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2019 (8) TMI 1378 - AT - Money LaunderingOffence under PMLA - Encashment of securities while appeal was pending - HELD THAT - One day after the receipt of the impugned order on 7.6.2019, the respondent has encashed the mutual funds/securities. - It is evident that the respondent by encashing the mutual funds at the pre-mature stage is directly contrary to Sub-rule (4) of Rule-4 without expiry of period of appeal. It is correct that the respondent is an independent agency and once the order is confirmed, after serving the notice under Section 8(4) and subject to filing of appeal and passing of an order, the respondent is entitled to take the possession. With regard to movable property, the sub-rule 4 of Rule 4 has to be complied very strictly. In case any breach of the said rule, the Appellate Tribunal has a power to interfere with. IO in the matter has encashed the mutual funds at the premature stage which is contrary to rule and it would have been better if IO should have either approached to the High Court to bring to the notice of Court before altering the property or he would have waited the decision of the High Court where CBI has filed the appeal against the order passed by Special Court, CBI, who released the said property subject to certain conditions. At the maximum, mutual funds could have been taken into its possession till the orders are passed by the Hon ble High Court of Delhi. No harm would have caused as the attachment orders are already continuing redundant. IO ought to have informed the Hon ble High Court of Delhi at New Delhi in advance before taking any steps in respect of mutual funds which are the subject matter of appeals filed by the CBI, in order to alter the status of movable property which was released by the Special Court in relation to same subject matter of property. Under these circumstances, prima facie the mutual funds must be restored to the original position with the Reliance Nippon Life Asset Management Ltd. If it is not possible, the IO shall prepare the FD for the same amount in the name of Sandeep Tyagi for the period of one year and shall keep the same with the respondent. It is clarified that once the compliance is made, the status quo order shall continue. The appellants shall not deal the said money or mutual funds after maturity in any manner. The order passed on 11th July, 2019 for status quo is also modified and after compliance, both parties shall maintain status quo in respect of mutual funds or the FD prepared.
Issues Involved:
1. Confirmation of Provisional Attachment Order. 2. Legality of encashment of mutual funds by the respondent. 3. Compliance with Rule 4(4) of the Prevention of Money Laundering Act (PMLA) Rules, 2013. 4. Pending appeals and their impact on the encashment of mutual funds. Detailed Analysis: 1. Confirmation of Provisional Attachment Order The appellants challenged the confirmation of the Provisional Attachment Order (PAO) dated 30.05.2019. The tribunal noted that the mutual funds owned by the appellants were encashed by the respondent before the interim order was passed. The appellants argued that the encashment was premature and contrary to the rules, especially since the appeal against the CBI court's order defreezing the assets was still pending. 2. Legality of Encashment of Mutual Funds by the Respondent The tribunal observed that the mutual funds were encashed by the respondent without issuing notice to the appellants or informing the Special Court, which had passed the defreezing order. The respondent's action was deemed to be in disregard of the legal procedure, as the same counsel represented both the Enforcement Directorate (ED) and CBI in related proceedings. The tribunal emphasized that the respondent should have waited for the High Court's decision on the CBI's appeal against the Special Court's order. 3. Compliance with Rule 4(4) of PMLA Rules, 2013 The tribunal highlighted that Rule 4(4) of the PMLA Rules mandates that attached properties in the form of mutual funds can only be transferred in favor of the Directorate of Enforcement and not encashed prematurely. The respondent's action of encashing the mutual funds was found to be directly contrary to this rule. The tribunal noted that the rule does not allow for altering the status of the property before the expiry of the appeal period. 4. Pending Appeals and Their Impact on the Encashment of Mutual Funds The tribunal acknowledged that the CBI had filed an appeal challenging the defreezing order, and the High Court had stayed the operation of the Special Court's order. Despite this, the respondent proceeded to encash the mutual funds. The tribunal criticized this action, stating that the respondent should have either approached the High Court or waited for its decision before altering the status of the property. Conclusion The tribunal concluded that the respondent's action of encashing the mutual funds was premature and contrary to the established rules. It ordered the restoration of the mutual funds to their original position with Reliance Nippon Life Asset Management Ltd. If restoration was not possible, the respondent was directed to prepare a fixed deposit (FD) for the same amount in the name of 'Sandeep Tyagi' for one year and keep it with the respondent. The tribunal also modified the status quo order, directing both parties to maintain the status quo concerning the mutual funds or the FD prepared. Additional Observations The tribunal refrained from expressing any opinion on the merits of the case but emphasized the importance of adhering to legal procedures and respecting pending judicial proceedings. The tribunal's decision underscored the necessity of compliance with Rule 4(4) of the PMLA Rules and the proper conduct expected from the respondent in handling attached properties.
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