The Bombay High Court has set aside a provisional attachment order under SAFEMA, holding that the Enforcement Directorate failed to establish any nexus between the appellants' legitimate business transactions and the alleged proceeds of crime originating from YES Bank's investments in DHFL. The court found that official banking transactions between a bank and a corporate entity, conducted in the ordinary course of business, cannot be construed as proceeds of crime merely because the ED hypothesised a money-laundering trail without cogent material.
Background & Facts
The Dispute
The case arises from cross-appeals against an order dated 1st April 2026 passed by the Appellate Tribunal, New Delhi, under the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (SAFEMA). The Tribunal continued provisional attachment to the extent of Rs. 25 Crores in respect of two properties: (i) land admeasuring 6,143.71 sq. meters in Pune, attached for Rs. 14.65 Crores in the name of Samit Realty Pvt. Ltd.; and (ii) land admeasuring 20,200 sq. meters in Nagpur, valued at Rs. 15,52,87,000, in the name of Gauri Avinash Bhosale. Criminal Appeal No. 478 of 2026 was filed by Avinash Bhosale, Samit Realty Pvt. Ltd., and Gauri Avinash Bhosale (appellants/accused in the third supplementary chargesheet). Criminal Appeal No. 816 of 2026 was filed by the Directorate of Enforcement (ED) challenging the release of the remaining attached properties.
Key Facts
- 21.10.2022: ED filed original complaint alleging proceeds of crime of Rs. 3,983 Crores originating from YES Bank, sanctioned and disbursed to Dewan Housing Finance Corporation Ltd. (DHFL) through three instruments: Sub Debt/Private Placement of Bonds (Rs. 1,000 Crores), Masala Bonds (Rs. 283 Crores), and Public Issue of Non-Convertible Debentures (Rs. 2,700 Crores).
- 15.10.2014 to 23.07.2015: Nibodh Realty (entity of Avinash Bhosale) invested Rs. 237.50 Crores in Sanjay Chhabria's company under three Debenture Subscription Agreements (DSAs) at 18% interest per annum.
- 12.04.2018: YES Bank disbursed loans/investments to DHFL.
- Post-12.04.2018: ED alleged Rs. 67.85 Crores received by Nibodh from Sanjay Chhabria under DSAs as proceeds of crime.
- 04.07.2017 to 11.05.2018: DHFL disbursed Rs. 55.62 Crores under consultancy agreements with appellant entities; invoice of Rs. 16.20 Crores raised on 06.04.2018 (six days before YES Bank disbursement).
- Prior to 12.04.2018: Rs. 47.52 Crores disbursed by DHFL under consultancy agreements.
- 2016: Sale agreement for dairy business executed between ABIL Dairy LLP and Sanjay Chhabria; first payment of 50% made on 15.01.2016.
- 28.02.2019: Balance 50% (Rs. 25 Crores) paid by Sanjay Chhabria to ABIL Dairy LLP.
- ED alleged the Rs. 25 Crores received in 2019 as proceeds of crime.
- ED also alleged DHFL lent Rs. 600 Crores to DOIT Urban Ventures (alleged family entity of Rana Kapoor) in July 2018 as kickback.
Procedural History
- 21.10.2022: Original complaint filed by ED (ECIR No. ECIR/MBZO-I/03/2020).
- Third supplementary chargesheet: Appellants arraigned as accused.
- 01.04.2026: Appellate Tribunal, New Delhi, passed impugned order continuing provisional attachment of Rs. 25 Crores.
- Criminal Appeal No. 478/2026: Filed by Avinash Bhosale and others challenging continuation of attachment.
- Criminal Appeal No. 816/2026: Filed by ED challenging release of other attached properties.
- 13.10.2026: Appeals reserved for judgment.
- 21.10.2026: Judgment pronounced.
Relief Sought
Appellants in CA 478/2026 sought quashing of the Appellate Tribunal's order continuing attachment of the two properties worth Rs. 25 Crores. ED in CA 816/2026 sought confirmation of attachment of all properties, contending the release was devoid of merit.
The Legal Issue
The central questions were: (1) Whether official banking transactions between YES Bank and DHFL - investments in debentures and loans - can be characterised as "proceeds of crime" under Section 2(u) of the PMLA absent a predicate scheduled offence; (2) Whether subsequent transactions by DHFL with the appellants' entities, many predating the YES Bank disbursements, can be linked to such alleged proceeds of crime; (3) Whether the Appellate Tribunal's continuation of provisional attachment under SAFEMA was sustainable without establishing a direct nexus between the attached properties and a scheduled offence.
Arguments Presented
For the Appellants (Avinash Bhosale & Ors.)
Mr. Aabad Ponda, Senior Advocate, contended that the ED's entire case rested on an erroneous hypothesis. The transactions between YES Bank and DHFL were legitimate banking operations - investments in debentures and loans - which cannot be proceeds of crime. The appellants' transactions with Sanjay Chhabria and DHFL were independent, arms-length commercial dealings: Nibodh's debenture investments (2014-15) predated the YES Bank disbursements by years; consultancy payments began in July 2017, before the alleged predicate offence; and the ABIL dairy sale was agreed in 2016 with half payment made then. No scheduled offence under Part A, B, or C of the PMLA Schedule was made out against the appellants. The attachment under SAFEMA required a finding that properties were proceeds of a scheduled offence, which was absent.
For the Respondent (Directorate of Enforcement)
Mr. Prashant Mishra, Special Counsel, argued that the YES Bank-DHFL transactions were part of a larger money-laundering scheme involving Rana Kapoor and the Wadhawans. The monies disbursed by DHFL to the appellants' entities - Rs. 67.85 Crores (Nibodh), Rs. 71.82 Crores (consultancy), and Rs. 25 Crores (ABIL) - were proceeds of crime diverted through layered transactions. The ED contended that the Rs. 600 Crore loan to DOIT Urban Ventures was a kickback, and the appellants were beneficiaries of the laundered funds. The Appellate Tribunal correctly continued attachment of Rs. 25 Crores, and the release of other properties was erroneous.
The Court's Analysis
The Court, per Justice Kamal Khata, began by examining the statutory framework. Section 2(u) of the PMLA defines "proceeds of crime" as property derived or obtained, directly or indirectly, as a result of criminal activity relating to a scheduled offence. Section 2(1)(y) defines "scheduled offence" with reference to the Schedule. Section 3 criminalises processes connected with proceeds of crime, including concealment, possession, acquisition, use, or projecting as untainted property.
The Court observed that a bare perusal of these provisions shows that a property must be derived from criminal activity relating to a scheduled offence. The Court stated:
"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."
Analysing the three transaction streams:
Nibodh Realty Transactions: The DSAs were executed in 2014-15. Sanjay Chhabria repaid Rs. 499.63 Crores (Rs. 163.93 Crores before 12.04.2018 and Rs. 335.70 Crores after). The ED's calculation of Rs. 67.85 Crores as proceeds of crime from post-12.04.2018 receipts was baseless because the repayment obligation arose from the 2014 DSAs. The Court found:
"There could not have been proceeds of crime even before the disbursement by YES Bank."
Consultancy Transactions: Rs. 47.52 Crores was disbursed by DHFL before 12.04.2018. An invoice of Rs. 16.20 Crores was raised on 06.04.2018. The Court held:
"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."
ABIL Dairy Transaction: The sale agreement was executed in 2016 with 50% paid on 15.01.2016. The balance Rs. 25 Crores paid on 28.02.2019 could not be linked to proceeds of crime merely because it was paid after 12.04.2018. The Court found:
"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."
YES Bank-DHFL Transactions: The Court rejected the ED's foundational premise:
"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."
DOIT Urban Ventures Loan: The Court dismissed the kickback allegation:
"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."
The Court concluded that the Appellate Tribunal's order, while not perverse in its analysis, had no basis to continue attachment once the underlying transactions were found to be legal and unconnected to any scheduled offence.
The Verdict
The Court allowed Criminal Appeal No. 478 of 2026 in terms of prayer clause (a), setting aside the continuation of attachment of the two properties valued at Rs. 25 Crores (Pune land: Rs. 14.65 Crores; Nagpur land: Rs. 15.52 Crores). Criminal Appeal No. 816 of 2026 filed by the ED was dismissed. The Court held that all impugned transactions were legal, independent commercial dealings with no nexus to any scheduled offence or proceeds of crime, and therefore the provisional attachment under SAFEMA could not be sustained.
What This Means For Similar Cases
Official Banking Transactions Are Not Per Se Proceeds of Crime
The judgment establishes a critical safeguard: legitimate inter-bank and bank-corporate transactions - investments in debentures, bonds, and loans - cannot be re-characterised as proceeds of crime merely because the ED constructs a hypothetical money-laundering chain. Practitioners should:
- Challenge the predicate offence at the threshold: if the "source" transaction is lawful banking business, the proceeds-of-crime edifice collapses.
- Demand specific averments linking each alleged layer to a scheduled offence under the PMLA Schedule, not bald assertions of "diversion" or "kickback".
Temporal Nexus Is Non-Negotiable
The Court's dissection of the three transaction streams underscores that temporal precedence defeats proceeds-of-crime allegations. Where the appellants' receipts predate the alleged predicate offence (YES Bank disbursements on 12.04.2018), or arise from agreements executed years earlier (DSAs in 2014-15, dairy sale in 2016), no nexus can be inferred. Practitioners must:
- Map every alleged proceeds-of-crime receipt against the date of the predicate offence.
- Produce underlying agreements, invoices, and repayment schedules to demonstrate independent commercial causality.
Independent Commercial Entities Break the Chain
The Court's finding that "each transaction was an independent transaction with an independent Corporate entity" reinforces that corporate separateness and arms-length dealings sever the proceeds-of-crime link. The ED's attempt to aggregate disparate transactions (Nibodh, consultancy, ABIL) into a single "proceeds of crime" figure of Rs. 164.64 Crores failed because each had distinct counterparties, consideration, and timelines. Practitioners should:
- Insist on entity-wise, transaction-wise analysis rather than allowing the ED to pool amounts.
- Highlight independent consideration (debenture subscriptions, consultancy services, asset sales) that explains fund flows without invoking criminality.
SAFEMA Attachment Requires Concrete Nexus, Not Hypothesis
The Appellate Tribunal's continuation of attachment of Rs. 25 Crores was set aside because the High Court found no material connecting the specific attached properties to any scheduled offence. This reaffirms that provisional attachment under SAFEMA is not a roving commission; it demands a "reason to believe" grounded in evidence, not speculation. Practitioners should:
- Move for de-attachment at the earliest stage where the ED's material fails to link the specific property to a scheduled offence.
- Use the High Court's reasoning to challenge attachments where the ED relies on "layering" theories without documentary proof of each layer.
Kickback Allegations Require Cogent Material, Not Pleadings
The Court's rejection of the "kickback" label for the DOIT Urban Ventures loan - calling it "wholly unfounded" and based on "bald statements in the pleadings" - sets a clear evidentiary bar. Practitioners defending against such allegations should:
- Demand the ED produce material beyond the chargesheet: board resolutions, credit committee notes, security documentation, or witness statements showing quid pro quo.
- Argue that commercial lending decisions, even if imprudent, are not criminal absent proof of corrupt intent.
