Bombay HC Pulls Up ED – PMLA Cannot Criminalise Legitimate Bank Transactions

Judgment dated 21.10.2026 of the High Court of Bombay in Criminal Appeal No.478 of 2026 of Avinash Bhosale and others  Vs.  Directorate of Enforcement with connected criminal appeal.

By the Order dated 1.4.2026, the Appellate Tribunal of Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976,  the provisional attachment of Rs.25 crores in respect of theproperties was continued.   The appellant is arraigned as accused in the third supplementary charge sheet filed by the Enforcement Directorate.

According to the original Complaint filed by the ED on 21st October, 2022, proceeds of crime to the tune of Rs. 3,983 Crores originated from YES Bank. The monies were sanctioned and disbursed to Dewan Housing Finance Corporation Limited (DHFL) against investments.

A simple analysis of the above provisions indicates that, a property must have been derived as a result of criminal activity relating to a scheduled offence specified either in Part A or Part B of the Schedule to the PMLA.

We are unable to comprehend, nor has the learned Special Counsel for the ED been able to explain, how official bank transaction(s) between a Bank and a Corporate entity, carried out in the usual course of business, could be construed as proceeds of crime and thereby constitute the offence of money laundering. 11) A perusal of the record indicates that, ED has alleged proceeds of crime to the tune of Rs.164.64 Crores received by Appellant No.1 Avinash Bhosale and/or his entities (i) Nibhodh Realty (Nibodh) (ii) Consultancy and (iii) ABIL Dairy (ABIL) Transactions. 12) The record shows that, between 15th October 2014 to 23rd July 2015, Nibodh invested a total of Rs.237.50 Crores in Sanjay Chhabria’s Company under three Debenture Subscription Agreements (‘DSA’). As per the terms of DSAs, the monies advanced carried an interest @ of Rs.18% per annum. Apparently, as per Mr. Ponda’s calculations, Sanjay Chhabria has repaid a sum of Rs. 499.63 Crores i.e. Rs.163.93 Crores prior to 12th April 2018 and Rs. 335.70 Crores after 12th April 2018, under the aforesaid Agreements. 13) However, as per Mr. Mishra’s calculation, Sanjay Chhabria had agreed to repay Rs. 766 Crores against Rs. 237 Crores lent at 18% interest p.a. in 2014-15. According to him, Rs. 431 Crores were repaid and Rs. 267 Crores were transferred in 2018. In our view, by using words ‘repaid’ and ‘transferred’ in the explanation tendered do not explain what he implies. The proceeds of crime calculation showing Rs. 431.33 Crores repaid, Rs. 237.50 Crores principal, Rs. 122.61 Crores IBFL’s Interest and Rs. 3.37 Crores processing fee, totaling to Rs. 794.81 Crores. If Rs. 766 Crores is deducted therefrom, the balance is Rs. 28.81 Crores. Therefore, there is no basis to suggest Rs. 67.85 Crores constitutes proceeds of crime. 14) Under these transactions, we find no basis for the contention that, out of Rs.335.70 Crores received by Nibodh under the DSAs after 12th April 2018, Rs.67.85 Crores are proceeds of crime. The conclusion arrived by ED is entirely baseless because, the monies were repaid by Sanjay Chhabria under the DSAs executed in 2014. Therefore, no link is established between payment made to Nibodh by Sanjay Chhabria under the DSAs, the consultancy fee and the monies disbursed by YES Bank in 2018. There could not have been proceeds of crime even before the disbursement by YES Bank. 15) With regard to the consultancy transaction, ED alleges that, DHFL has entered into a series of consultancy Agreements with entities of Appellant No.1, and that the proceeds of crime is alleged to be Rs.71.82 Crores. An examination of the record indicates that, amount of Rs. 47.52 Crores was disbursed by DHFL prior to YES Bank granting a loan to DHFL on 12th April 2018. Thus, an amount of Rs.47.52 Crores received prior to the date of disbursal of the loan, being 12th April 2018, cannot have any connection with the proceeds of crime. Thus, the theory of ED for DHFL diverted the monies to Appellant No.1 under consultancy Agreement is entirely erroneous because an amount of Rs.55.62 Crores was disbursed under the consultancy Agreements between 4th July 2017 and 11th May 2018, and an invoice of Rs.16.20 Crores was raised on 6th April 2018 i.e. six days prior to 12th April 2018. 17) In our view therefore, the amounts paid by DHFL and received by Appellant No.1 under the consultancy Agreements prior to the disbursal of the loan on 12th April 2018, therefore cannot be linked to proceeds of crime.

 18) With regard to the ABIL, ED alleges that Rs.25 Crores received by ABIL from Sanjay Chhabria on 18th February 2019, constitutes proceeds of crime. It is inconceivable that, a payment made under an Agreement that, sale of a dairy business executed in the year 2016 alongwith first payment of 50% made on 15th January 2016, can be linked to proceeds of crime merely because the balance 50% was paid by Sanjay Chhabria to ABIL Dairy LLP on 28th February 2019 i.e. after 12th April 2018. In our view, each transaction was an independent transaction with an independent Corporate entity and none of them is, by any stretch of the imagination, illegal. We find there is no nexus between them. 19) As per ED’s own case, during April and June 2018, YES Bank ‘invested Rs. 2700 Crores in Debentures of DHFL’ and further granted loans Uploaded on – 21/10/2026 9/11 Downloaded on – 22/10/2026 15:47:57 TSB 45-apeal-478 and 816-2026.doc of Rs. 1,283 Crores to DHFL. The receipt of these monies by DHFL, whether as an investment or as a loan from YES Bank, cannot be faulted in law. These are official banking transactions and cannot be construed as proceeds of crime. If the contention is to be accepted it would mean that the money held by the bank was illicit and consequently, the transactions are fraudulent and illegal. This contention is only to be stated to be rejected. 20) In that view of the matter, the subsequent disbursement by DHFL to other legal entities cannot be construed as illegal transactions either, as they too are recognized lawful transactions. The entire basis of the investigation is therefore proceeds on erroneous hypothesis and the transactions cannot be treated as illegal, as alleged by the ED. 21) The ED contends that, in July 2018, DHFL lent Rs. 600 Crores to DOIT Urban Ventures, allegedly the family entity of Rana Kapoor, by way of kickback. This contention is wholly unfounded. A loan transaction cannot, in the first place, be termed as a kickback and there is no basis for such an allegation. A loan transaction may be extended with or without appropriate security, and it is entirely for the lender, in its own commercial wisdom, to decide whether to lend monies to an individual or entity. Except bald statements in the pleadings, there is no cogent material on record to even prima facie substantiate the same. 22) We find that, the arguments of Mr. Mishra are entirely without substance. Having perused the impugned Order, we find that, it has considered all the submissions of both the parties, analysed the case in its proper perspective, and that the conclusion arrived at, on the material placed before it, is not perverse.

23) However, we find no basis for the continuation of the attachment of the said two properties by the Appellate Tribunal.

24) Having concluded that all the transactions were legal transactions and could not be construed as proceeds of crime, we find no basis for continuing the attachment of the properties.