In a significant ruling, the Chhattisgarh High Court has granted relief to eight companies associated with businessman Hari Shankar Tibrewal. The court has instructed the Enforcement Directorate (ED) to consider a method for preserving the value of their attached share portfolio, estimated at Rs 424 crore, during the ongoing proceedings under the Prevention of Money Laundering Act (PMLA).
This landmark judgment highlights a crucial distinction between merely retaining control over attached assets and actively safeguarding their economic value. As investigative agencies increasingly attach market-linked financial instruments like listed shares in economic offense cases, this decision could significantly influence how such assets are managed throughout lengthy legal processes.
Companies Argue Against Value Erosion
The petitions were filed by Dream Achiever Consultancy Services Pvt. Ltd., Discovery Buildcon Pvt. Ltd., Forest Vincom Pvt. Ltd., Brilliant Investments Consultant Pvt. Ltd., Ability Ventures Pvt. Ltd., Ability Smartech Pvt. Ltd., Ability Games Ltd., and Savarna Bhumi Vanijya Pvt. Ltd. Their demat accounts and securities were attached by the ED as part of an investigation related to the alleged Mahadev Online Book betting case.
While the companies did not challenge the attachment itself, they argued that their assets, primarily listed shares, were vulnerable to market fluctuations. They contended that a prolonged freeze on these assets, given the potentially extended nature of PMLA proceedings, could lead to substantial erosion of the portfolio's value, thereby undermining the very purpose of asset preservation.
Court Mandates Value Preservation Mechanism
The High Court acknowledged the merit in the argument that preserving market-linked securities involves not only maintaining control but also protecting their economic worth. Without commenting on the merits of the underlying money laundering allegations, the court emphasized that attachment's objective is to preserve assets for eventual adjudication.
However, for listed securities, preservation cannot be viewed solely through attachment, as their value is inherently tied to market movements. Consequently, the court has allowed the companies to submit a proposal to the ED. This proposal would identify securities suitable for liquidation and suggest appropriate investment avenues for the proceeds.
ED to Supervise, Funds Remain Controlled
The ED has been granted the discretion to seek advice from independent SEBI-registered experts before making a decision on the companies' proposal. It is important to note that the court has not ordered the release of any attached assets. Any liquidation, if approved by the ED, would occur under the agency's strict supervision.
The sale proceeds would be held in an escrow or custodial account managed by the ED and could be invested in low-risk, regulated instruments, including government-backed securities and debt-oriented products. The court further clarified that any interest, dividends, gains, or appreciation from such investments would remain subject to the outcome of the ongoing PMLA proceedings. The companies would have no right to withdraw, utilize, or control these funds.