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UB assets eyed by Sebi already under ED possession

The assets mentioned in the Sebi order are already in possession of the ED for violation of an anti-money laundering law by Mallya, sources said

Shrimi Choudhary  |  Mumbai 

Vijay Mallya declared proclaimed offender

The Securities and Exchange Board of India’s (Sebi’s) plan to recover pending dues from the Vijay Mallya-owned (UBHL) by liquidating its securities market investments may not go as planned. The assets that the capital market regulator is eyeing are already under possession of the (ED), another government agency.

Earlier this month, had issued an order to attach all the bank accounts, shares and mutual fund units held by to recover Rs 18.5 lakh that the liquor company had defaulted on the payment of a penalty imposed by the regulator in 2015.

The assets mentioned in the order are already in possession of the ED for violation of an law by Mallya, sources said.

What further complicates matters for the is provisions of the Prevention of Money Laundering Act (PMLA) override any other law, providing the ED first right over the assets.

Citing the provision of PMLA, an ED official said, “The law has the provision under section 71, which says once action is taken under PMLA then no other Act will have effect on the said property.”

According to him, these shares cannot be sold by any other authority, including

The shares attached by the ED were being held by Mallya in UBHL, UB and various other group companies controlled directly or indirectly. At the time of attachment in December 2016, total value of these shares was pegged at Rs 1,680 crore.

Legal experts are divided over the issue of first right on the assets seized.

R S Loona, partner at Dhaval Vussonji Alliance, says in cases where multiple agencies seek to attach the same property courts are vested with the power to decide which agency will have the right on the property to recover dues.

PMLA deals with criminal offences, while Sebi’s action is to protect investors and market integrity. Moral aspects can be considered while deciding on granting the first right, say experts.

“The current PMLA law only allows the enforcement agencies to punish the culprits. However, there is no mechanism to refund the money to the victims. Whereas, disgorges the recovery proceedings into an investor protection fund,” Loona said.

Another lawyer argues that ownership of the properties can be transferred to the government if the enforcement agency proves to the court that the money was laundered by Mallya and his related entities.

This is not the first time when two agencies have claimed first right on the properties attached in this matter.

During the auction of Kingfisher House in Mumbai, both the income tax department (I-T) and banks had staked claim on the proceeds. The I-T department claimed that since the property was already attached by the department under the I-T Act, its dues took precedence over debts owed to banks. The matter had gone to the Karnataka High Court.

So far, the ED has attached assets and properties worth Rs 9,700 crore held by Mallya and his companies in connection with an alleged IDBI Bank loan fraud case registered by the Central Bureau of Investigation. Mallya held a 7.91 per cent stake in in his personal capacity as of December 2016, while total promoter holdings in the company stood at 52 per cent.

First Published: Wed, November 29 2017. 01:25 IST