. In 2020-21, Shibuya Labs received ₹35.5 crore, but this amount dropped to ₹2.14 crore the following year. Forensic accountants have noted that such dramatic fluctuations in payments to related entities often raise concerns about fund-routing strategies, especially when the beneficiary firms share common ownership.

The timing of these payments is particularly noteworthy given the ₹2,000 crore hack that occurred in July 2022. The hack drew public attention to the transactions and led to extensive scrutiny by the TooFAAN Army, a group that has been closely monitoring WazirX. Members of this group have spent months analyzing statutory disclosures, highlighting the significant sums that left user custody well before the hack. This has led to growing concerns among victims who are still awaiting restitution.

The situation became more complex following Binance's announcement in August 2022 that it had never finalized the 2019 acquisition of WazirX. This sudden reversal by Binance CEO Changpeng Zhao added layers of confusion and speculation. Nischal Shetty, who has maintained a firm stance, has asserted that he will not release funds until the dispute with Binance is resolved. The revelation of the ₹342 crore payment to a founder-owned firm has cast further doubt on the nature of the relationship between WazirX and Binance, raising questions about why such large payments were still being made if the exchange had indeed been sold.

Regulatory bodies have taken notice of these developments. The Enforcement Directorate has already frozen selected WazirX assets on two occasions, and legal experts anticipate additional summonses following the latest disclosures. Under Section 188 of the Companies Act, related-party transactions must demonstrate a clear commercial rationale. If investigators determine that the services in question lacked substance, provisions of the Prevention of Money-Laundering Act could come into play.

Investor confidence in WazirX, once bolstered by its status as India's largest crypto marketplace, has waned. Industry analysts point to a pattern of rapid growth, lax controls, and large, unexplained payments. For many traders who remain locked out of their accounts since the hack, the figure of ₹342 crore has become a symbol of the gap between promised transparency and perceived reality.

Repeated requests for comment from WazirX, Zanmai Labs, and Nischal Shetty have gone unanswered, leaving regulators, former customers, and market watchers with unanswered questions. The expanding paper trail and the lack of transparency have led to speculation about whether the exchange's biggest vulnerability was external hackers or decisions made in-house long before the breach. The situation underscores the need for greater oversight and accountability in the cryptocurrency industry, as well as the importance of clear communication and transparency in managing investor expectations.