Chhattisgarh HC says Economic Value of Frozen Assets must be preserved during PMLA proceedings

ANIChhattisgarh HC Mumbai: In a significant ruling that could shape the treatment of market-linked assets attached in money laundering investigations, the Chhattisgarh High Court has held that preservation of assets under the Prevention of Money Laundering Act (PMLA) includes preservation of their economic value and not merely retention of legal control over them.The judgment was delivered in a batch of petitions filed by eight companies, whose demat accounts containing listed shares and securities worth about Rs 423.6 crore were frozen by the Enforcement Directorate (ED) in February 2024 as part of its probe into the alleged Mahadev Online Book betting syndicate.Before the High Court, the petitioners, represented by advocate Vijay Aggarwal, argued that the assets consisted largely of listed equity shares whose value fluctuates daily with market conditions. They contended that prolonged freezing without any mechanism to preserve value exposed them to the risk of substantial wealth erosion.The High Court noted in its order that the petition did not challenge the legality of the freezing order or the confirmation order passed by the Adjudicating Authority. Instead, the limited issue before it was whether appropriate directions could be issued to preserve the value of market-linked assets whose worth remained vulnerable to fluctuations during the pendency of proceedings.“The object underlying attachment, seizure or freezing under the PMLA is essentially preservative in nature,” the court observed, adding that preservation of property cannot be understood merely as retention of legal title or physical custody. Where assets are intrinsically linked to market conditions, preservation necessarily includes preservation of economic worth, the court held.Live EventsThe court noted that unlike land, buildings or fixed deposits, shares and securities are dynamic financial instruments whose value may appreciate or depreciate significantly over time.

It further observed that neither the PMLA nor the Rules framed under it provide a specific mechanism for preserving the value of frozen securities after attachment.The High Court devised a framework permitting the petitioners to submit detailed proposals to the ED identifying the securities sought to be liquidated and the nature of alternative investments proposed. The ED has been authorised to obtain opinions from independent SEBI-registered investment advisers, portfolio managers or other experts before taking a decision.If satisfied that liquidation would aid preservation of value, the ED may permit sale of the securities through SEBI-registered intermediaries under its supervision. The proceeds would remain frozen, be transferred to an escrow or custodial account designated by the ED, and could only be invested in low-risk regulated instruments such as government-backed securities, debt mutual funds, liquid funds and money-market products.The court clarified that neither the original securities nor the sale proceeds would be released to the petitioners, and any income, appreciation or accretions arising from such investments would continue to remain subject to proceedings under the PMLA.According to court records, the ED had initially filed a prosecution complaint in October 2023 and a supplementary complaint in January 2024 in the case. The petitioners were not named as accused in either of those complaints.

Following searches conducted on February 28 and 29, 2024, at premises linked to Ability Games Pvt Ltd, the agency froze investments, securities, equity shares and demat accounts linked to the petitioners under Section 17(1-A) of the PMLA.Subsequently, the ED filed a second supplementary prosecution complaint and moved the Adjudicating Authority seeking retention of the frozen assets. The agency alleged that the petitioners were indirectly linked to the Mahadev Online Book betting application. On July 30, 2024, the Adjudicating Authority confirmed retention of the frozen assets. Appeals challenging that order remain pending before the PMLA Appellate Tribunal.The petitioners proposed that the frozen securities be liquidated under the supervision of the ED and the proceeds invested in safer and regulated financial products such as debt-oriented mutual funds, liquid funds, government-backed securities and other low-risk instruments.

They argued that they were not seeking release of the assets but merely protection of their economic value pending the outcome of proceedings.The ED opposed the plea, arguing that the frozen investments constituted alleged proceeds of crime and that allowing liquidation could create a risk of diversion or dissipation of assets. The agency maintained that it was empowered to retain frozen properties under the PMLA and was under no statutory obligation to function as an investment manager or take portfolio decisions aimed at enhancing value.The agency also questioned the writ petition's maintainability, pointing out that the petitioners had already availed the statutory appellate remedy before the Appellate Tribunal and that confiscation proceedings were pending before the Special Court.Rejecting the argument that liquidation would necessarily prejudice the investigation, the court noted that the petitioners had not sought release of the sale proceeds. Instead, they had proposed that the proceeds remain under the exclusive control of the ED and be invested only in regulated financial instruments.Importantly, the court held that preservation of market-linked assets cannot always mean retaining them in their original form. “Preservation of value may require conversion of one form of investment into another, provided that the corpus remains fully protected and the rights of the investigating agency are not prejudiced,” it said.The court also observed that where attached assets consist of market-linked securities and financial instruments, authorities under the PMLA may, where circumstances warrant, consider appropriate measures to preserve their economic value so that the ultimate objective of the statute is effectively achieved.Add as a Reliable and Trusted News Source Add Now! (You can now subscribe to our Economic Times WhatsApp channel) Read More News onChhattisgarh High CourtPrevention of Money Laundering Actmoney launderingeconomic value preservationfrozen assetsEnforcement DirectorateMahadev Online Book syndicateinvestment managementliquidation of securities (You can now subscribe to our Economic Times WhatsApp channel)Read More News onChhattisgarh High CourtPrevention of Money Laundering Actmoney launderingeconomic value preservationfrozen assetsEnforcement DirectorateMahadev Online Book syndicateinvestment managementliquidation of securities Prime ExclusivesInvestment IdeasStock Report PlusePaperWealth Edition123View all Stories