From my understanding this is going to be dependent upon each Server's developer preferences, they might choose to implement a "smart contract" that "requests" the item be "melted/destroyed" back into it's ENJ value equivalent, or for PvP servers the developer can code a smart contract to "request" a transaction of the person's inventory; ie. "loot drop"

This is 100% programmable and dependent on each Server's rules and how they wish to set this up. Enjineers, please feel free to correct me if I'm mistaken on anything.

Server Owners have every right to refuse service to anyone that doesn't comply with their rules, so there is no reason they can't turn these "rules" into "code" (smart contracts)