Attached mutual fund units cannot be prematurely encashed during a pending challenge; status quo and lawful procedure must be preserved.

Attached mutual fund units could not be encashed while a challenge to the attachment order was pending and the operation of the underlying order had been stayed in connected proceedings. Rule 4(4) of the 2013 Rules required the attached movable property to be dealt with by transfer in favour of the Director of Enforcement, not by a premature change in its status. The Tribunal treated the encashment as contrary to the prescribed procedure because it altered the asset position without notice to the appellate court. Restoration to the original position was directed, failing which an equivalent fixed deposit was to be created and status quo maintained.

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Issues: Whether the respondent could encash the appellants' mutual funds after confirmation of attachment, and whether the mutual funds were liable to be restored to their original form pending the appeal.

Analysis: The confirmed attachment of movable assets in the form of mutual fund units had to be acted upon in accordance with Rule 4(4) of the Prevention of Money Laundering Act Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority Rules, 2013, which contemplates transfer of such units in favour of the Director of Enforcement. The encashment of the mutual funds was undertaken at a stage when the appellants' challenge to the related order was pending and the operation of the underlying order had been stayed in connected proceedings. In these circumstances, the premature alteration of the assets was found to be contrary to the prescribed procedure, and the Tribunal held that the status of the movable property should not have been changed without bringing the matter to the notice of the appellate court.

Conclusion: The encashment of the mutual funds was not permitted to stand, and restoration to the original position was directed, failing which an equivalent fixed deposit was to be prepared, with status quo thereafter to continue.

Ratio Decidendi: Where attached mutual fund units are the subject of a pending challenge, they cannot be prematurely encashed in a manner that alters their status contrary to the governing rule; at most, the property may be preserved pending lawful appellate or judicial determination.

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