Court Rules Official Banking Transactions Cannot Be Deemed Proceeds of Crime Without Cogent Nexus; ED's Allegations of Rs. 67.85 Crores as Proceeds of Crime Declared Baseless
In a significant judgment delivered on October 21, 2026, the Bombay High Court (Division Bench of Justices A. S. Gadkari and Kamal Khata) overturned the continuation of attachment orders on properties worth Rs. 25 crores linked to a high-profile money laundering investigation involving Avinash Bhosale and others, and the Directorate of Enforcement (ED). The case revolves around allegations that proceeds of crime amounting to nearly Rs. 3,983 crores originated from YES Bank's sanctioned loans and investments to Dewan Housing Finance Corporation Limited (DHFL).
The Enforcement Directorate had sought the attachment of two land parcels - one in Pune valued at Rs. 14.65 crores and another in Nagpur worth approximately Rs. 15.52 crores - under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA). The ED alleged that the monies disbursed by YES Bank to DHFL, and subsequently transferred to entities linked to Avinash Bhosale, constituted proceeds of crime under the Prevention of Money Laundering Act (PMLA), 2002.
However, the Court meticulously analyzed the transactions, including debenture subscription agreements, consultancy agreements, and business sale transactions involving the accused. It was observed that substantial payments under these agreements pre-dated the disbursal of the loan by YES Bank in April 2018, thereby breaking any causal link to the alleged proceeds of crime. The Court noted that official banking and commercial transactions carried out in the ordinary course of business cannot, without a cogent nexus to a scheduled offence, be treated as proceeds of crime.
Key findings of the Court include:
- The repayment of Rs. 499.63 crores by Sanjay Chhabria to Nibodh Realty, linked to debenture subscription agreements executed in 2014-15, could not be connected to proceeds of crime since a major portion of repayments occurred before YES Bank's loan disbursal in 2018.
- Consultancy fees amounting to Rs. 47.52 crores paid by DHFL prior to April 12, 2018, and invoices raised before this date, could not be considered tainted, negating ED's theory of diversion of funds via consultancy agreements.
- A payment of Rs. 25 crores received by ABIL Dairy LLP in 2019 under an independent business sale agreement executed in 2016 was deemed lawful, with no nexus to criminal activity.
- The receipt of investments and loans by DHFL from YES Bank were official banking transactions and could not be faulted as illegal or proceeds of crime.
- Allegations of a Rs. 600 crore "kickback" loan to an entity linked to a bank promoter were rejected due to lack of cogent material and the fundamental legal principle that a loan transaction cannot be presumed a kickback without evidence.
Consequently, the Court allowed the Criminal Appeal filed by Avinash Bhosale and others, quashing the continuation of the attachment orders by the Appellate Tribunal. The ED's cross-appeal was dismissed.
This ruling clarifies that property can be considered proceeds of crime only if directly or indirectly derived from criminal activity related to a scheduled offence as defined under the PMLA. Official banking transactions and independent commercial agreements, standing on their own merit and lacking any nexus to criminality, cannot be treated as tainted property.
The judgment is expected to have far-reaching implications for future money laundering investigations, especially those involving complex financial transactions and corporate entities, by underscoring the requirement of a clear and cogent link between the alleged offence and the property sought to be attached.
Bottom Line:
Prevention of Money-Laundering Act, 2002 - Attachment under SAFEMA/PMLA - Official banking and commercial transactions carried out in ordinary course cannot, without cogent nexus to a scheduled offence, be treated as proceeds of crime - Amounts received under prior debenture subscription agreements, consultancy agreements and business sale transaction, especially where substantial payments pre-dated alleged tainted disbursal, could not be linked to proceeds of crime - Continuation of attachment set aside.
Statutory provision(s):
Prevention of Money Laundering Act, 2002 Sections 2(1)(y), 2(u), 3; Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976
Avinash Bhosale v. Directorate of Enforcement, (Bombay)(DB) : Law Finder Doc Id # 3000157
