Chhattisgarh High Court ruled that freezing assets under PMLA isn’t enough; their economic value must be protected. The order was on a plea by firms in the Mahadev app case whose shares worth ₹423 crore were frozen by the ED.
In an important judgment on protecting the value of frozen investments, the Chhattisgarh High Court has said that freezing an asset is not enough, its financial value must also be protected while legal proceedings remain pending.
Petitioners Challenge Asset Freeze
The ruling came in a petition filed by eight companies whose DEMAT accounts containing shares and securities worth more than ₹423 crore were frozen by the Enforcement Directorate (ED) during its investigation into the alleged Mahadev Online Book money laundering case.
Justice Ravindra Kumar Agrawal observed that where the property under restraint consists of listed shares and market-linked securities, preservation cannot be understood merely as retaining legal control over the asset. Since the value of such investments is directly affected by market conditions, preserving the asset necessarily includes preserving its economic worth.
The petitioners challenged the continued freezing of their investments on the ground that the securities remained exposed to market volatility and could suffer substantial erosion in value during the pendency of proceedings under the Prevention of Money Laundering Act, 2002 (PMLA).
According to the record, the ED froze the DEMAT accounts and investment portfolios of the eight companies in February 2024. The freezing action was later confirmed by the Adjudicating Authority under the PMLA. The companies have already challenged those orders before the Appellate Tribunal, where the proceedings are pending.
Arguments and Counter-Arguments
Appearing for the petitioners, Advocate Vijay Agrawal, along with Advocate Ashish Mittal, argued that the objective of attachment or freezing under the PMLA is preservation of property and not allowing its value to diminish. He submitted that while the assets remained under the control of the authorities, there was no mechanism in place to protect their value against adverse market movements. It was argued that the shares could be liquidated under the supervision of the ED and the proceeds invested in regulated financial instruments such as SEBI-approved mutual funds or alternative investment funds, without restoring possession or control to the petitioners.
The ED opposed the plea, contending that the frozen investments constituted alleged proceeds of crime and that permitting liquidation or reinvestment could jeopardize the statutory scheme of the PMLA. The agency also argued that the petitioners had already availed the statutory appellate remedy and therefore the writ petition was not maintainable.
Court’s Stance on Preserving Value
The High Court, however, clarified that it was not deciding the legality of the freezing order or examining whether the assets constituted proceeds of crime. Those questions, the Court noted, were already pending before the Appellate Tribunal and the Special Court under the PMLA. The issue before the Court was limited to preservation of the value of the frozen assets.
The Court emphasized that shares and securities differ fundamentally from static assets such as land, buildings or fixed deposits because their value fluctuates daily. It observed that an asset frozen for years may lose a substantial portion of its value, thereby undermining the very objective behind the freezing order.
Justice Agrawal noted that while the PMLA and the relevant Rules provide a mechanism for taking possession and retaining control over shares and securities, they do not provide any specific mechanism for protecting their value against market fluctuations. The Court held that this statutory silence cannot be treated as a prohibition against adopting reasonable measures aimed at preserving value.
The judgment further observed that if appreciation in the value of shares remains attached to the asset and can ultimately form part of the proceeds of crime, preservation of such value cannot be regarded as irrelevant. The Court said the law must be interpreted in a manner that advances the purpose of preservation rather than permitting avoidable erosion of value.
The Court also took note of the fact that the petitioners were not seeking release of the assets or restoration of control over them. Instead, they had proposed that any sale proceeds remain under the exclusive control of the Enforcement Directorate and continue to be available for confiscation if required.
High Court’s Final Directive
Rejecting the suggestion that such a course would require the ED to act as an investment manager, the Court observed that the issue was not about directing the agency to carry on investment activity. Rather, it was about devising an appropriate mechanism to preserve the value of assets that continue to remain invested in the market while under statutory restraint.
The Court further held that the writ petition was maintainable despite pending proceedings before the Appellate Tribunal because the specific relief sought protection of the value of market-linked securities was not expressly provided for under the statutory framework.
Holding that preservation of property under the PMLA includes preservation of its economic value where market-linked securities are involved, the High Court directed that an appropriate mechanism be worked out to safeguard the value of the frozen investments while ensuring that the corpus remains identifiable, traceable and under the exclusive control of the Enforcement Directorate. The Court made it clear that any such arrangement would not affect the ongoing investigation or the pending proceedings regarding confiscation of the assets and would only serve the purpose of protecting their value until a final determination is made by the competent forums. (ANI)
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